Advice And Money
I was chatting with my friend Maurya yesterday. She runs a non-profit called ScriptEd and has been figuring out the raising money thing over the past few years. She said to me “I have found that a good way to get funding is to go in and just ask for advice.”
I chuckled and told her that there is a saying about VCs, “Ask a VC for money and you will get advice, Ask a VC for advice and you will get money.”
And I am guilty of this as much as any other VC. When it’s clear the founder only wants your money and has no interest in your advice, it is hard to get excited about the investment. When it seems that all the founder wants is your advice and isn’t worried about getting money, it makes you want to work with that founder.
Of course, the secret sauce of the investor:founder relationship is “advice AND money”. The way investors get paid for our advice is that we get to buy a piece of the founder’s company and go along for the ride. We pay for the right to give advice!
The easier part of this duality is the money part. There is a well understood system of how money is exchanged for equity upside. Founders and investors don’t have to figure that out.
The harder part is the advice part. Founders need to figure out the best way to get advice in a way that it is useful and actionable for them. Investors need to figure out how to provide advice that is useful to the founder. Because we are talking about two people communicating and building a relationship together, this means that each investor:founder relationship is going to be different and what works for one relationship is not likely to work for another.
It is also true that a founder might have dozens of investors in their company and getting advice from dozens of people all the time is overwhelming. So founders need to figure out which investors to focus on and that doesn’t always mean the ones who wrote the biggest checks.
What I have learned over the years from working with hundreds of founders is that you need to earn the right to be listened to and writing the check is not enough. You earn the right to be listened to by giving good advice. You also do that by not forcing the founders to act on your advice. You have to be OK with a founder deciding to ignore you or delay acting on your advice. You can’t take it personally. You have to keep being positive, supportive, constructive, and encouraging. Over time, if you turn out to be a good source of advice, you will see things you suggest being acted on. And you will see the founder reaching out for advice more frequently. You will become a trusted advisor.
Getting to that point is the holy grail of the investor:founder relationship. It can take years to achieve. Or it can never happen. When it does, it’s a special thing and it is the thing that keeps me in this game after thirty years of doing it.
Comments (Archived):
# amdoVnieCye
Keyboard broken?
practicing for my Kano
<find> investor:founder<replace> father:daughterpost still surprisingly accurate.- dad of teenage girls.
for sure. i learned most of what i know from marriage and parenting
<find> investor:founder<replace>Coach:player
<find> investor:founder<replace> salesperson:customer
<find> investor:founder<replace> team_leader:team_member<find> investor:founder<replace> team_member:team_leader
+100 times 2!
That club has seen a ton of growth in the last 30 years. I am sure in it.
That’s the thing, isn’t it? All of the work we do depends on our ability to be in relationship.
I’d like to know (really) some of the things that you learned by having to move (what was it 30 times?) with your parents.
Those of us who aren’t married and parents better get a move on then — if we want to be more collaborative, pragmatic and successful!On the founder side: learn to tell the difference between investors who share complementary values with you and can help realize your team’s potential and investors who just see a price over your heads.I’ve turned down €1 million from an angel (who’s known me 14 years) and €350K from another (who offered it after knowing me a couple of months). A lot of founders would just have taken the money.Time proves I was right not to take the money and thereby not be influenced by well-meaning but amiss advice.As it is, not taking the money gave me freedom of focus.There were no distractions involved in “managing upwards to the investors”.That freed up the resources to solve really hard problems.
I was thinking while reading the post that it seems analogous to raising children indeed. “Nurturing is nurturing no matter the dynamic” seems like a good takeaway.
.Wherever you are, you’re learning.Everything I ever needed to know to run a business, I learned in the Army as a platoon leader or a company commander.I never even had a checkbook.JLMwww.themusingsofthebigredca…
To steal one of your favorite lines and paraphrase it as the same time: ‘I agree more with you than you think’; however, this pre-supposes having the ability to learn, which not everyone possesses.
.Everyone can learn and will learn. That’s why they made 2 x 4’s with a fat side and a thinner side.I know, I needed some of the fat side more than once.When the student is ready, the teacher appears.JLMwww.themusingsofthebigredca…
Yeah, and in my school days they had one-yard long rulers as a “learning aid”.
Showing up my plane geometry teacher, coming in second in my high end high school, on the Math SATs (the guy who came in third was voted ‘most intellectual and went to MIT), teaching myself freshman calculus and, thus, skipping the course, blowing away all the other students in freshman physics, taking a course where I gave lectures to a prof on general topology, … writing a Ph.D. dissertation, publishing papers, all were simple, fast, fun, and easy, really simple, just dirt simple, especially compared with understanding women and high school girls!It took some of the best work in math and/or computer science to show that some questions are undecidable, but every man with a sister, girlfriend, wife, daughter, or work place subordinate or, especially, superior has to have discovered the fundamental unanswerable question of all: What does a human female think or want? Grand, practical definition of a random variable except it changes over time and, thus, is the grand definition of a stochastic process! Probably fails being a regular conditional probability or having the strong Markov property and likely contradicts the martingale convergence theorem and even the weak law of large numbers!
si senor!!! bueno!!! Neal H. Hurwitz NY NY, ISR and Colombia, SA
Now I can’t ask for your advice without you thinking I want money. Hmm… Can I get your opinion on something?
😉
Another great example where it feels like you are talking about the reader. like I said before i love these type of posts.I read about this once before, asking for advice instead of money. Sometimes however you ask for advice and the VC or Angel makes it clearly very quickly that what you are asking advice on is not something they will invest in. This feels really shitty, I don’t allow this to discourage me but It feels terrible at the time. It feels like I am legitimately asking for what the VC/Angel thought about something but they opted to shut the door right on my face.I keep reminding myself that whoever does that is provably not the right person to get advice from. But this sucks even more when it comes from people you admire and respect.
adViCe ≠
Same here. In the past I had more than one VC reply with “we’ll pass at this time” even though I had expressly stated that I wasn’t seeking funding at the time and just very much wanted their valuable take on the company.It didn’t so much feel shitty as it made a shitty impression.
Right way to think about it.
“…you need to earn the right to be listened to and writing the check is not enough.””…that doesn’t always mean the ones who wrote the biggest checks.”This is so true, and I’m living this, from my own patch of startup relationships. What ends-up happening is some VCs get a larger share of the entrepreneur’s mind than others.One of the favorite things I hear from time to time is: “You ‘were’ right”. Entrepreneurs remember everything VCs say, even if they don’t act on it.
Yup.But in actuality the largest check is the most important in many ways.Of course, connections/wisdom/experience aren’t necessarily related.But in a capital raise capital is the thing–no?I’m agreeing with you btw!
Insightful. Obvious to some, but painfully obscure to many.
There are two types of investors – (1) Value Added, and (2) All the rest. If all they bring to the table is money, keep looking…
“Hey man, I have a great idea for an app…” When I got tired of providing advice to the “Hey man” ask, I wrote couple of blog posts on how to ask for advice. Prior to taking a call, I just send along a link to “The Haley Pitch Every Founder Should Know”. http://j.mp/1JNeXd4 It helps.
100 % agree–I like to handicap the advice ….over time certain people are usually right…
A poignant one Fred.Simple and true.
Funny – after 25 years as an entrepreneur, I have also learned that a highly productive relationship with at least one investor is indeed a special thing. Don’t get me wrong – I like harvesting share value myself – but having someone in the boat with me, keeping it afloat at times, and helping guide it – is critical. And building something whose rewards can be shared with others who helped create it success (partners, employees, and investors) is a source a great pride and accomplishment. Keeps me coming back as well.
.The world is awash with money. The only thing in larger supply is bad advice. Bad advice with money can sometimes be a toxic cocktail.Be extremely careful about seeking advice from people who have never been founders or CEOs or people who can fire you.Do not confide your innermost thoughts in people who can fire you.JLMwww.themusingsofthebigredca…
Be extremely careful about seeking advice from people who have never been founders or CEOs or people who can fire you.Best in life to be extremely careful all the time [1] (and noting that Fred is not a founder or a CEO..)[1] I am thinking of terror vigilance and the “extra care” that is sometimes suggested when people should always be vigilant as a base behavior.
.I find myself being way more vigilant in crowds. I engage in profiling all the time. Pattern recognition is the beginning of intelligence.CHL (concealed handgun license) is a slight comfort.The world is changing but, then, the Israelis have been dealing with this for years.JLMwww.themusingsofthebigredca…
A story that I can tell about this is the day when I was with my ex wife in our house and some woman came to the door wanting to use our phone because her car had broken down. She was a jewish woman obviously (I can just tell) and in the car sat 2 young kids (about 100 feet away). The car was probably a Cadillac. She had jewelry and the whole middle aged thing going on. I didn’t let her in. I told her to wait on the porch and I got her the portable phone (for the pots line it was back in the day). My ex wife didn’t understand [1] and I explained to her that when evil visits (wasn’t exactly that but something like it) it doesn’t look like evil. So I just typically follow a pattern of trying to be on the safe side (because you can’t even think of all of the ramifications). Maybe she kidnapped the kids? Maybe she had been kidnapped and the guys were hiding behind the wall? Maybe this, maybe that? How do you know?[1] What’s super ironic is that my first wife was abducted at gunpoint by a guy who approached her at college (outside a classroom) saying he needed a jump start to his car. Drove her around for hours and did stuff to her (get the drift). He got 7 years in prison for that (I was told). You know what? My guess is that the guy not only looked non threatening but might have even been good looking. Otherwise why would she have just helped him when she had a class to take? (Terrible thing to say but I want to make a point here so I will).
She said to me “I have found that a good way to get funding is to go in and just ask for advice.”This is actually an old trick that has many applications. One that I have used it so many times in the past I have a hard time remembering the origins. I think it dates back to manipulating my Dad at a young age by giving him a problem to solve and letting him spend money to solve the problem to my liking instead of simply asking him for the money. In business this was followed up by playing the “college student” doing research (because I did it as a college and high school student) as a way to build rapport with a potential customer or someone I needed to sell something or an idea to.. So instead of saying “will you buy this” you merely go in doing research which removes the pressure from the sales target to think that you are selling them. “Would you buy this and if not why not” (which ends up getting also valuable advice obviously).Of course anyone who has been around when approached like this knows what is going on but I think appreciates the sharpness of the person playing the game and gives points for knowing enough to try it (at least I do). I am currently training my stepkids to do this rewarding clever behavior which others see as manipulative. (I don’t it’s a life skill when done correctly..)
Once I was in an artificial intelligence (AI) project for the monitoring and management of server farms and their networks. We were pretty serious, joint work with GM and MetLife. I was our lead with GM, explained one on one to Nomura Securities, and did the writing for our paper at an AAAI IAAI conference at Stanford.But for monitoring, I thought that what we were doing was poor, and what was in the industry was much worse.In simple terms, such monitoring cannot escape the universal problems in detection of false positives (false alarms) and false negatives (missed detections of real problems). Then, we know in rock solid terms, that actually mean money, in the intended context, some quite big bucks, just what is important: For whatever false alarm rate we are willing to tolerate, get the highest detection rate we can. So, we want the most powerful monitoring, as monitoring and testing in fields of wide variety from medicine, quality control, high end military radar, etc. have all known for decades. Yet our AI work and the industry were ignoring these basics.So, I stirred up some appropriate math that solved that problem and published it. So, as needed in the context, I stirred up a large, and likely the world’s only, collection of statistical hypothesis tests that are both multi-dimensional and distribution-free. How ’bout that!Ah, just the explanation above was too involved for nearly everyone in the industry. So, my work was a total flop — not worth using for starting fires in the fireplace in winters.But, sure, a good target customer would be a server farm that very much wanted never to have a problem, wanted ASAP detection of any problems and had big bucks to do so. So, sure, any big Wall Street outfit. E.g., NASDAQ, e.g., their main site in Trumbull, CT.So, cold call, I wrote them a letter, included a copy of my paper that had been accepted for publication, and offered to give them a presentation with “no money changing hands”. Presto, bingo, I got a nice invitation, nice tour, nice luncheon, nice swag, gave a talk to about three dozen people, had a good day, etc.Net, taking money out of it worked!So, I can say that I gave a talk on my work to the main site of NASDAQ!
I think the biggest thing anyone can do, investor or other, is help a founder develop their own framework for what to do with information. It’s really easy to get buffeted about as a core part of building a company quickly from scratch.
Yes, you nailed it.
Everyone “earns the right” to have their perspectives listened to, inclusive of investors.It’s commonly accepted that when a founder does not listen to advice from trusted sources, it can lead to the downfall of the company.What’s less spoken about (and which is alluded to in this post) is that investors also have to earn the right to be listened to. An investment is not a license to dictate company decisions — it’s an accepted invitation into the “brain trust” of the management team, in order to work together to optimally maximize the wealth of the firm as part of that team.
Ah to be mature and self aware enough to know when to give money without advice or vice versa. And ditto on knowing when to receive/not receive it.This post is gold.
Thanks for this thoughtful post. As an attorney turned entrepreneur embarking on my first start-up endeavor, I would tremendously appreciate the “getting the advice” part of the equation. Indeed, I would place a very high premium on receiving advice from investors who are knowledgeable and seasoned in the space in which I’m trying to build my company. However, it can be difficult to identify the right advisors and then get the opportunity to speak with them. It would be great to hear your musings on how to go about these steps in identifying and approaching the conversation.
…Fred, I have a startup. I could use a little advice…;-)
One of your most insightful post. Very, very, very few people get this. And you have worded it right.
Interestingly, I’ve found it easier to ask for advice, always.The worst that can happen is they don’t answer. The best is you hear interesting perspectives from interesting people, who become lifelong mentors and friends.Money…that’s a whole other story. I get the feeling that money is a confidence game, whereas advice you need to humble yourself/be less confident.Hence the separation between the two.
The downside of advice is most investors don’t have operational experience. They’ve never built a company, never hired and managed people, never delivered a product, never spent time in the trenches with customers, never bounced balances across credit cards to keep the company afloat.- Never had employees not show up for work- Never had employees quit days before a big order is due- Never had to collect accounts receivable- Never had to do endless paperwork which saps all of your energy.. an endless list- Never had equipment breakdowns.The details are what take time ideas don’t consider the time sapping details.Anyway A big thumbs up on this comment. I think the investors probably realize this [1] (same as people who don’t have kids “realize it”) but one thing I would think they are good at is pattern matching to other investments they have made where they have seen the results of the actions. [2] That does have value.[1] One of the annoyances of watching Shark Tank is to see the “investors”on that TV show (who have operational experience) chide some 1 man business who hasn’t made enough progress in 3 years (because they are doing everything themselves) “why don’t you have an ecommerce site yet” “why haven’t you sold into Walmart yet” and so on. (Exaggeration intended).[2] Of course the same actions implemented by different people matter. A phone by someone other than Steve Jobs, (prior to the iphone) was Sophia Loren without her nose. “Sophia Loren without a nose is not Sophia Loren”.
.Agree more with you than you do with yourself.Bit of scar tissue speaking there?Well played.JLMwww.themusingsofthebigredca…
“…gotten knocked on their asses so hard they only have family and their dog left to pick up the pieces, and only half the family at that.”I clearly should be giving more advice 😉
In addition, no matter how smart the VC (or anyone frankly) is, if they aren’t going to take the time to get to know you and your business, how can their advice really be that valuable? Unless you’re asking basic stuff like “should I start as an LLC or an S Corp” – but if you’re looking for deep and meaningful feedback on your product strategy, sales strategy, etc – it requires some time and thought to be able to give meaningful feedback.So, when an investor “passes” on your request for advice, it’s really not reasonable to take that as a rejection of your business. How could they possibly know based on a sentence or two of intro?What you really want are people in the boat with you – whether that’s a VC, a programmer, your spouse, an industry expert – people that believe in where you’re going and are willing/able to lend a hand (and paddle) to get you there.
Charlie:great work assisting those less fortunate.King James 2000 Bible Luke 12:48But he that knew not, and did commit things worthy of stripes, shall be beaten with few stripes. For unto whomever much is given, of him shall be much required: and to whom men have committed much, of him they will ask the more.Charlie we realize you are beyond busy but when time permits can you includea photo to your WIki.Thanks
Of course you know I totally and completely agree. I’m not opposed to having a diversity of advisors. What I have found is that most people really like associating with people that are similar. A suit wearing investment banker that is a whiz at Powerpoints (or really has somebody do them) really doesn’t want to associate with shorts wearing Powerpoint hating people like me.It might be threatening but I think I’m giving myself too much credit there. I think they really don’t think I fit the part.If it’s on my terms (i.e. I bring the money, life is great, but if we are talking understanding
I read a while back, and I think the smartest folks say this semi-regularly, that the only kind of adviser that matters is one who has experience with your specific context or can direct you to someone who has. Really hammers home your point (and I guess, the Tyson quote, everyone’s got a plan til they get punched in their face. I don’t particularly like or respect the guy, but he was right about that).
– never had an employee that was also your girlfriend and ended up having a lesbian relationship with your best employee. etc.
– Never had to talk to an employee about personal hygiene…
.I was once in a line of business in which almost everybody showed up with a knife wound from time to time.JLMwww.themusingsofthebigredca…
all ok?
“The wound is the place where the light enters you” – Rumi. 13th Century AD.
.That’s the damn truth.JLMwww.themusingsofthebigredca…
That is personal…..always stuns me on that stuff.
That is a really tough one.
Definitely. And a more common people management “use case” than one might imagine.