Why Do You Want To Invest?
Earlier this week, my partner Brad and I were visiting with one of our largest investors. We try to see each of our institutional investors in their office at least once a year. It allows them to talk to us candidly without any other investors in the room.
We had a nice visit and near the end of the meeting Brad asked the investor "why did you decide to invest in our fund?" The investor explained his rationale and it was really helpful to me and Brad to understand what he saw in us and our fund over three years ago when he made the commitment to invest.
When you are raising money, it’s hard to ask that question. You need the money to build your business and it’s not the most natural thing to stop selling and say "exactly why do you want to invest in our business?"
But I encourage everyone who is raising money, both VCs and entrepreneurs, to do exactly that. It really matters why someone is investing.
I know a lot of investors who invest in something because they "need a play in that market sector" or because "they like to follow xyz investors in deals" or because "it’s a hot company, we’ll make a lot of money on this one".
To my mind, those are not great reasons to have someone invest in your company. When things go awry, and they always do, those kind of investors are not likely to hunker down with you and figure out how to solve whatever problems you are facing.
I believe that we should all seek out investors who understand exactly what we are doing and why we are doing it. We should seek out investors who share our passion for our businesses. And we should seek out investors who have reasons other than pure financial gain to be invested in our businesses.
If someone said to me, "I want to invest because I agree with your investment thesis, I want to learn more about the kinds of companies you invest in, and because I personally enjoy the time I spend with you and would like to do more of that", that’s the kind of investor I’d be excited about.
It’s frankly hard work to find investors who can answer the "why do you want to invest" question in a way that gives you comfort. But it’s worth working hard to find them. Because when you do, you will create a much stronger partnership than the average investor/entrepreneur relationsip.