Terry Jones

At some point I read a description of why entrepreneurs pitching VCs is a bad mix: because you have people who can’t explain anything meeting people who can’t understand anything. That’s unfair all round of course, but still…. Having done some of this and had people just not “get” it, you can’t but wonder why they don’t get it. Of course part of it can be about the pitch itself, the presentation, etc etc. But even if you suppose everything is ideal, investing (both as a founder and as a financial backer) are both an act of faith.

There’s lots of evidence for this. To begin with, if it were a science and there were quantifiable measures, those things would presumably be known and you’d have a lot fewer startups and a lot fewer investors, simply because failure would be rare.

Until recently I thought there was more of a lack of vision on the investor side. But now I’m not so sure. For example, the Google guys were apparently running around search engine companies trying to sell their idea (vision? early startup?) for $1M. They couldn’t find a buyer. What an extraordinary lack of….. what? On the one hand you want to laugh at those idiot companies (and VCs) who couldn’t see the huge value. OK, maybe. But the more extraordinary thing is that Larry Page and Sergei Brin couldn’t see it either! That’s pretty amazing when you think about it. Even the entrepreneurs couldn’t see the enormous value. They somehow decided that $1M would be an acceptable deal. Talk about a lack of vision and belief.

So you can’t really blame the poor VCs or others who fail to invest. If the founding tech people can’t see the value and don’t believe, who else is going to?

I usually enjoy Paul Graham’s essays. In a recent one, The Hacker’s Guide To Investors, he says:

Risk is always proportionate to reward. So the most successful startup of all is likely to have seemed an extremely risky bet at first, and that is exactly the kind VCs won’t touch.

Which is also pretty interesting. In some ways it’s like a horoscope – appealing to every dreamer who believes they’re sitting on a billion-dollar idea. But if the always is true in the above quote, then if it happens that you are in fact sitting on something that will bring huge rewards, then it by definition must appear hugely risky.

If you throw in the initial observation that even the founders cannot assess value, then I think you get three things. One: a feeling of taking huge risk is a necessary part of building something that’s hugely rewarding (i.e., if you don’t have that feeling, then you’re probably not building such a thing). Two: even if you are building such a thing, you cannot know it. You just have to believe. Three: if you cannot know it, but can see huge risk, you can’t expect investors to see things any differently. So to get them to invest you really have to make them believers too.

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