All things considered, I’m rather new to dealing with professional investors. For the developer turned startup founder in need of investment, there are a whole lot of things to consider. Many of them involve wrapping your mind around the different mentality of the people you are likely to encounter.
Here’s some things that are generally true:
(1) Professional investors have never started anything: Very few professional investors are entrepreneurs of any sense, and if even if they deal with entrepreneurs frequently don’t appreciate the psychology of a startup.
(2) Professional investors are not technical people: Very few professional investors have an engineering background and, thusly, are not likely to appreciate the nuts and bolts of a solution. Potentially they don’t even care about technological innovation.
(3) Professional investors have no time: They are running around doing a lot of things in order to get the optimal “flow.” This generally means they don’t have time to seriously think through any complicated problems or consider the solution fitted to the problem space.
(4) Professional investors have calculating minds: This is a nice way of saying “they have no guts.” It’s hard to bring together calculation and intuition, so most people opt for the former.
(5) Professional investors love to delay: The best way to understand this is to consider the incentivization process for investors. You are considered valuable when you make money. You make money when you invest in something that becomes hot before anyone else does. Thus, you are incentivized to invest just before it is clear that something is going to be the “next big thing.” Realistically, this means that most investors invest in something that is the next big thing after it already is big, and miss the super-big deals that require getting in early.
(6) Professional investors are thinking about money: While ostensibly governments and potentially other large entities (i.e. Google) can think about innovation for innovation’s sake, investors, both by their name and incentivization, require increasing their pool of assets by their investments. If you think about crowd-funding, crowd-investment, public funding, and other vehicles, the primary consideration may not primarily be the amount of money returned.
(7) Professional investors are thinking about “hotness”: “Hotness” is a social value. The more people want you, the more valuable you are. That’s why most investors look carefully for indications of “hotness.” For an early-stage startup, can be a case of “herding” investors to a gate, but this is tricky. Traction is a key factor but not the only one.
(8) Professional investors are nice people: In general, professional investors are too nice for my liking. They never say “no,” and rarely give any sort of critical feedback. This means sometimes they are a bit of a “tease,” that wastes your mental bandwidth with minor upside.
For more valuable advice, see Paul Graham’s essay on the same.
It’s worth noting that many of these features are changing as more successful entrepreneurs move into investment after exit. This has dramatically shifted the Silicon Valley landscape. This appears to be less so in Europe, where it seems that $1B is still a scary number and you don’t see too many large companies or exits in that range.
Fractastical 