As you might do We now know that venture capital is an industry with a high failure rate.
Standard & Poor’s recently reported bankruptcies by venture capital firms and private equity portfolios It reached its highest numbers since 2010These companies include: It has raised more than $1 billion in venture capitalsuch as Vice Media.
It is unfortunate in this context that we still do not hear enough venture capitalists talking about their mistakes, or at least not as often as they indulge in self-congratulatory speeches.
However, in those cases where venture capitalists talk about failure, you may often hear them citing reasons such as an unexpected market shock, a “black swan” event, bad timing, the wrong leadership team, or unsuitable co-investors. backers, or a poorly designed business model. Which ended up being unprofitable.
While these concepts are useful as a protective story in an MBA case study and often actually impact return on investments, the sheer number of non-economic mistakes that VCs make due to their human nature are seriously underestimated. Given the current liquidity crunch, I tasked myself with understanding these blind spots and turning them into actionable advice for entrepreneurs who are actively fundraising. There are a lot of them, but today I will discuss three of them, which have cost investors a lot of money and are essential for anyone planning to pitch their startup to an investor to be aware of.
Many investors are more likely to support a founder with whom they feel a personal connection
This is true even if their numbers and products are worse than those of the founder they find less acceptable.
When a moment of human connection occurs, it’s hard to ignore. So, if we form this bond with someone, we will automatically trust that person more.
The sheer number of non-economic mistakes made by venture capital firms due to their human nature is greatly underestimated.
Many reasons can lead to this bond. Maybe they also play golf or soccer, or are graduates of the same university we went to, or have a similar sense of humor. It is difficult to predict. However, what is undeniable is that by seeing the newly met individual as one of our own, we actually lower our defensive barriers. We feel safe in their presence and are likely to feel comfortable investing in their project.
On the other hand, if a person feels like a stranger, the amygdala in our brain activates, and our survival instinct kicks in. In the “us versus them” concept we all form in our minds, it is “them”; So, our brain says, we’d better be careful.
Most venture capital funds have multiple partners, and their personalities vary widely. This is done intentionally to help the fund connect with a more diverse base of entrepreneurs and counter these potential biases. Hence, whichever fund you go for, understanding more about the human side of different investors will help you know which one to go to. Before pitching to a venture capitalist, take the time to learn more about them as people. Once you study them this way, you can get an idea of who you’ll click with and connect with them accordingly.
I can share with you examples of how we do this with our team. For example, Joel is one of our partners, and he prefers active, passionate, high-energy founders. Sagar, on the other hand, is more likely to resonate with founders who are scientists or technology experts and who can delve into the technology side of a startup. Then there is Ruslan, who melts when the founder is very strategic and can at the same time be detail-oriented. And of course, there’s me, who loves entrepreneurial founders with a tremendous hacker spirit.