Every once in a while, I find myself envying the founders who pitch to me.
Despite the long hours and the crushing workload, there’s something about pioneering a new business that makes you feel like the world is full of opportunity and promise.
These CEOs truly believe that they will change the world – and they tell me as much, full of pride and excitement.
And, of course, some of them are right. Every startup has a chance of making it big: becoming a household name, solving a problem for millions of people, and making its early believers rich beyond their wildest dreams.
It’s easy to get swept up in the adventure of it all – heck, that’s part of the allure of being an angel.
But it’s important not to let a tidal wave of emotions sweep you too far downstream.
There’s a fine line between “passionate” and “emotional.” Which side you stand on will have a huge impact on your strategy, and, ultimately, your returns.
For starters, you should never bring your emotions to the negotiating table.
It happens to every angel sometimes: you hear a pitch that speaks to you on some deeper level, and suddenly find yourself emotionally invested in the project… all before you’ve even had a chance to look more closely at the finer details.
My advice? Keep your hopes in check until you’ve had a chance to do your due diligence. In other words, don’t count your chickens.
Another scenario that’s tricky to navigate with an emotional brain: knowing when to fold.
Say you invest in a startup that checks all your boxes. You love everything about the business so much that you’ve invested more than your usual amount.
Way more. Too much, even.
And when the founders come back needing more money, you’re all too happy to write the checks, because you love this idea. Plus, you’ve invested so much into it already. How can you stand by and let the business starve?
In the startup world, we call these struggling investments “zombies” – businesses that keep burning through cash long after they should have shut down.
If a company seems to need more and more capital, but fails to convert that cash into traction… you might be looking at a zombie.
It’s hard to cut your losses and walk away from any deal – even those that aren’t doing well. But infusing a zombie startup with more of your hard-earned money is a lot like keeping your cash in a pair of jeans with holes in both pockets. In short: a waste.
That’s why you should always strive to keep a level head… not just during negotiations, but throughout your entire journey with a startup.
Or, as Kenny Rogers, might say: “Know when to walk away, and know when to run.” (I’ll just leave this here.)
Until next time,
16 responses to “This Decision Could Make or Break Your Portfolio for Years to Come”
May 08 2019