Adam Smith

Early Stage Investors, Getting Deals Done

March, 2008

This post is a response to Matt Maroon's post today called Poker People. Matt talks about how straightforward poker players are with each other as compared to Silicon Valley investors.

I've been listening to a song by Kanye West called Last Call. It has a nine minute outro where he tells the story about how his career took off. It's worth a listen / read the lyrics. (We can mix things up a bit, right?)

Kanye went through a lot of struggling and many of his deals fell through. It sounds like the rapping industry, like early stage investing, is not as straightforward as the poker world. Just interesting as another data point.

Early stage investors are definitely in a hostile environment. The signal to noise ratio is remarkably low. I was speaking with a VC the other day who said he reviewed 1000 business plans in the last year. Imagine that!

It's no wonder that investors take their time. That said, I do agree with you that negotiations are often fumbled. I've never met Ram Shiram, but he seems like an upstanding guy:

"Unlike most investors (who wait a week, talk to their friends, bring you back for multiple meetings), Ram said 'Okay, I'm in' before I was done with the presentation."

- The Mint guys

That said, Ram had the advantage that he was coming after another round was recently closed, so Mint already had social proof.

Paul Graham, as you know, is also upstanding. Same story with Fred Wilson; I haven't convinced him to invest in me yet but he seems like a genuine and straightforward human.

I've also been reading and listening to lots of Warren Buffet, and he also seems to think heavy negotiation doesn't matter. He invests in companies for a lifetime, so he understands that business fundamentals are more important.

Regarding getting investors to be straightforward with you, consider

(a) having a reputation / not a first time entrepreneur / being a known quantity that they'll have to contend with in ten years,

(b) being likewise straightforward with them, and letting them know that you don't want to negotiate heavily, e.g. offer terms that you think are fair and indicate that you think they're fair and you don't expect to end up with something substantially different, and

(c) picking a lead investor who's a minimalist when it comes to negotiation and letting others invest on pre-negotiated terms.

Good luck!

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