Talking to Founders
#CapitalAtRisk
Above: ‘The Dip’ by Seth Godin and ‘Whatever you think, think the opposite’ by Paul Arden.
If you are considering angel investing then sooner or later you will want to get past the theory, the terminology and the hype and talk to actual founders. These are the people to whom you might give your hard-earned cash. But what should you ask them? Founders are smart people. Some are amongst the smartest you will ever meet, but when they are seeking angel-level investment and meeting the likes of you and me it may not be obvious they are going to change the world.
Smart people start companies all the time. Most of them fail. Remember too that as an angel investor I am looking for great companies that I can hopefully invest in and help make even better. Anyone can find the merely good and make themselves feel smart by helping them improve, that’s easy.
Uncomfortable Silences
Why is talking to founders and asking good questions important? Founders are the people that will make things happen at the company. Asking a founder deeply personal questions and talking about money is not always easy but that’s the best way to reveal their motivations and character. Founders are (or should be) familiar with getting out of their comfort zones so you have to be too. And as Seth said here today, “If this was a blog post about running, I’d definitely be teaching things that would make you tired”.
Something that might be uncomfortable is silence. Resist the temptation to think that you have to know whether the answer the founder gives is right or not — I want to ask questions that help guide me to know whether we are a good fit for each other. And the way to do that is to ask a question then really listen. Stay quiet for a few seconds after they answer. People feel the need to fill silences so will tell you more than they perhaps intended.
Another tip is to note what the founder mentions three times or more. I remember a pitch in 2011 when a VC asked a founder what they thought of a certain competitor. The founder said they weren’t really relevant because…. The VC then said that they rather thought they must be significant because the founder had mentioned them four times already. That’s worth picking up on, not because the VC knew whether the competitor should be relevant or not but because the founder wasn’t consistent or clear in their thinking.
With all of this though there are no absolute right and wrong answers. The objective is to find out if the founder and their beliefs, principles and work ethic are congruent to you and yours.
Q&A
So, onto three of my favourite tough questions to ask a founder…
1. ‘Why are you doing this?’
Asking the ‘why’ questions about life is remarkably simple and revealing. Ask it then let the founder talk. They may even have to think for quite a few seconds before answering because they were expecting questions about funding, growth and pivots. The poor answers are the ones that stem from a founder seeking some sort of approval or a certain person’s endorsement. Another bad sign is if the founder is doing this because they ‘always wanted to start a startup’, are ‘passionate about startups’ or similar rather than some deeper connection to a problem or contribution to a solution.
2. ‘What will give you the most pressure to give up?’
Achieving enough success that will make an angel investor happy is hard. Really hard. Most startups fail, the list of reasons why they will fail is very long and the very nature of a startup is that the founder will be trying to do something new and difficult. So the guaranteed result is that at some point they will want to give up. Not only will they hit rock bottom and want to give up but they will also come under pressure to give up from people they like and respect. In a good economy maybe they should go get a well-paid job like their friends. And in a poor economy maybe there’ll be less investment so they should go get a safe job until things improve. Being aware that there will be immense and inevitable pressure is a good thing. Hearing where that pressure will come from and how they will cope with it will give you an insight into the founder’s working habits, their self-awareness and their support networks, all of which are essential when the going gets tough.
3. What do you do at evenings and weekends?
Of course a lot of evenings and weekends will be taken up with running the company but it’s not all work, work, work (and if it is then the founder needs to realise the impact of the inevitable pressure cooker, above). We all have to let off steam and I have found that I am most interested in people who are the most interesting. I have met founders over the years who are triathletes, anglers, watercolourists, actors and more (just not all at once). This question gives an insight to a founder’s approach to the wonderful and varied non-work parts of life and their intellectual curiosity, all of which can give a considerable insight into how the founder will approach the challenges and opportunities at work.
Over the course of the next few weeks I will be sharing more posts like this. You can subscribe to the written posts for free. If you become a paid subscriber (for $50 per year) you also get access to the weekly audio interviews I do with angel investors plus you get my mobile number so you can WhatsApp me anytime to continue the above, or similar, discussions.
Next Monday at 5pm…
“Testing, testing…” After asking some searching questions and reflecting, are there any tests you can set a founder (or ‘homework’ as I call it) to discover if they are a good fit for what you are looking for? I think there are…