Most investors that have seen/monitored/invested for longer than the current bubble…that’s who.
Maxim #1: Transparency = Improved Outcomes
Virtually hundreds of conversations with active angels and vcs confirm this relationship — those entrepreneurs that volunteer information on the activities (proper investor/stakeholder update) tend to be the better performing startups.
There is little debate over the link between transparency and success…more bewilderment over the ‘why’ (and more often than not, ‘why didn’t I think of that!?…with the tell-tale skyward tip of the head, folded-arm chin scratch, and the tell-tale ‘is it really that simple?’ look on the face).
Does the transparency/accountability help the entrepreneur succeed (causality) or is it simply an indication of a better entrepreneur to begin with (correlation).
Maxim #2: Causality & Correlation
The universal answer has been…to both questions…yes.
With so many angels frustrated that they only hear from the CEO when the company needs $’s (sort of like the kid that goes to college in their home town, but only comes by when they need $’s and/or to do laundry), or the many interns or junior analysts at vc firms are hired simply to pry information out of portfolio companies so partners without board seats can have some sense of what they invested in…
…it begs the question…
Why don’t investors require evidence of transparency/communication before they invest?
Could due diligence be that simple?
I’m guessing there is a large constituent of ‘players/participants’ in the investing ecosystem that don’t want it to be that simple.
More engagement, timely information, bandwidth to (actually) add value, better execution, better outcomes….not a panacea, but a good starting point.
Maybe some investors won’t place this expectation on the startup, so expectations aren’t placed on them to actually add value and not just be ‘fast followers/everybody was doing it’ investors.
Maxim #3; Most Angels & VCs Are Not Smart Money
If a definition of insanity is repeating the same thing over and over and expecting different results, why is it that so many investors repeat a ‘due diligence process’ that results in such poor historical (relative and risk adjusted) returns?
When pressed, most angels will admit there is a ‘give back/pay it forward/psychic return’ motivation in their involvement. For most VCs, they have just been good at selling access to deal flow that might give them a home run opportunity while spending other peoples’ money. Smart fundraisers, but not necessarily smart money.
Postulation #1; The Investing/Due Diligence System is Changing
Self-evident. Crowdfunding, large (500 Startups-esque) portfolios, quicker due diligence (Dallas Angel Network, Right Side Capital, et. al.).
But it needs to be better/quicker.
It starts with transparency…
…then real-time operational metrics….