Thoughts on startups by investors that
fund them & entrepreneurs that run them

The Great Frustration

All entrepreneurs know the feeling: your vision is crystal clear, but potential investors don’t get it.  They ask small-minded questions. They niggle over details. They hem and haw as the weeks melt away your first-to-market advantage. It’s maddening!

So, there are two things you can do after getting incredibly frustrated.  You can keep pounding your head against the wall. Or, you can show them progress that makes them believers.

I’ve just watched this unfold with a new company I’m working with.  The founders have exactly the religious zeal you want to see, and tons of relevant experience, in a niche industry that, nonetheless, generates tons of money: urban fashion.  But that’s not something the kinds of folks who do most angel investing understand. (One pitched investor whispered “don’t we have better things to do with our time?”). So, spreadsheets, inside knowledge, and examples notwithstanding, the entrepreneurs couldn’t convince professional investors of the opportunity.

Worse, their concept — a community site that would also have e-commerce components – was still on the drawing board when the investor meetings occurred. That compounded the “we don’t get it” reaction.  The vision was clear and correct… but it couldn’t be communicated.

Much to the founders’ credit, however, they adopted a “we’ll show them” attitude. They cobbled together a tiny round, a fraction of the size they’d sought, and started to work rather than wasting more time. They got a basic site up, and… traffic was fantastic. OK, that proved them right about how vibrant a community they were addressing.  Then, through sheer grit and scrappiness (as well as stock instead of cash to developers), they scrapped together an ecommerce component that immediately drew more traffic, some cool brands in the field, and rave reviews from users.  Now, even old white guys get it.

What’s next? They’re smoking, and it looks like the next round will get raised at a much higher valuation than the round that didn’t get done.  So the lesson is: when you can’t crack through to those boneheaded investors, don’t get frustrated: get busy.  Scale back the plans, show a little progress, and prove your point.

Written by Bob Rice

user Bob Rice Managing Partner,
Tangent Capital

Bob is Managing Partner of Tangent Capital, a registered broker-dealer and merchant bank focused on alternative assets and strategies. He is the resident industry expert on early stage and other private investments for Bloomberg TV, appearing daily as Contributing Editor on “Money Moves.” Bob is a Director of asset management companies with over $2 billion in AUM. Bob began his career as a trial attorney at the U.S. Department of Justice and then became a partner at Milbank, Tweed, Hadley & McCloy, where his practice centered on financial products. He left the law in 1996 to found a 3D graphics technology startup that eventually became the publicly traded Viewpoint, provider of the web’s first “rich media” advertising platform. He has been an active angel investor and startup mentor since 2004. Along the way, Bob also served as the Commissioner of the Professional Chess Association and authored the business strategy book Three Moves Ahead.

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Comments

One thought on “The Great Frustration”

  1. Neil Alfred Brown says:

    After trying to interest investors for some time now with pure logic, a great product improvement, inspired by God no less, I could not have expressed my frustration any better than this.   
    Humbly  Yours,    Neil Brown