When is it OK for investors to give up on a startup?
Short answer: when they are directly told to.
Long answer: a rant about crowdfunding, learning curves and family relationships.
Crowdinvesting is quickly becoming a common hobby in many countries, and lots of great work is done around the world to make investing more accessible (and hopefully more low-risk) for everyone.
While some countries still have some limitations in place about who can participate in equity investments at the alphabetical rounds of startup financing, the early rounds of friends, family and angel investors are everywhere getting more and more fragmented with different types of crowdfunding.
But it’s not an easy match for early stage founders to work with enthusiastic crowd investors.
Figuring out investor stuff is a full time job
Learning the ropes of investment isn’t much easier than figuring out startup basics. Everyone starts from the beginning and then gets seasoned with experience.
In the crowdfunding campaigns, many investors are still excited to figure out the do’s and don’ts of investing. They sign up for investor clubs and networking dinners, participate in the ecosystem events and rely on the given community support. Also crowdfunding platforms and facilitators provide additional encouragement, learning materials and support for successful investor journeys.
The investor ecosystem is built on a very different goal than the startup life that they depend on.
While startups breathe the dream of launching that one single big idea to success, investors learn to minimize their risks in a large portfolio of multiple assets. And early stage startups are indeed extremely risky investments. Most of them will not be successful. In reality, only the extremely few will be successful. And even the most successful startups will look extremely unsuccessful at multiple moments in their journey.
And here’s where it gets complicated. How do you evolve and learn from your mistakes as a young investor when your portfolio is full of young stubborn startups who make very little sense at this given stage of life?
Early stage startups are a vortex of crazy
When focusing on their portfolio, investors who don’t already have a startup background won’t probably have the bandwidth to figure out what startup life actually means. And it will be overwhelming to watch each of their companies doing things in their own weird way, often with no time or interest to explain themselves properly.
That’s where the support community comes in — with calming advice and previous experience. Listen to the investors who have already gone through the emotions. They lost, they won, they still think it’s worth it.
Because early startups do live a crazy life. Founders often juggle all possible jobs at the same time, trying to figure business out on the go. It’s not their first priority to explain stuff, and often they won’t even be able to — all history and analytical reports are written in retrospect, with ample time for hindsight and reflexion.
Early stage startups are precious snowflakes
In public, the startup game expects a show of smoke and mirrors. Pitch decks are to be fluffed up to the max. There are programs, accelerators, coaches and mentors that help make your boring early stage idea look a bit more investable. And investors should know (and startups know that they know) that there’s a thick layer of whipped cream and icing slapped on everything that gets pitched in public.
You can be a humble startup and keeping it real only when you are actually doing much better than the others. But at an early stage, you’re usually not yet better than anyone else. Startups grind and persist and suffer until the sky clears up — having survived the time it takes to build something substantially better.
And they need to persist and suffer with a smile on their face because success only comes to those who already dress for the job. As a startup, you need to flaunt your success even during the darker days. Because once you let yourself down, it’s a lot of extra hard work to pick yourself back up again.
So you put some extra icing on your pitch deck and carry on.
For a startup, crowd investors are part of the public. For the public, crowd investors are part of the startup.
The reason startups fluff up also internal reports is to motivate their investors’ faith. For the wider public, investors are seen directly related to the startup. Especially in the investor support circles, where investments are mentored, analyzed and discussed.
From a startup perspective, their investors should ideally go around shouting and promoting: “They’re amazing!” A direct investor’s opinion is worth one million anonymous internet comments, so their message better be positive. And early startups are fragile creatures — one single message can easily make or break some deals in the ecosystem.
It’s obviously a tough job to supervise the PR when there’s a bunch of people in your crowdfunding campaign. Their only goal is to optimize their portfolio. What if your startup isn’t performing according to their favorite metrics? Can you blame them for pointing it out?
How should investors analyze their portfolio then? For growing a good investor ecosystem, there certainly needs to be public analysis, examples, discussions about the good and the bad. But how much of startup laundry can you do in public without damaging your startup?
Should you discuss their business in Facebook comments? Can you report your impressions on them in your personal blog? How do you deal with these fragile little snowflakes? How can you support and empower them from distance?
And — as a startup — how do you deal with this extended family that generally roots for you, but may not approve of your lifestyle during the tougher times? How do you deal with those aunts and uncles twice removed who still need to have a loud say about your life choices at the family gatherings?
While relationships are tough, family relationships are the most tough. You don’t get to choose the family you’re born into. And you don’t always get to choose the investors that chip into your campaign. Crowdfunding is very much like an extended family experience.
So when is it OK for an investor to give up in public?
I had the privilege to participate in a VIP startup webinar with a personal Q&A with Alfred Lin from Sequoia. As this was early 2019 when the surprise of COVID-19 had just completely wiped out our first attempt at a business model, I took advantage of the safe space and asked him this question: when do you give up on your startups?
His answer was quick and simple: when the startup has given up. No buts. No exceptions.
When the startup has given up.
Not when you feel the startup isn’t doing what you expected them to do — this is not giving up.
Not when you think the startup should give up — this is not giving up.
Not when you heard that the startup is probably going to give up — this is not giving up.
You can give up on the startup when the founders call you and tell you — we’re giving up.
Be like Alfred. Don’t give up on your startups.