Betting on the Jockey or the Horse: What Early Stage Investors Look For

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Betting on the Jockey or the Horse: What Early Stage Investors Look For

There are two types of founder entrepreneurs: boldly confident founders who know they are destined to do great things, and incredibly self aware founders who know that the challenges of starting a business are bigger than any one person. Think of those two profiles as the poles in either direction and you have a million shades in between.


Whatever shade of entrepreneur you are, you care about how much emphasis early stage investors place on your abilities versus how much they place on the quality of your ideas. If you are a self assured entrepreneur, you probably hope investors believe in you and your vision. You want investors to bet on the jockey. If you are less self confident, you probably hope investors will look at the merits of your idea and give you money. You want them to bet on the horse.


So, which is it? Do investors bet on the jockey or the horse?


Right off the bat, let me dispel a myth I see too many entrepreneurs holding on to: investors are not rational actors. No one is. We are all human — emotional, fearful, superstitious, desperate, ambitious, and a million other things. And that applies to the wealthiest billionaire VC in the valley, too.


While we’re shattering fine china, let’s tackle another myth: there is no magic formula behind investing in early stage startups. Even the most successful VCs are buoyed by a couple of breakout successes that float their 99 other failures. Investors know this, though all of them try to develop some kind of guiding principles to inform their decisions.


Why do I address those issues? Because too many young entrepreneurs are told you must do this or you must do that to attract an investor, when in reality, very few rules apply universally. There are investors who are swayed by a passionate founder, and others who care only about the idea.


That said, most self respecting VCs will look at both aspects to make a decision. You and your idea will be put under the microscope. Here is what early stage investors will look for in both categories:


1 Trustworthiness. Investing in you is a huge risk, a roll of the dice. That said, even the most reckless gamblers aren’t looking to get hoodwinked. They want to work with reliable partners who exude integrity.


2. Vision: Your idea goes from good to great in the eyes of an investor when it’s more than just an opportunity, it is a vision for how the future can be. They want to invest in ideas that will change the world (or at least one industry).

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