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One of the many gifts of entrepreneurs is to see truths about opportunities ahead of others. Vision, foresight, an ability to see an emerging market prior to its emergence. For VC's, the difficulty is determining which entrepreneurs' projected truths are, in fact, correct. While all claim to be correct, few are with any consistently achieved and reasonably documented track record. But while the entrepreneur propounds a set of truths as the basis for an investment decision, the investor looks at the truths and truth finder. As an entrepreneur, being a truth seeker and finder will get you funded. This, however, isn't widely understood.
All which leads to one of the fundamental disconnects between VC's and entrepreneurs. Which is the VC has to believe the entrepreneurs' truths, but more importantly, the entrepreneur's ability to discover the truth.In the simplest terms, fundings are measured by the amount of truths they discover. If a team runs through money and time to discover the business model, go to market, pricing, positioning and sales strategy, well, they are likely to receive financing which is both adequate and well priced. On the other hand, if the initial funding doesn't deliver insights into what is true, well follow on funding is rather difficult. The teams' skills at truth finding are far more central to a follow on investment decision than is generally understood by start up management teams.
For me, entrepreneurs who test, try out ideas, experiment, succeed and fail and test again, always get the nod at the start up and follow on. The entrepreneur will often arrive to pitch a new set of truths for a follow on funding and not understand that the real issue and decision isn't about the new, potential truths. It is about the entrepreneur's skill at being a truth finding. The entrepreneur will often be surprised at a partnership's lack of faith in the follow on opportunity. For the entrepreneur, the previous money had led to discoveries and understandings. The follow on proposal builds on those. "Why isn't this an easier decision?", the entrepreneur might ask. The investor is looking at the amount of discovery related to the time elapsed and the resources invested and assessing whether the ultimate, "finance-able" truth can be reached with a follow on investment.
Within the VC community, there are a lot of terms of art for time/effort/journey and discoveries associated with getting to knowledge of what and will won't work with a start ups' business model. One of my favorite expressions is to "turn over some cards", which is to use time and invested money to better understand the strength or weakness of a given path. The term illustrates the differing focal points of the investor focusing on the truths serially discovered for time and money versus the entrepreneur's idea of the hand with all the cards visible. It also recognizes that truth seeking is an invest-able proposition.
Which is to say, that including in one's investment pitch a full overview of suspected truths and the methods to uncover them is far more powerful and compelling than people realize generally. If you want to motivate investors, convince them that you have good ideas of which are the emerging truths and great skills at proving your ideas.