Getting a Venture Capital investment seems like a huge task, nearly impossible. But thousands have done it. Yet, millions have failed. So, what holds you back from getting the investment?
Every person has their own unique set of shortcomings (weaknesses) that guide the person to live so that they would avoid situations that make them fearful, uncomfortable, or feeling stupid. Some of the shortcomings people are aware of but some are very hidden but are running people's lives.
In this workshop, Aleksander Tõnnisson talked about the psychology of getting VC round investment.
Read also the first part where Sam Teden, a VC investor at Anthos Capital in the USA, talked about his experience as a VC investor and how he sees founders who are ready for investment - and who are not.
Imagine how much time 1 million seconds is? It's roughly two weeks. Now to put things into perspective, how much time is 1 billion seconds? It's 36 years. So this is the difference in magnitude between a million dollars and a billion dollars. So this is absolutely amazing, Sam, what you guys have been able to pull off. Money is one way of materializing your personal power, you guys have a lot of it!
Everybody who goes after money goes to grow the company one way or another. And as you all know, growth means change. What we see in our work is that many founders struggle to understand that the company can only grow if the founder grows. You need to grow as a founder, and you need to change as a founder in order for your company to be able to grow.
Fundraising is a business challenge. And whatever business challenge we take, it’s always linked to the founder's psychology.
What I mean by founder’s psychology is what makes you what you are, how you live your life outside of the company, what are your patterns, what kind of beliefs you have picked up from your childhood, which are still with you today. The question which we are trying to look for an answer is how to stop the invisible traits, which are stopping you from raising the investment. So what is the real challenge?
If we go out for fundraising, there's two ways to look at:
“I just need to get it done”. There's a certain amount of money, you need to execute your plans and you don’t care how much time it takes - you want to get it done fast.
“I'm going to take that as a learning opportunity”. Then you need to approach it a little bit differently.
If fundraising is not going as planned, or there's difficulties in closing investors, then the question is, what is the real challenge. From the perspective of self growth, fundraising puts us under a lot of pressure. If you want to actually see what the weaknesses are in people just put them under the pressure.
What are the typical face value situations? For investors to earn back their 100x, which they're looking for, the market needs to be at least like 500 million. And this is really the minimum or your product sucks. But what you also get at the face value thrown back at you is that you're not ambitious enough for or it's not the right time.
It's actually very difficult to learn from this, because you will rarely hear the real rejection cause from investors. The reason is that they don't want to keep the door open and I do the same. The reason is, I don't very often see founders who are genuinely interested in learning what is the reason behind the “No!”.
If we are now looking beyond the face value, if you put yourself under the pressure, what will become visible is your shortcoming. Shortcoming is your weakness, something which is stopping you from achieving your goals. One way of looking at shortcomings is also looking at your behaviour, which is working against you and the people around you, instead of for you. The thing about shortcoming is that usually, you're kind of married for life. But there's a way you can transmute them.
I have picked three shortcomings, which very often become visible when you go for fundraising. If you're interested in looking at this as an opportunity for growth, rather than just something which needs to get done, then you can look at the shortcomings I picked.
Every shortcoming you can look at from two perspectives - active and passive. Active is something you do to other people. This is how your shortcoming or your behavior becomes visible. Passive is something which you do to yourself or you lead others to do to yourself.
Let’s look at 3 examples.
Fear as a shortcoming.
On the active side it manifests as obsession with having to control, on the passive side with escapism.
What does clinging behavior mean in fundraising? It’s when you just don't take no for an answer, you're convinced that this is the venture capital firm you’re going to work with, and you just keep sending in your slide deck every two weeks.
How can you recognize that you want to be right? If you ever have to say the sentence: “Wait, wait, wait, you didn't understand!”. This is where it becomes defensive or you become demanding.
On the passive side, on the escape side, this becomes visible,as dishonesty. This is unfortunately so true in fundraising as well. For me the behavior becomes visible if somebody doesn't know an answer, but regardless gives me one. It comes from the fact that people are afraid to say: “I don't know”. So they will invent an answer. If that happens, and on the feeling level, I understand right away whether the answer is something which the person knows from experience, or just invented an answer. This makes me very reluctant to invest.
Lack of self belief and this very often boils down to the wording which you're using. For example saying: “This is what we want to do,” rather than saying: “This is what we are doing”.
If you recognize any of these behaviors, in fundraising or in your life, what can you do about it? The good thing about shortcomings is that they're also your potential, and that's why I'm talking about opportunities to grow personally through the process of fundraising.
How can you turn this around? If you recognize a behaviour in yourself then ask what is this behavior good for? For example, obsession with having to control - people who are very controlling, they typically are seeing all possible scenarios, because they want to avoid any failures. This is very good in contract negotiation. With VCs, in particular, you need to read the contracts. The devil is in the details. If you have an obsession to control, you can put that into a positive view. Instead of being defensive, use it to go through the contracts or you can use it as attention to detail.
You can use escapism so that you become very fluid to avoid situations and challenges. Then it is not life supportive behavior
But if you make it life supportive, fluidity means that you can negotiate contracts, because you are not stuck in absolutes and this is very good in a business environment.
Next one is egotistical behavior.
Actually all our shortcomings have roots in egotistical behavior. How do you recognize it? It comes in the form of self-importance and self-pity. It's the same coin, two different sides.
Let me take an example. If I see an arrogant founder, it's very unlikely I'm interested in investing. Venture capital is like marriage - there's going to be hard times there's going to be good times. So I don't want to be in one boat with an arrogant or self centered person.
How can you know that your self importance is coming up? If you talk too much. Instead of putting what you want in two sentences, you need 25 sentences just to explain the problem.
How can you put self-importance in use? You can turn this into believing in others. And this is a tremendously powerful tool, if you can believe in others, and you can inject this belief in our people as well.
Self pity, unfortunately, is one of the most common shortcomings which comes visible. When people go fundraising and feel like the world is against them, investors are stupid, life is hard and everything sucks. This is going into victim mode, feeling hard done by.
Nobody really wants to identify themselves as weak and the same is with fear of being wronged or fear of criticism. You turn it around by taking radical responsibility. In the beginning, it seems there's no way it can be good.
You can turn that to self-respect and start to nurture yourself. This is something which most startup founders forget because they are so focused on the outside world and delivering the results, they forget themselves. Statistically 1/3 of startup founders burn out. In reality the numbers are most likely higher. But we're still not at the point where people are admitting that they have a mental issue or that they have burned out. And it's because you neglect yourself. Self-pity can be turned into respecting yourself.
And the last one is resistance.
And this is being disrespectful - coming in late, if I asked to send in the pitch deck before but you didn’t.
Dog with a bone is a really good one. You get hold of something and you never let go again and you're very aggressive.
Aggressiveness is definitely a shortcoming that does not help you to close the round. It’s also when we had a meeting yesterday and you call today asking if I have made up my mind yet. And I say that I don't know because we haven't even started due diligence. And then the next day, you call me again. For me it’s not wanting to let go of the goal and being pig-headed.
And then pig headed means that you're not coachable. And this is something which most investors fear like fire and for a good reason. Then we know for a fact that if things start to go south, then you're not taking any advice from anybody and this is not good. But you can turn it into persistence. And do I want to invest in persistent counters? Yes!
On the passive side, which is not listening or procrastinating. This is when very often when we don't pick up the phone to do a follow up call. We had a meeting and after two weeks, and I don't have an answer from the investor but I'm just procrastinating to call because I don't want to hear “No!”.
Being in denial is when you start telling yourself a not true story to feel better, telling yourself that there is still an opportunity even if the investor said a firm “No!”. You can turn this around into durability.
These shortcomings are your potential for personal growth in fundraising. Now the question to you is, (and this is where I need your honesty) - what shortcomings may be on your list? What is holding you back from getting the investment?
11. November 2021
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When there is a challenge at the business level .Cocoon Program supports founders:
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