Tuesday, December 10, 2013

Are You ready to get Married?

Investing in early stage companies is not unlike getting married -- it follows the same steps.  In many cases the time some investors spend in a deal is longer than some people spend staying married.  The average length of a marriage today is 8 years. I know many investors who are in deals for ten years or more.

Here’s a comparison between getting married and investing in a startup.

Marriage                        Investing in a Startup
Longing                          Seeing others make a profit
Introduction                  The entrepreneur pitch
Dating                             Getting to know the team
Engagement                  Due Diligence
Marriage Ceremony     Signing the terms sheet
Honeymoon                   Excitement of joining a new co.
Post-honeymoon          Day to day work on the business

I draw this comparison because I see many investors rushing through the “dating” process only to find they picked the wrong one.

As an investor you’ll spend quite a bit of time with the startup over the coming years so you want to check compatibility with the management team.  The key areas to look for alignment are:  hiring people, managing budget, and building culture.  Products and strategy will change to fit the market and the current business conditions. 
If you’re investing in a startup you’re about to get married.  Make sure you’ve done the necessary due diligence on the people.

Best regards,
Hall T.