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.