Assuming you’re fortunate enough to have investors, one of the things they’ll do is give you advice — both solicited and unsolicited. And since your investors are smart, experienced people, you should listen to everything they have to say, right? Wrong.
Investors are smart, experienced people, so you should listen to everything they have to say, right? Wrong. Tweet This Quote
It’s impossible to follow all the advice you receive from investors. For one thing, most of the investors are likely to contradict each other, if not themselves. Famed VC Fred Wilson even coined the term “Mentor/Investor Whiplash” to refer to the confusion that this engenders.
What you need is a set of guidelines that help you decide when you should listen to investors. The key to figuring out when you should listen to investors is understanding their comparative advantages and disadvantages relative to your own knowledge.
1. Investors know a lot more than you about the startup process. Listen to their advice on process issues.
Most investors are former entrepreneurs. And even those who aren’t have probably been along for the ride for multiple startups. I personally have founded, invested in, or formally advised over 50 startups. We get pretty good at understanding the startup process and recognizing patterns.
When I give an entrepreneur advice about how to manage a board of directors, or the best way to close a highly desirable job candidate, you can bet there are hundreds of hours of direct experience behind that advice. That’s probably a lot better than what you read off that random post on Hacker News.
2. Investors know infinitely more than you about the fundraising process. Listen to their advice on fundraising issues.
One of my pet peeves is when entrepreneurs refuse to take my fundraising advice. I’ve helped raise dozens of venture rounds, and even more angel rounds. Trust me, I know what I’m doing. Numerous times in the past few years, I’ve seen founder after founder fumble away financings because they tried to get too cute and “optimize” the deal.
When someone offers to fund you, and you can live with the terms, take the damn money. Tweet This Quote
When someone offers to fund you, and you can live with the terms, take the damn money. Every time I’ve had an entrepreneur who tried to hold out for a better deal because so-and-so said they were really interested, those deals never materialized. Investors lie constantly about their interest, and even when they tell the truth, most entrepreneurs are too optimistic to hear the real message.
If someone’s been making investments for years, and they still have the money to keep making investments, they probably know something about fundraising.
3. You know a lot more about your market than your investors. Take their advice on your specific market with a hefty grain of salt.
While there are a few investors who specialize in a single market (and I’m talking about a real single market, like Marketing Automation, not a fake single market like Big Data, which is actually just a convenient term for a host of emerging markets), most investors play in multiple spaces. As a result, you ought to know more about your market than they do. (If you don’t, that is a very bad sign for both you AND your investors).
You know a lot more about your market than your investors. Tweet This Quote
If all an investor knows about the market is what they hear (and immediately forget) in your board meetings, he or she isn’t going to be able to offer useful specific advice.
And when an investor sends you an email saying, “Should we be worried about Company X?” or “Should we be talking with Company Y?”, that’s not your cue to launch into a full-scale pivot. That’s just your investor trying to be helpful, and trying to reassure him or herself that the investment in you isn’t about to blow up. Such investors need reassurance, not to be involved in a deep dive.
The next time you meet with investors, whether in a board meeting or otherwise, note the advice they give, and classify each bit of advice into one of the categories above. This ought to help you figure out what to follow up on and what to gently deflect (and hope gets forgotten by the next board meeting).
This article published in 2014. It has been reposted to inspire further conversation.