This Investor Is Just Not That Into You

Not for a second do I buy into the doom-and-gloom spread by early-stage investors citing the state of the economy as the reason for cutbacks. While the economic situation is worrisome, much of it is generated by supposed financial and business experts that are not. To say the least.

Sounds familiar? We have a few of those in Silicon Valley too. When money is involved, some people just can’t help themselves (or rather the opposite).

Investors still have plenty of overhangs to invest with and their portfolio companies are on a 5-7 year trajectory to exit, meaning the viability of their choices is determined by the value at the end, not the value in the middle of the trajectory. The macro-economic value of a startup should remain intact in an economic downturn. So, the behavior of your investor will tell you whether you “married” well.

Very few startups should be materially impacted by the state of the economy, because:

1/ Their early-stage market penetration is immaterial to the overall addressable “market”, leaving enough room for growth in any economy.

2/ The majority of (consumer-focused) startups generate income through indirect monetization such as click-thru advertising, which is somewhat resilient to economic aberrations (even though purchasing may not).

3/ In early-stage development, monetization is secondary to land-grab, and smart operating plans have very conservative and immaterial income projections built-in.

So, the fact that investors strike fear in the minds of entrepreneurs is the same as a president of a country at war expressing similar fear; not productive. Sure you need to be cautious and count your chickens, but great investors see this as a fantastic opportunity to double-down on their investments and amplify the market differentiation rather than restrict it.

Access to capital is a serious barrier to entry that can keep competitors out. So, if you are being restricted by your investor at this point it means he’s just not that into you and is doing you more harm than good.

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