All investors are allergic to certain things. One of those things for me (and many investors I know) is what I’ll describe as slippery-ness.
When we make an investment, we enter into a long term relationship with founders. The business may change. Things may unfold in unexpected ways. But through the journey, you hope that you are working with people that you can trust and have an open dialog with at all times.
The majority of founders I speak to seem trustworthy, but occasionally, my spidey sense starts tingling because a founder seems slippery. Some examples of situations that draw this out:
- Being vague with metrics. I try to to get to crystal clarity around a few metrics in a business. If I find that I am expending too much energy trying to get to the bottom of a particular metric, that’s a major red flag. Sometimes, it’s because things really are that complicated. But given that we’ve looked at thousands of companies over the years (and that we are talking to seed stage companies) that’s unlikely to be the case.
- Too much exaggeration. Related to the first point, all founders feel the pressure to paint themselves and their business in the best possible light. Sometimes, that manifests itself in overly aggressive claims or exaggerated numbers. Some investors and angels might take these at face value. But good investors have a nose for these things and press hard to get to the bottom of them. If you drill down and there really is support there, that builds up your confidence in a founding team. If you press a bit and you uncover layers of caveats, then you lose confidence pretty quickly.
- Shifting convictions. As a founder, you need to be a heat seeking missile and be ready to pursue different opportunities. But one concern I have is when I speak to a founder that is very passionately pitching a business one day, and then a short time later is passionately pitching something very different. Often, when I ask about the past, they dismiss the prior business. “I wasn’t really that passionate about that problem.” Or “I was actually just helping out the other founder…”. The problem is that if I thought you were passionate about the last business, but you weren’t, how can I be confident about this new business? I acknowledge that this is a delicate balance in an ever changing world, but some founders can navigate this in a way that builds confidence, and other do it in a way that makes them seem slippery.
- Not exposing obvious issues. Often, we’ll see deals that have obvious roadblocks. Sometimes, there is “hair on a deal”, which means that there is some less than stellar history when you dig into the company or the founder’s past. Sometimes, it’s just that there is some unique founder situations that one needs to get their head around. For example, founders who are in a romantic relationship. Or a large shareholder that is no longer active with the company. Or founders who are starting a business in direct competition with their last company. Or a myriad of other things. You don’t want your investor to uncover details like this late in the process. I’m not saying you need to lead with your chin, but you would rather own the communication of topics that might be sensitive. You really don’t want an investor to discover something on their own and wonder “were they ever going to tell me if I didn’t figure this out myself?”
- Not having your shit together. There is a fine line between being slippery and actually just being disorganized. Sometimes, the examples above happen just because a million things are going on and a founder has trouble keeping things coherent. Unfortunately, investors will have a hard time distinguishing between between disorganization and slippery-ness. So it pays off to put in the extra calories to be on top of the details of your business.
By the way, investors can be super slippery too. Founders sometimes get the sense that something isn’t quite right on the other end of the table. Maybe the investor is actually doing due diligence on a competitor. Or maybe they claim to be the type of investor that leads your kind of deal but actually don’t. Or maybe they claim to have money but actually are out of dry powder. Either way, do your due diligence on your investors. Figure out their reputation in the market. No one will be perfect, but if there seems to be a pattern of being being slippery, run, don’t walk the other way.