At the seed stage, there is essentially one data point that matters when looking at a possible investment: the founder. Everything else comes from him or her. The idea and the company strategy show how the founder thinks. The team shows if he can convince others to follow him. Any traction (assuming the company has launched) shows his ability to actually pull something off.
As a seed investor, deciding to invest or pass always comes down to one thing…do you believe that the founder can pull it off. At later stages there are lots of data points to evaluate - growth rates, margins, cost of customer acquisition, etc, etc. There are many reasons to be excited about or uninterested in a company beyond just the founder. That’s not the case at seed. There is just one data point.
There are lots of reasons to pass on a company - competition, market size, market dynamics, etc. - but none of it really matters if you believe the founder has what it takes to overcome the challenges they will inevitably face. Every company has problems. Every market is hard. The difference between deciding to invest or pass at the seed stage comes down to the founder. Investors are making a call not based on evaluating a company’s metrics, but based on a personal evaluation of the founder. When investors pass on a company they are not saying that the company isn’t good but that founder isn’t good.
As an entrepreneur, you have to understand this situation and not pitch your company, but instead you have to pitch yourself. This is hand to hand combat. This is a knife fit. You have to convince someone who is trying to find every reason not to give you money to forget the hundreds of problems facing the company and decide to make a bet on you as a person. They have to forget about all the other companies and founders they could instead invest in. They have to ignore all the questions and comments they will get from LPs and other investors. They have to admit to themselves that they really don’t know what will work and what won’t work. Instead of all this they have to decide to leap off a cliff with someone they tend to hardly know. This is a hard ask, but not impossible.
The only way to turn the odds in your favor is to lead from the heart, not with the head. Pitches don’t work. You’ve got to make someone feel what you feel. You have to show your soul and get someone else to understand what makes you tick. By putting yourself so far out there, being passed on cuts really deep. Regardless of what they say, when an investor passes it means they don’t believe you have what it takes. I’ve been there and it’s rough.
Because of all this, seed investing is not just business…it’s incredibly personal.
