“No offense, but VCs are overrated.” I listened quietly as an entrepreneur who’d recently closed a round of funding voiced his frustration. “One day they’re investing in your business model, and the next day, they want to fundamentally alter it.” It’s nothing I hadn’t heard before – skepticism of their VC’s motives, claiming they seemed far more aligned with their own interests rather than their investees’ interests.
Time and again, VCs and entrepreneurs fail to see eye to eye. Having worked on both the entrepreneurial as well as the VC side of the startup ecosystem, I’ve found that the way each operate – or more accurately, thinks – to be at odds. However, being able to shift between these two ways of thinking about a business is incredibly important in assessing its viability. Ultimately, being able to take a step back to “think like an investor” can result in being a game changer for any early-stage entrepreneur.
By developing an investor’s mindset, entrepreneurs benefit in three pivotal ways:
- Entrepreneurs gain a comprehensive understanding of the startup ecosystem, complementing their laser-focused approach to building their product or service with a bird’s eye view of the market’s influence on business success.
- Entrepreneurs are better poised to manage their relationship with their potential investors and set balanced expectations.
- Entrepreneurs become well-versed in their startup’s investability potential, learning how to build a more sustainable business and how to effectively pitch their business to potential investors.
Before we dive into the benefits of “thinking like an investor”, let’s understand what it means to think like an investor – it is to be concerned with the direction of the world. It is to question, “what dominating trends is the world likely to see in the next 5-20 years and which companies are likely to spur those trends?”. It is the goal of an investor to identify and capitalize on companies that will impact the fabric of society in the coming decades.
To think like an investor is to recognize that although a good investor’s responsibility is to find the right balance between their interests and their entrepreneurs’ interests, that is not their main priority. An investor’s utmost priority is to make a significant return on their investment. It isn’t personal; it’s business. Remember: Like entrepreneurs, VCs need to stay afloat as well.