Helpful Thought Experiments
Thought experiments can help internalize the lessons learned from studying fundraising psychology.
I have found that thought experiments can be a helpful tool to better understand the implications of the founder and investor psychology I discussed in the prior two chapters. Here are a few specific examples of such thought experiments.
Whether You Think You Can or You Can’t, You Are Right
Close your eyes. Breathe. Tune out all noise, all thoughts, all doubt, just for a bit.
Now think about your startup. Imagine the future. Can you see a path to building a billion dollar company? Despite all uncertainty, challenges, ups, downs - do you actually see a path you truly believe in?
Note that this is not a pitch exercise. Just a frank conversation with yourself.
If you don’t believe, nobody else will. Investors certainly won’t. They will intuitively sense your doubt and move on.
Now close your eyes and actually try the exercise above. Whether you think you can or you can’t, you are right.
You Have Built a Unicorn Already
While doing the previous exercise, did you conclude that “you can?” Then you should assume you have already built a unicorn. A few years from now, it will be a reality. You still have to walk the walk, but it is going to happen. Why have such confidence?
Ask yourself, what created the future that you imagined? It wasn’t just blind luck. You had insights that you identified that other people didn’t truly understand. And you were right. There were hard things along the way, but those were details that you ultimately overcame. There were trends, fundamental truths about the world that you got right. Walk backwards from these trends to the idea. That’s today.
Those fundamental truths and the ambition to pursue your vision are the sources of your confidence.
A word of caution: don’t let your confidence turn into arrogance. It’s not only off-putting, but it will also blind you to reality. Seeing the world as it is and being able to react quickly is of critical importance to building a successful company.
Investor’s LinkedIn
I’ve mentioned several times that VCs are in the business of outliers, where one amazing investment can return the fund by itself. It’s worth trying to imagine what this actually means for the career of an investor.
Go ahead, give it some thought.
Investing in a single unicorn is a career-making move. It probably puts the investor on the Midas List, returns the entire fund and then some, elevates their status within the firm, secures another fund, and makes them extremely wealthy (because GPs share in the fund’s upside).
That’s why, when you go to an investor’s LinkedIn or profile page, you often see things like “first investor in X” or “led Series A in X” where X is an extremely successful company that brands the investor for the rest of their career.
Of course, most investors will not rest on their laurels. Instead, they will leverage their first big success to attract other entrepreneurs building great companies in the hopes of uncovering another diamond in the rough.
So that is what’s at stake for the investor.
Now remember: you have built a unicorn already. So you have a diamond to offer. If someone passes, it’s their loss - they lost an opportunity for a career-making investment. And if someone is excited to invest, make sure to do your due diligence. There is nothing worse than partnering with someone who is a bad fit for you or your startup as I explain in Advanced Investor Pre-Qualifications.
When Would You Invest?
Imagine that it is early 2004 and you run into Mark Zuckerberg, who says he is working on this new company called TheFacebook. He says he is looking for capital and asks if you want to invest.
But there is a catch: Mark says that the valuation of the company is $1B. That’s pretty crazy for a website for Harvard students that hasn’t launched just yet, no?
Would you invest?
Fortunately, we have the benefit of history and we know that $1B would be a steal because these days Facebook is worth $1T. Contrast that with the actual reactions to Facebook’s fundraising history. Many pundits thought that Greylock was crazy to invest $27M at a $500M valuation in 2006, and Microsoft was insane to invest $240M at a $15B valuation in 2007.
I think this thought experiment ties together the lessons of the previous three hypotheticals.
For example, Facebook was a billion dollar company from the start. Naturally, they had to walk the walk and keep earning their valuation through various milestones. But it was a diamond in the rough that made many investors’ careers.
Of course, nobody knew that Facebook would actually be that successful. Not founders, investors, executives, or the media pundits. But what really mattered was that the Founder and CEO had a vision and the ambition to pursue it, including by partnering with investors who were supportive. The rest is details - with a solid dose of luck.