avatarAaron Dinin, PhD

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My Former Investors Wanted to Invest In My Next Startup (Even After I’d Lost All Their Money)

What if losing all an investor’s money isn’t as bad as most entrepreneurs think?

Everyone deserves an occasional mulligan

One of the worst parts about raising venture capital for your startup is that it nearly guarantees an incredibly awkward conversation at some unknown point in the future. That conversation is going to be with an investor after you’ve lost lots of that person’s money.

I realize most entrepreneurs aren’t thinking about this pending conversation while they’re busy fundraising. After all, they’re too busy worrying about how to actually get investors. However, since the majority of startups ultimately fail — including venture-backed startups — even the entrepreneurs who successfully raise capital are more than likely going to find themselves face-to-face with someone whose money they ultimately lost.

I had the awkward pleasure of being in precisely that situation a couple years after my first venture-backed company failed. I was at a conference when I bumped into a former investor whose rather large pile of money I ultimately squandered. Admittedly, it had been a little while, but, as soon as I saw him, all the feelings of failure and inadequacy rushed over me like I’d only just told him I was shutting down my company last week.

To his credit, he didn’t make our meeting awkward. In fact, he was very nice, asked about my health, my family, etcetera, and he even mentioned how much he enjoyed reading my articles about startups and entrepreneurship. “You paid for most of the lessons,” I wanted to tell him, but I decided that joke wasn’t appropriate. Instead, I said something much worse.

“I’d love to catch up sometime and grab a coffee,” I blurted out as the conversation was nearing its natural end. I don’t know why I said it. I would have rathered a root canal than to awkwardly spend anymore time chatting with this man I’d so egregiously failed. Maybe he felt the same way, but, rather than admit it, he agreed, and we scheduled a time to meet for coffee during a break in the conference the following afternoon.

The next day, I walked into the coffee house across from the conference center a few minutes early, and I was surprised to find my former investor already sitting there. Even worse, he was sitting next to another investor from the same failed company.

“Well, shit” I thought as I waved hello and sat down. “They’re not allowed to ask for their money back, are they?” I wondered.

“Guess who I bumped into,” the first investor said as we settled into our chairs.

“Hey there!” I awkwardly grinned to the second investor. “Great to see you! I didn’t know you were at this conference, too.”

The three of us spent the next 20-ish minutes doing mostly routine small talk, sharing interesting experiences from the conference, and telling stories about what we’d been up to in life since we’d last spoken. This all happened as we all seemed to intentionally avoid making any reference to the giant elephant in the room which was the topic of how and why we knew each other. It got to a point where I’d convinced myself the coffee meeting was just a casual chat, and it would all be over within the next 30 minutes.

That’s when, during a small pause in conversation, the VC I’d originally bumped into cleared his throat in a thinly veiled attempt to steer the subject toward what he’d actually wanted to talk about. “So,” he began as I nervously fidgeted with my coffee cup. “What are you working on these days?”

“Nothing, really,” I said, almost defensively. In my head, I began wondering if they felt entitled to equity in a new startup. Was that an unspoken rule of fundraising that I didn’t know about? Do former investors whose money you lost get equity on any new companies you build after? “I’m mostly doing consulting work at the moment. Nothing like a traditional startup.”

“That’s too bad,” the investor replied, more disappointed than I’d expected. “I figured you were working on something else and wanted to tell me about it.”

“Really?” I asked. “Why?”

“You invited me to meet,” he answered as though it were the most obvious expectation in the world.

But I was confused. Why would he want to risk investing in me again after I’d lost so much of his money with my previous company? “You’d seriously be interested in investing in another startup of mine?” I asked. “Even after the last one failed?”

The two VCs looked at each other and laughed. “We get that a lot,” the second VC explained. “But we’re not mad at you for your company failing.”

“You aren’t?” I asked. “Not even a little annoyed?”

“We would have all preferred a different outcome,” he admitted. “But it was business. You fought hard to the end. You used the money we gave you responsibly. And you did a great job of communicating the entire time we were invested. There’s not a whole lot more to want as investors besides, of course, a big exit. But, to be honest, an easy loss isn’t the end of the world. It’s actually much less annoying to deal with than a company that hangs on for too long. We write-off the loss and quickly move on, happy to have more time for other things.”

“Yeah,” the first investor agreed. “I’d happily invest if you had another company with strong traction. You were a great founder to invest in. Easy to work with. And you’ve got lots of experience. Hard to argue with that combination. The market just wasn’t right for what you were building last time. But, if you ever take another swing, be sure to let us know.”

Despite the general awkwardness of the meeting, I came away from that memorable conversation with a significantly more nuanced understanding of venture capital and fundraising. It would help me go on to successfully raise capital for my next company, including another investment from one of the investors I was meeting for coffee.

Specifically, thanks to that meeting, I began to understand how VCs have a much longer sense of a market than most entrepreneurs. Whereas entrepreneurs get so focused on the immediacy of what they’re building and trying to grow, investors understand that markets and the founders building startups to capture them both take years to mature. Decades, even. Heck, that’s why investors talk so much about investing in great founders. Investing in great founders doesn’t necessarily mean a founder’s first company is going to be a huge success. That’s OK because good VCs are investing on longer time horizons. They realize the slim likelihood of your first company being a big success. Nor will your second or even your third. But a great founder is ultimately going to figure things out, and that’s what VCs want access to… someone who’s eventually going to figure things out.

As you build your companies — and the relationships involved with them — keep this maturation process in mind so you can do what investors do and stop measuring yourself by the outcome of a single startup. Instead, Measure yourself as an entrepreneur by the breadth of your entire journey. Keep growing, keep learning, and keep building.

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Entrepreneurship
Startup
Venture Capital
Business
Fundraising
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