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Friday Funism – Fear vs Greed
Actions always speak louder than words. And if you can glean the motivations behind those actions, it can tell you even more about situation. One of the questions which we often ask out loud at NextView is if a person or firm is motivated by “fear or greed?” The context for this assessment is typically around a fundraising event – the approach, when it should occur, and who is participating, etc.
Is a Founder raising a new round well in advance of cash-out date because she sees an opportunity to put more gas in the tank ahead of what current underlying business metrics would suggest (i.e. greed)? Or, is she concerned about small cracks in the business so wants additional cash cushion as an extra safety net (i.e. fear)? Is a new outside investor joining a round because they see a straight-line to a money-making venture (i.e. greed). Or, is there a situation where there’s risk of “missing out” on the last “hot” company in the space (i.e. fear)? Although the outcome may be the same, the underlying rationale for the decision-making is very different, and this can affect our and other parties’ own reactions.
One of the most relevant scenarios that this fear vs. greed lens applies towards is insider-led financings. With the proliferation of multiple seed rounds prior to a Series A, these situations are coming up increasingly in the early stage startup ecosystem. My partners and I have seen both extreme ends of the spectrum, along with shades in between: from super-excited existing investors wanting to buy ownership by pushing founders to take additional insider capital before a new outside fundraising; to broken syndicates coupled with dim company prospects leaving entrepreneurs seeking a lifeline from existing investors to avoid loss-aversion.
Of course, true motivations cannot be entirely divined. Because of that fact, perception is reality. So in many cases, it’s therefore a Founder/CEO’s job to create a situation where the optics of a round look like they’re driven by greed rather than fear, even if in reality it’s some combination of both (or just merely fear). That story is built brick by brick through subtle cues of amounts of insider participation, who issues a term sheet, structure of the financing, etc. But it’s also built by the language and positioning that the Founder uses to describe the situation and the company’s progress to date & outlook.
Startups are perilous endeavors, and elicit strong emotions from everyone involved along the way. This week’s Friday Fun-ism reminds us about shining light on those two feelings, fear and greed, which frequently sit on two opposite sides of the spectrum, can provide insight into what’s really going on. Of course, neither of these are virtuous emotions. Plus, both can catalyze irrational responses and decisions. Instead, other emotions like excitement, conviction, and confidence can inspire and motivate on fundamentally different (and more positive) levels. But in many situations my partners and I ask ourselves, are folks here acting out of either fear or greed?