In my job on the front lines of venture capital, I get to see about 3-4 business plans and pitches per day. This is the lifeblood of our firm and our industry. I always tell entrepreneurs that without them, I don’t have a job – if they don’t do the hard work of starting the companies, then I can’t exist to invest in them. I give thanks daily for entrepreneurs.
The best venture capitalist partners know how to be skeptical – but they are not pessimists, they are optimistic skeptics. They need to be able to see through a lot of noise that is a new business idea to see if there is something to be excited about in the long term.
The noise starts for us when we get pitched by the entrepreneurs. The best entrepreneurs are great salespeople, and they know how to build an exciting pitch that gets their audience all fired up and loaded for bear. As an investor, right at that time of the pitch, I tend to see nothing but possibility; I am the ultimate optimist. But then time passes and I start to slide down the pitch decay curve.
This process of getting super excited by a new startup idea reminded me of the chemistry that I have been helping my daughter with lately – specifically the excitement decay curve. It is the job of the entrepreneur to get me as highly excited as possible, but it is my job as an investor to keep my eye on the end state. How successful can this startup be in the long run? Is there a big market to support this idea and turn it into a big idea? Is this the team that can get this off the ground?
The most successful venture capitalists know this decay curve exists, and they don’t make snap decisions to invest in a startup. They let time work its magic, and they slide down this decay curve to see what is really on the other side before making an investment decision.