The Ridiculous Spectrum of Investor Feedback

How do you know if the advice you just got from an investor on your fundraise was any good?

(Spoiler: it's probably terrible advice, and you're about to waste a lot of time following it.)

We review thousands of pitch decks at Startups.com, and as part of that process, we hear countless tales of Founders having gotten "really strong advice" from an investor they talked with about their deal. They get super hung up on changing everything to accommodate this feedback.

My question is always, "Who was the investor, and what were their qualifications to give that advice?"

Whenever I ask, the Founder says "Well... they are an INVESTOR!" as if claiming that title is tantamount to irrefutable knowledge. Look, I invest in the stock market, but that doesn't make me Warren Buffet, and you should absolutely not take my advice on stock picking, no matter how junior you are!

They are All on the Spectrum

For those unfamiliar with the massively broad spectrum of investors, let me first start by saying, well, it's a massive spectrum. Most of us don't spend time with lots of investors, so we can't tell the difference, but the difference is incredible because they all have a significant bias toward their own backgrounds and needs.

Let's start by defining both ends of the spectrum. On the left side of the spectrum are your "most prominent venture capitalists" like Sequoia, Andreessen Horowitz, and Kleiner Perkins. When they review our pitch decks, the feedback they will give will be based on their needs rather than ours. They will tell us that this needs to be a multi-billion dollar opportunity, and we will need to raise hundreds of millions of dollars. And they are right — if we raise from them (which there's a 99% statistical chance we will not).

On the right side of the spectrum is your rich uncle who made all his money in real estate in the 1970's. He will tell you that you need to be seeking profit in year one, that you should be talking about how you'll deliver an Invested Rate of Return (IRR), and that you should also consider talking to a bank. And he would be totally right — if we were opening up a bakery in 1978.

How to Tell Who's Who

You don't actually need to know precisely where everyone lands, you just need to know that the likelihood that the person giving you advice is well-aligned with your particular fundraise is probably low. That only means that while getting feedback is good, we have to calibrate that feedback to the source. The first step is simply asking the question, "How does their experience sync with my opportunity?"

Here's an example: A Founder tells me that a local investor has told them that their valuation is way too high. I have the same battery of questions every time:

1. "Do you know how many investments this investor has made in startups in the last 3 years?" What I'm really asking is, "Is this person a professional investor who does this for a living, or are they just someone who writes a check every now and again?" Because if they aren't active in the investing scene, their information on current valuations is likely wrong.

2. "Have you gotten this same feedback from multiple investors or just this one?" As Founders, we're looking for trends, not blips. Any one investor can make an outrageous suggestion in a vacuum that no other investor would corroborate. Every investor has a bias, and going all in on one person's bias is dangerous as hell.

3. "What do you think makes this investor qualified to give you advice on your specific fundraise?" Of all the questions, this is the one that stumps most Founders. It didn't even occur to me to ask this question in my first 20 years of being a Founder, so I get it. The reality is, that when giving advice, investors rarely get pre-qualified. It's like saying you'll write a check instantly makes all your crazy-ass feedback credible. It does not.

Even just asking these questions will put most Founders ahead of 90% of their peers when receiving feedback. Even if we don't entirely know the answers, a healthy bit of skepticism is in order.

The Fatal Path of Bad Advice

I bring up this spectrum because my fellow Founders don't take all investor feedback as gospel and blindly change their business model, pitch deck, or focus based on a single thread of feedback. It happens so often that I can't even wrap my head around the scope of it.

9 times out of 10, when we unpack the advice a Founder has just gotten, the outcome is, "Holy hell, that would have been the wrong path!" That's not because the advice itself was "bad" (always well-intentioned). It's that it's rarely well-suited to the Founder's actual situation. So be careful, friends.

When it comes to advice, I'll leave you with the same advice I gave to my son the day he was born in a long letter that I wrote him. I wrote to him: "Question everyone - even me" so he would never take anyone's statements for granted. I'm sure when he becomes a teenager I'll regret every word of that, but I have to say — it's served his old man awfully well, and I think it will serve you well too.

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