Convince Investors to Fund You Page 5

  Everything was wonderful except for this one piece, which was how the founders were interacting with us to do the sale of their company. The founders were really driving things, using FOMO [fear of missing out] tactics. They said, “Hey, if we don’t hear from you by Friday, we’re going to have this term sheet from somebody else.”

  At our stage, the pre-seed stage, somebody else might set terms. But it’s not like a Series A Round when somebody takes 80% of the round, and it’s over. At this stage, the checks are more collaborative. People are coming in for 10% or maybe 15% of the company at most. We’re working with smaller amounts of capital. The risk appetite is high, but you also have to distribute that risk.

  When we have had founders, who had sales that were not genuine and their approach was based on manipulative techniques, we said no.

  We’ll go back to the example of the team that had one piece that caused trouble. I returned to that team and I wrote a long piece of feedback: “Listen. I really liked everything. But one thing that has really put us in the No camp was your leadership ability and your ability to walk us through this process. Because one of our core beliefs is how people are in one context is how they are in all contexts.”

  So, if the person is using spammy, infomercial techniques like “act now”—everything is fast—that’s probably how they will treat their employees, how they work with customers and things like that. We look at the situation from a higher bird’s eye level of “would we want them doing this with other people as well?”

  I said to the team, “It would have been authentic for us to hear something that is really happening. Maybe you have an engineer that you want to hire and if you don’t close by Friday, you’re going to lose out on that person.”

  There is real pressure that happens in this business. But I’d rather hear about that, instead of FOMO tactics to get us interested. I’d rather build our relationship up based on what you really need, not from smoke-and-mirrors and fakeness. So, that’s a big mistake that people will make: Their sales process isn’t authentic.

  Another mistake is people focus too much on the Total Addressable Market and not enough on the Go-To-Market Strategy.

  We have invested in a company that had one of the worst pitch decks I’ve ever seen. People asked, “Why would you invest?” It’s because of the relationship we built with the founders.

  I say that people are always more dynamic than a 2-D deck on what they’re doing.

  One team, for their app, had their Total Addressable Market as all cell phone users. That’s just really sloppy. That’s probably the sloppiest we’ve ever seen.

  When it comes to Total Addressable Market, you’re trying to get a big number on a slide. The piece of that market you might get is divided by some number between 2 and 100.

  But what matters to us, when we’re putting that money in, is really your Go-To-Market Strategy. Who do you have a pilot with? How are you going to saturate a group enough to get to the seed stage when you’ll go to real contracts and past the pilot stage? That’s the nuts-and-bolts strategy that we want to really understand.

  First, we want to understand that the market could grow to a certain size. But we really want to know about where you’ll get started and how the capital you’re taking in now will be used to do that.

  Those are two common areas that we see as mistakes.

  Tom: Excellent. Because of your insights about FOMO, I’ll include this interview in my book in the section about FOMO. I write that investors can see through it, and it can be irritating.

  Danielle: It’s so irritating. But to be generous, first time founders are facing that it’s hard out there.

  On the trust side, I see that some founders use the FOMO tactics because the investor side is not well-known for being forthright. It may be that founders have been left with a bad taste in their mouths, and maybe that’s why people use certain tactics. I think that it goes back and forth.

  For our fund 1517, we try to be transparent and forthright. As pre-seed investors, we know what it’s like since we’re raising our own funds. We have sort of a different ethos than maybe bigger, more capitalized funds.

  Tom: Knowing what you know now, what would you have done differently.

  Danielle: One thing is to have started the fund earlier. We started the fund because my colleague and I were running the Thiel Scholarship program. Two years into the program, we had this inkling that some of the young people we were working with would have some big opportunities for them. At that time, we didn’t know what it was like to run a fund or to be investors.

  So, five years in, we had a number of companies that were starting to do really well. For example, Oyo Rooms [now India’s largest hospitality company]—the founder’s initial concept was like Airbnb in India. We would take calls with the founder and he would be in somebody’s home. The founder would say, “This couch needs pillows.” It was all this little nitty-gritty stuff. Today, his company is worth $5 billion in market cap.

  From watching people like this founder start to grow, we thought there is a case to be made to start a fund. If we had started the fund in year three, we could have been more instrumental to those founders.

  That is really “crystal ball work.” With what I know now, of course, I would have started the fund earlier!

  A more practical answer [to the question, Knowing what you know now, what would you have done differently?] relates to giving feedback. I’m working on this all the time. Giving feedback, especially if it’s negative, is really hard. But as an investor, you need to be really good at doing it.

  You need to give negative feedback with people who are pitching you, or with your own portfolio. You have to have these tough-love conversations. You say, “I notice that your company seems to be going off the rails in this way. We don’t like that X, Y or Z is happening.”

  I’ve learned to be a bit more brazen with giving negative feedback. My colleague and I come with a humanistic approach of everyone is where they’re at. At the same time, in working with younger founders over the last ten years, we do have a lot of insight. We have the sense of when things are not going the way the founders want.

  Sometimes, delivering that hard feedback is difficult. And, we do it. But sometimes, I wish we did it a bit earlier. That is a practice for us to be better as investors and better in our work with founders.

  It’s important for founders to know that starting a company and getting investors is a really long-term game, and you’re building relationships. So, if you meet with people and you don’t like them, I recommend not working with them. It’s a long, long game, and you want people who are backing you and who are enthusiastic. At the very early stages, you don’t want to be afraid to call them at 10 o’clock at night and say, “Hey, here’s this thing that is going on …”

  It becomes different as people and their company mature to Series A, and you have a board. There’s a correct way to run a board meeting.

  For your first check in, believer-types, you want them to be going to bat with you all the way.

  Tom: Would you like to add something?

  Danielle: In terms of tactics that can fail … Some people have come across an idea of using touch to build rapport. But it comes across as creepy and weird. I feel, “Stop touching me—this is a professional conversation.” People try all kinds of things

  Tom: I hear you. Some people get too technique-oriented.

  Danielle: Yes!

  Tom: —as opposed to showing up genuine and present in the moment.

  Danielle: Those are the skills they need to practice—to be genuine and in the moment—instead of “I’ll hand the person a hot drink and that will make them feel better about me.” I guess there’s research that says that these things work. But it has to be done in a genuine way and not in a contrived way.

  Danielle Strachman is a cofounder and general partner of 1517. She has worked with young entrepreneurs for about a decade. In 2010, during the founding of the Thiel Fellowship,
Danielle joined to lead the design and operations. She's worked with some of the most prestigious founders like Vitalik Buterin and Ritesh Agarwal. Previous to her work with Peter Thiel, Danielle founded and directed Innovations Academy in San Diego, a K-8 charter school serving 400 students, with a focus on student-led project based learning and other alternative programs.

  Danielle Strachman emphasized that one needs to learn to be genuine and in the moment, when interacting with an investor. Now, Dr. David Bergner shares insights about how to develop one’s communication skills to foster genuine connection.

  Interview with Dr. David Bergner

  Tom: What is crucial for someone to do to communicate well?

  David: To communicate well, you need to know why you’re communicating.

  For example, early in my career, particularly at NASA, I would make the implicit assumption that the communication was all pragmatic. We were doing something, and we wanted it to work. If you had information that was valid, that was good. If you had ideas that might work, that was good. The goal was to solve the problem or accomplish the project we were undertaking.

  I would call my approach at NASA—pragmatic communication. You have an intersection of what you’re doing and what you care about that causes you to communicate. And, others have a similar intention. This is very practical. Being right and being correct are what matter. Having useful ideas is appropriate.

  But I realized I would step on people’s toes, and I found that how people felt was what really mattered. Communicating related to feelings is something I call the affective aspect.

  So, when you’re communicating, you have both the pragmatic aspect and affective aspect. To be effective, you need to keep track of those two things and make sure that you really understand what’s going on. You need to understand what the person you’re talking to really needs. What that person really cares about will include the problem you’re trying to solve. But it may also include their own feelings and their own ego. This is where respect comes in, and disrespect can be perceived. In such a case, that person may not care whether you’re right or whether your ideas are good unless you make them feel good. Or, if you make them feel bad, they are likely not to care whether you’re right.

  My friend, Somik Raha, has built on the work of Robert S. Hartman. Somik says that some of the things you value are countable. This is the pragmatic end. These are our preferences—things we can place numbers on and say that we have or haven’t achieved them. That’s the realm of the head.

  The realm of the heart relates to the affective – things we can describe that we really care about, but perhaps they are not that easy to describe and virtually impossible to count.

  The deeper dimension of value clarity in Somik’s formulation is intrinsic values. And I call this dimension the soul.

  So, you have the head, heart and soul.

  You can look at what people are trying to do and what they care about—but there is a slightly deeper dimension called the frame. You ask, “How is this thing being framed?”

  You can look deeper than what they’re counting or what they’re describing as what they care about. You look at a deeper dimension—a process Thich Nhat Hahn refers to as deep looking. You get your head out of the way a bit. You watch your emotions but avoid succumbing to them. In this state of being, you can just pay attention. In this process, you can sometimes get deep insights. You get in touch more deeply at the level of the human soul. That is opposed to merely counting.

  When you want to communicate well, you might be dealing with a challenging situation. When you turn your attention to the souls involved, rather than the words or things people are counting, sometimes you can get to where the solution to the problem really is. To communicate well is to recognize the head and the heart—and find out where you are. And, when necessary and appropriate, go deeper and recognize these preferences that are being shared are manifestations of who the person is.

  Here is an example. I sat in a coffee shop in Menlo Park (California), talking with Somik about a model I have called The Decision Wheel. A woman came over, and she exuded humility and asked, “How many gallons of gas fit in my car’s gas tank?”

  “What kind of car do you have?” Somik began.

  “You don’t have to worry about it,” I spoke at the same time. “It will stop automatically.” I was referring to automatic function of the gas pump at the nearby gas station.

  “Oh, it will stop automatically,” she said. “So, I don’t have to worry about how much gas fits in my tank. Thank you.”

  After she left, Somik looked at my diagram of the Decision Wheel that was laying on the table and said, “You just used Question-Decision Duality. We just talked about that. She asked how big her gas tank was, and you inferred that she had a value at stake, and she was deciding what to do. And that value would have been that she doesn’t want her gas tank to overflow, and you gave her the information she really needed.”

  “And not only that, Somik,” I said. “I think she just lost her husband.”

  Tom: Oh! …

  David: And Somik thought that was a little farfetched that I would jump to that conclusion. And, I showed him on The Decision Wheel, when you move from the hard side to the soft side you get “Where is this coming from? Why is that question there?” and then if you look deeper, you may find something important.

  About ten minutes later, Somik and I were finishing our coffee. She came over and said, “I’m really so sorry to have bothered you. I just lost my husband—and he used to fill the gas tank.”

  Tom: … wow…

  [Moved by the tragedy, both David and Tom take a breath at this moment.]

  Tom: What should one avoid, in terms of a mistake that would prevent one from communicating well?

  David: Based on what I shared … Avoid talking to someone’s head when you need to be talking to their heart—or avoid the reverse of that situation. Also, be sure to recognize that people caught up in projects are really expressing a part of their soul—in some way. Or the problem may be that they’re failing to express their soul.

  Additionally, we can avoid missing the opportunity to really connect. For example, I saw this visiting poet, who was a visiting artist at Villa Montalvo in Saratoga, CA. She was clever. Her use of language was excellent. The poems were definitely professionally done, but they didn’t touch me. After about twenty minutes, I had some stray thoughts about doing something else.

  Later, I mentioned this to my brother, who attended the event with me. As a poet, he said, “In order to touch someone’s heart, you need to reach deeply enough into your own.”

  And, we didn’t sense that she had reached deeply in her heart to produce these poems. They were poems of the head.

  So, along those lines, let’s realize that excellent communicators use the three dimensions of head, heart and soul. Excellent communicators who stand out, like Gandhi or other notable leaders, reach people’s hearts and who they are.

  You can come from the heart and describe your feelings. But the soul is deeper, perhaps, indescribable. It’s a sublinguistic nature of who we are. So, the stellar communicators who deal with the intense problems we face are those who can reach deeply into their own souls to know why they’re doing what they do—with complete value clarity. They look deeply enough into others around them to know how to touch their souls or to find those aspects.

  Tom: Knowing what you know now, what would you have done differently?

  David: I’ve reflected on this. And, in a meeting at Sofia University where I teach and lead the MBA program, I was listening to Robert Frager as he said, “We should always treat every student with unconditional positive regard.”

  About unconditional positive regard … at one point I was doing some research at the Center for Design Research at Stanford University. Some of people there were studying emotion. One of the graduate students was trained to be an emotion coder. One of the emotions is called “contempt.” When I thought of contempt, I consid
ered it to be deep hatred. But it can actually be mild—like when you roll your eyes while someone speaks. I thought, as a leader, “I hope I never do that.”

  A couple of days later, while conducting a staff meeting at NASA, I found myself rolling my eyes after one of my Branch Chiefs shared something. I realized, “I just did that. I just did contempt.” I saw others roll their eyes. I became truly sensitive to these expressions.

  So, knowing what I know now, I want to avoid expressing contempt, even in its mildest forms, to treat every person with unconditional positive regard. And I want to communicate effectively with the three dimensions of head, heart and soul.

  Dr. David Bergner is an energetic organizational leader, accomplished technologist, and passionate teacher with a strong commitment to his students. He retired from NASA with 30 years of diverse experience in science, engineering, technology research and development, program formulation and management, executive management, and organizational development. He teaches courses in Quantitative Methods, Operations Management, and Decision Sciences at Sofia University in Palo Alto, CA, where he is Chair of Business Programs. His decision science approach emphasizes dialogue processes for effective inquiry, balanced with contemplation and reflection, to clarify values, surface assumptions, and develop an appropriate frame. With this foundation, mathematical modeling and data science can generate insights by focusing inquiry on essential variables and facilitating collaborative deep reasoning. David’s research interests include frame analysis, computational dialogue models, organizational and team factors in data mining, and the emergence of online decision support communities.

  https://www.linkedin.com/in/davidbergner