Fear
Noun
A feeling of distress, apprehension, or alarm caused by impending danger, pain, etc.
When I first started snowboarding sixteen years ago, I was filled with fear. I had anxiously read about fatal accidents, concussions, and the general sense of apprehension that comes when you place your life in the hands of a 150cm piece of wood coated in ultra-high-molecular-weight polyethylene. I coupled these daunting facts with hours upon hours of watching Shaun White and Travis Rice effortlessly cruising through the most epic and beautiful mountains, wanting to do the same. It was at this point that the fear became manageable – I had a goal in sight. A goal of being able to switch from edge to edge through pristine powder and to join my friends at the bar to regale each other with tales of our conquests on the slopes.
In practice, during those first few lessons, I let fear take precedence over vision, and I paid the price. I fell more times I could count. I had bruises on top of bruises, and my confidence was knocked to its core. At the point of saying “f this to this daft sport,” I heard my inner voice tell me to “relax” and remind me that “I’ve got this.” So I did. I loosened up my stance, ‘sat down’ into the board, and looked forward, not backward. I disengaged my brain, focused on my heart, and on that vision of completing buttery smooth lines through the snow. I relaxed. At this point, something switched, and I became one with the board, and the awesome surroundings, and saw a clear pathway to achieving what I wanted. I still fell once in a while, but hitting the surface when you are relaxed rather than stiff is far less painful and more controlled. I still had a healthy degree of fear of injury, and I was glad of that, but I used it as a checkpoint rather than a barrier. Most importantly, I learned that when faced with something you fear, you must a) relax and b) never lose sight of what you want to achieve.
This is a topic that is close to my heart and one that, as a VC, I have spent many years experiencing both from my entrepreneurial fears and those of the people I have had the pleasure of meeting and working with in my career. I believe that an entrepreneur’s attitude toward fear is the single most important part of any investment due diligence process. In my opinion, this trait has a direct correlation with the positive performance of an investment. Attitudinally, a healthy respect for and defiance of fear is essential.
Fear of Failure
This category has been explored inside and out for decades, but the impact of fear on entrepreneurial endeavors does not seem to lessen. Without it, you will fail. Too much of it, and the outcome is the same. Failure is really in the eye of the beholder and is often amplified out of proportion by those who have ‘failed.’
In the case of startup investing, an entrepreneur’s experience and attitude toward failure is perhaps the most critical factor when deciding to fund or not. I know of some VCs who will not invest in anyone who has not had two failed startups under their belt. However, this isn’t an amnesty for entrepreneurs whose companies collapsed due to unethical reasons or recurring mistakes. Those who have been victims of negative market forces (such as the advent of LLMs), customer attrition for reasons outside of their control, or an inability to secure subsequent funding are perceived more positively when raising for their next company.
In my experience, one of the reasons why the US startup market will always outperform others is due to its people’s attitude toward failure. They know that the pursuit of the American dream comes with risks and that along the journey there are always bumps in the road that challenge an entrepreneur’s mettle. When I was investing in the US, I began to see failures as badges of honor and liquidations as part of the process of building a career. In other markets, this is far from the case, and entrepreneurs need to be cognizant of the inherent risks before setting up shop.
At the beginning of my career, I had the opportunity to meet an entrepreneur who pitched a cool idea, but it just didn’t check all of our boxes at the time, and we passed. The founder faced similar closed doors from other investors. Throughout all the declines, he was diligently working on another concept, which he came back to present 18 months later. It was a slam dunk business model, and we funded it within 10 days. I am pleased to see that it is still going strong today and that the founder is happy. The lessons I pull away from this story are:
Failure is only temporary.
Remember and prepare for your Plan B to become your Plan A.
Your vision and endgame need to be broad enough to allow for hiccups along the way that do not compromise your goal achievement.
Never take “no” for an answer. It is just a “not right now.” Preserve the relationships with the naysayers as they could bear fruit later.
Failure and success are almost in symbiosis with each other. I don’t believe you can achieve success without having previous (often cataclysmic) failures from which to grow. If you are raising capital, you should be seeking investors who understand, support and promote the relationship between these two forces. Investors whose fear of failure outweighs their optimism toward success are dangerous members of any cap table. Make sure you screen against this in your first meeting with any potential investors.
Fear of Missing Out
I have witnessed mass waves of FOMO at multiple times in my VC career. The first was the 2014 reinvention of virtual reality by Palmer Luckey. The second was the COVID-fueled massive growth in the gaming sector. The third was the 2021–2022 general startup investment craze, where everyone was trying to become a VC or an angel. The latest is the LLM arms race into companies with massive operating costs and unsustainable (or non-existent) revenue streams. During all of these times, due to FOMO, valuations became nonsensical, founders incinerated cash in the pursuit of quick growth, and these two factors didn’t meet in the middle when the startup needed to raise again.
For emerging fund managers, FOMO-fueled environments can be the kiss of death. Achieving allocation in rounds led by top-tier funds is nearly impossible, and if you are lucky enough to get a seat at the table, the valuation you will likely pay will carry a seriously high risk of a down-round if milestones are not hit.
For entrepreneurs building FOMO-affected business models, you carry the risk of having investors who have unnaturally high expectations of growth and a circumvention of the usual rules of hitting product-market fit. When the FOMO dies down and reality sinks in, your cap table has a reasonable chance of becoming a major stone in your shoe and a distraction.
Despite the doom and gloom, markets experiencing a mass fear of missing out culture can present significant opportunities for investors and entrepreneurs. As a disciple of Warren Buffett and his analogy to “be fearful when others are greedy and be greedy when others are fearful,” I can’t think of a more apt strategy during periods of FOMO.
My first venture capital exit occurred within the augmented reality space, which was the little brother of VR in 2016. I was not convinced that there would be a mass consumer rush to substandard, hot, unhygienic, fragile, and expensive virtual reality hardware. I have always been interested in solutions that reduce friction of usage and liberate consumers from additional cost and complexity. The founders I funded developed tools that used the existing functionality of a device that was already in the pockets of hundreds of millions of people. Anyway, 18 months later, our portfolio company was acquired by one of the biggest tech companies in the world, and the rest is history.
Venture capital is all about playing chess eight steps ahead of your opponent. FOMO plays havoc with this approach as you have to become more reactionary than proactive. My recommendation is to have respect for the drivers of FOMO but don’t let it cloud your judgment. In short, fear the fear of missing out.
Fear of Insecurity
You have a good job that more than pays the bills, covers a couple of international holidays per year, funds dinners out every week, and still puts some money into the cash ISA each month. For some, this is the epitome of accomplishment – and why not? This is an excellent outcome. For others, they can have all of this and yet still not be at ease because they have an idea burning a hole in their pocket. A startup that could release them from the humdrum, fulfill their soul, and make them boatloads of money in the process. Those who dare to stand firm on the push-and-pull factors of these driving forces and commit to either path are those who will find enlightenment.
During the investment process, especially for first-time founders, investors should carefully determine if you are ready for the insecurity of startup life. Knowing that in 3/6/12 months’ time you may not have the capital available to pay the mortgage or the childcare bills is either a huge motivator for success or an iron weight around your neck. One of the most important questions I ask founders is whether they are ready for startup life, and I will ask it repeatedly throughout the due diligence process, from beginning to end. One such example was a set of founders who presented a compelling business model. They had the sector experience, the technical know-how, and the plan to make it a reality. After two months of in-depth research and in-person meetings, a few days before agreements were to be made, I asked them the aforementioned question but in a different way. I inquired if they were ready to not have a holiday to their favourite tropical destination for the next three years and not renew their car lease in two years’ time, opting to buy a second-hand vehicle instead. They finally confirmed they were not comfortable with those compromises, and so the process ended that day.
The reality is that it will probably take more than 12 months for your fledgling company to generate its first £ of revenue, and you need to be prepared for that. Investors won’t look negatively on you if you supplement your income with consulting or driving for Uber in the first year of your company’s lifecycle. Also, consider the emerging (and very welcome) focus on sustainable business growth where profitability is factored in from inception. This may compromise Reid Hoffman’s hyper-scaling ethos; however, not all companies should grow that fast using expensive venture capital.
I have recently heard about more founders trying to sell down a percentage of their position on the cap table at earlier funding rounds so that they can have some financial security. I was used to seeing this happen from Series B and beyond, but rarely beforehand. The price a buyer is willing to pay for shares at Series A is just not enough to make the downstream risk worthwhile. From an investor’s perspective, if an entrepreneur wants to sell stock this early, there may be more underlying problems that should cause concern regarding the future longevity of the investment. No one should criticize you for wanting to reduce financial insecurity, but they may not want to fund it if, by doing so, it decreases the chance of a bigger outcome.
A fear of insecurity is essential for any start-up founder, but it needs to be in balance with your commitment to the goals of the company. It should be a motivator to keep pushing, not a sentence next to your name.
Fear of Disappointment
At the beginning of my career, I met a team of entrepreneurs who had a fully featured product for a market in which they all had a deep level of domain expertise. They were so confident in their future product-market fit that they had already built over a dozen cross-sell product features without raising a cent.
When it came to raising capital, my first question was centred on why they built so many products without any customers and their inevitable feedback. Their response told me everything that I needed to know. Initially, they said it was because they believed they had such an in-depth knowledge of the market that they wanted to delight their future customers with their foresight. After probing a little further, it was really because they feared market rejection, so they built extra features in case their original base product was not successful.
In my experience, great product managers focus on what features they can remove, not what they can add. They supplement their fear of overly thinning their product with copious amounts of accurate user feedback to make the right decision. With more actual customer feedback, a “leap of faith” becomes a “leap of conviction.”
Equally, I have witnessed entrepreneurs building businesses to cater to FOMO and the latest investor appetite. I don’t need to tell an entrepreneur that building a business just to appease investors is a strategy that will almost certainly fail.
The Fear of Your Weaknesses
The 19th-century philosopher Friedrich Nietzsche said that one of the best days in his life was the day when he reclassified all his negative qualities as his best qualities. So, rather than banishing those aspects of your character that you think are negative, you bring them home and accept them.
Great entrepreneurs realize their weaknesses early and fill them in with the skills of other people who are at the top of their game in those areas. I have seen entrepreneurs who realized this too late, tried to self-teach themselves in sales and marketing or coding, and the company collapsed six months later. Despite what OpenAI is prophesizing about offering the tools to create a billion-dollar sole trader business, I fundamentally believe you can’t do this alone. Your own weaknesses (everyone has them) won’t allow you to.
The best pitches I received were from entrepreneurs who stated in the first meeting their own superpowers, shortcomings, and their plans to fill the void. Hiring people who are smarter than you is a blessing and one that should be encouraged throughout a business’s lifecycle. It took me at least fifteen years to fully identify, accept, and harness my weaknesses and to turn that knowledge into an advantage. The awakening it creates is pretty bloody awe-inspiring. This awakening provides the ability to hyper-focus, and the way you resource your company is so much more intuitive and effective.
The Sum of All Fears
I guess that the real solution to conquering fear when launching something new is to only do something that you truly, madly, deeply believe in and are willing to put everything on the line to make it happen. As W. Clement Stone once said, “Thinking will not overcome fear, but action will.” Just get on with it and enjoy the ride.
Fear will creep in, and you will need to embrace it but also keep it in check. Fear’s best friend is anxiety, and this can be crippling if you let it. Letting anxiety take a foothold in your mind will cause you to miss opportunities, hate your entrepreneurial experience, and drive you back to the career you once wanted to leave behind.
Life is about living, and business is about losing and winning. I have always given myself a little bit of time to mourn the failures and then quickly get my shit together, get back on my feet, and fight on.
Anyway, best of luck with all of your endeavours, and don’t forget to sit into the bindings if you are starting out snowboarding next winter!
Important note:
An extra special thanks to my son, Arthur, who when asked to paint a picture of what came into his mind when he was scared. Naturally, he thought of a rainbow ghost shaped like a heart. Here’s to the purity of a child’s mind before it is shaped by the world!
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