Warning To Entrepreneurs: Be Wary Of Wolves In Sheep's Clothing
I'm currently working on InsightStudios.co, a startup studio. I've been trying to figure out how to fund this thing in Chicago, a non-trivial task. My current thinking is to build a professional services business and use the profits from that business to fund the startup studio. Ask me again in a few months if it's working. The jury is still out.
In the process, I remain open to direct investment in the studio. It's not clear to me at this time how that will happen, but I'm talking to lots of people to figure it out.
One of the "venture investors" a came across in my networking is David Beazley. Now before I go any further, I want to give David an open invitation to contact me at any time to correct the record if I get any of this wrong. Email me at firstname.lastname@example.org.
I had never met David before and I have never heard of him before a few weeks ago. After five meetings, our conversation ended abruptly yesterday. I don't want to share all the bloody details of our exchange so let me just say it didn't end well. David is not an investor and he's not a partner of InsightStudios or any of my other companies. At this point, he's not even a friend. I pretty sure he hates my guts right now. Oh well. Those who live in glass houses shouldn't throw stones.
There were several red flags in the process of getting to know David. These red flags are always more clear in hindsight. I'm working to make these red flags into predictive indicators, which is the purpose of this post. If we can make these things predictive, I think it will be helpful to all entrepreneurs who are raising money anywhere. We all need to be efficient in fundraising and I hope this can help.
Here are some of the reg flags I've uncovered in the Beazley case.
- Lack of deep startup creation or investment experience
- Strongly held belief that private equity or other experience with established businesses is relevant to startups
- Belief that the investor, not the entrepreneur, is the hero in the deal
- Defensiveness around background and using irrelevant examples to justify "expertise" in startups
- Changing focus of the conversation from one meeting to the next
- Making introductions to people who aren't helpful
- Hiding and protecting introductions from other people you know would be helpful
- Making unbelievable claims or commitments and then not following through
- Asking for a revenue share on referrals and email intros
- Otherwise jerking you around
I don't really feel like documenting examples of all of the things David did during our five week process. I assure you there are stark and compelling examples for all of the 10 red flag items above. Clearly, I'm an idiot for spending so much time with this guy.
Instead of dwelling on my negative experience with Mr. Beazley, let me turn to what you can do to avoid this. It's what I should have done before engaging in any conversation about investment or partnership.
Key questions to ask every investor:
- How many startup investments have you made? Startup examples only please.
- At what stage do you like to participate?
- What were your last three deals? Please name the company and explain why you invested.
- Where does your money come from?
- What is your track record in generating cash-over-cash returns for investors?
- We are a seed-stage (insert relevant stage) investment. What are the most important elements of a seed-stage deal from your perspective?
- Please explain your relationships with entrepreneurs you've backed in the past?
- Please provide examples of entrepreneurs that can provide a reference for you? I'd like you to make an email intro.
I think that's a good place to start to vet an investor. And yes, you must vet these guys! I think it's a good idea to force prospective investors to answer these questions before having ANY discussion about investment. Just explain that you want to know who you are dealing with before you consider inviting them into your business and your life. If they won't cooperate or if they are elusive, just politely tell them you'll pass and that you're not interested.
If they get angry, defensive, threaten you or start telling you how accomplished they are, then tell them to fuck off. Yes, I'm serious. Don't put up with this crap.
In David's case, he actually compared himself to Jerry Rice. I'm not making this up. Even though David is primarily a private-equity fundless sponsor, which doesn't work with startups in any way, David claims he's the Jerry Rice of venture investing and entrepreneurship. Really? Jerry Rice is the GOAT (Greatest Of All Time!). David Beazley thinks he's the GOAT of venture. I have all his emails if you don't believe me. I still don't believe it actually. It's so outrageous. The human mind's delusional capabilities never cease to amaze me!
In not so many words, I eventually told him to fuck off.
Has anyone else worked with David Beazley before? I'm curious to know what your experience was like. It sounds like he's made a few early-stage investments, although he didn't share specifics. Is David an investor in your company? Please contact me if you're willing to share some details.
In addition to his overinflated ego, I think his real problem is lack of startup experience and failure. He just doesn't realize that private equity is not the same as venture capital. And I don't think he has much respect for entrepreneurs, or maybe he just doesn't have any respect for me. Either way, I think he's kind of a douchebag.
As always, I'm happy to be proven wrong.