Most of us don’t have millions to invest but can set aside a portion of our income to do so. The purpose of doing so is to grow our personal wealth. So, why should it be different for investors?
One might say, the more money you have, the more risk you can afford to take. But even then, you’d take calculated risks and not recklessly throw money around. So all co-founders seeking investment should always bear in mind, the focus should always be on how likely you are able to deliver returns that match the risk profile of your venture.
The dangers of passion
I’m not saying passion is bad. It’s just one of the items that have relatively little weightage on your how “investable” your venture is. The only exception is if making money is your passion. Also, please understand that Steve Jobs is the exception rather than the norm. So take that advice with a pinch of salt.
Ever had a dream job when you were a kid? How many of you still have the same dream job throughout your teens? I’m quite sure it has changed a couple of times. Passion is like a dream job. It changes with circumstances and time. So just because you’re passionate about something today, does not mean you will continue to be.
I also liken passion to a hobby. Notice how hobbies generally don’t make money, but also cost you money. Hobbies don’t require you to deal with commercials. You are prepared to spend money on it. Turning something you are passionate about into a business means you can no longer enjoy it. Imagine you love fishing. You enjoy the peace and quiet, the process of waiting for a fish to bite on your bait. Now turn that into commercial fishing. Your investors scrutinise the yield of each fishing trip. You get called into long boring strategy meetings, forced to make difficult decisions about capital expenditure on fishing equipment. Miss a KPI and your phone rings off the hook, with investors demanding an explanation.
Being too passionate can give you tunnel vision. You will find all sort of excuses to only focus on things you like. In the process, you neglect to build other relevant expertise and skillsets for success. A passionate programmer, who can afford to do nothing other than programming, is unlikely to have developed commercial management skills. At the end of the day, if made to build a scalable business, the programmer will fail.
The point is, investing in a co-founder who is very passionate is not good enough. In fact, it might be a recipe for disaster. Many do not realise the additional role and responsibilities when turning their passion into a business. When things get tough, they are likely to call it a day. Overly passionate people are likely to have a very narrow perspective and cannot read the market accurately.
What matters more than passion?
Remember, investors invest to make money. So what matters is the opportunity. The opportunity helps the investor see the possibility. The possible returns the investors may seek to get from their investment. Whether the product addresses a market need, the market size, the competitive landscape, the exit, so on and so forth.
After seeing what is possible, the investors look at how probable is it to realise that return. To see how probable it is, they look at the team. The experience and strength of the team determines the probability. The assessment of passion at this stage is with respect to motivation instead of anything else.
So what’s the deal with passion
So let’s get this right. Investors don’t care about your passion. They care about making money. The only passion that is relevant, is being passionate about success.
Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected]