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Motivation
3 reasons why startup investors seek to understand founder motivation
PSA
Today is Valentine’s Day.
Don’t forget to do something nice for that special someone.
For a particularly romantic gesture, I recommend expressing your feelings by spending 20% - 30% more than you did last year on a box of chocolate.💝
Now, let’s talk about motivation and piña coladas.
Why are you doing this?
Starting a business is really hard.
It’s exhausting.
It’s stressful.
It’s likely to fail.
In my opinion, most of us should never ever do it.
But for those insane people who do, there’s usually a strong reason why.
Prospective investors do well to uncover it.
The Observer Express
Don’t have time to read the entire post right now? No worries, here are the main points:
Running a startup is hard, and not for everyone.
Motivation shapes our behavior.
Understanding an entrepreneur’s motivation is an important component of team diligence for startup investors.
Piña Coladas
Imagine this situation with me.
A middle-aged entrepreneur is raising a $500,000 pre-seed round to accelerate the growth of their premium ready-to-drink (RTD) piña colada brand.
You’ve evaluated the market, the company’s traction, the financials. You feel great about the investment from just about every angle.
Convinced this luxury spin on a Puerta Rican classic is going to change the face of RTD cocktails in the US, you’re prepared to write a $25,000 check.
But before you sign on the dotted line, you decide to take a harder look at the team, just to be sure.
Get Curious
The founder fell in love with the piña colada years ago while visiting Puerto Rico, and after trying hundreds of variations he developed a vision for making a high-quality version more accessible in the US.
He launched the business 3 years ago, and up until now, he’s bootstrapped everything after putting $50K of his own money into the company.
You’ve been impressed by the growth so far with no outside financing.
During a discussion of the company’s financials, he mentions that he has yet to draw a salary.
That piques your interest, so you get curious and ask the question: “Why not?”
“I’m Not Doing This to Make Money”
His answer shocks you: “I’m not doing this to make money. I’ve got all I need thanks to my family; I just want the world to experience the best parts of what I got to experience in Puerto Rico. Plus, I’m having a lot of fun.”
Hold on a second.
How do you feel about that statement?
Maybe you don’t mind, or maybe this gives you pause.
Whatever your response, a critical piece of information was just shared and must now be considered prior to writing that check: this entrepreneur has two primary motivations.
Impact: He wants to make a difference by sharing the piña colada with the world.
Fun: He enjoys the work.
3 Observations
After sitting through hundreds of pitches and investor Q&A sessions, I’ve come to believe that an entrepreneur’s motivation is very important to a prospective investor.
Here are 3 things I’ve noticed on the topic:
It’s a late-stage discussion. Motivation tends to come up in questioning later in the process, near the point of investment. This suggests there’s a “risk mitigation” component to the psychology of these questions, as one of the final stages in the buying process is risk assessment and downside consideration.
Everyone’s looking for different things. Different investors appreciate (and can tolerate) differing core motivations. All investors and entrepreneurs operate from a variety of driving factors, but most have a “primary” or “core” motivation. For example, some investors are in this for fun and resonate with other entrepreneurs who are having fun. Others are in it primarily to make as much money as possible and connect best with entrepreneurs who have a chip on their shoulders.
It’s rarely asked directly. Most of the time, questions arise on this topic indirectly. I believe this is a result of 2 things:
Investors aren’t interested in a founder’s “rehearsed” answers, and answering the direct question “Why are you doing this?” is easier to polish than more nuanced approaches.
I think many investors are unaware that they care about this, so they subconsciously ask questions that encourage the entrepreneur to hint at their core motivating factors without realizing that’s what they’re actually doing.
Why is it so important?
Here are 3 reasons why I believe motivation is important to startup investors:
The founder is very important. During a startup’s earliest days, the founder is undeniably the driving force behind everything that happens in the company. Their identities often become tied to the business on a deep level, and understanding an entrepreneur well unlocks a key to understanding and interacting with their business.
Motivation shapes behavior. I love Charlie Munger’s famous quote “Show me the incentive, and I’ll show you the outcome.” It’s not a direct correlation, but I believe what motivates someone ultimately shapes the choices they make and the subsequent outcomes. Understanding a founder’s motivation helps clarify which outcomes they’re likely to prioritize in the long years ahead.
It’s what shows up when things get tough. When things go wrong, when there’s a hard decision to make, and when it’s painful, what bubbles to the surface? The things we really care about.
3 Questions for Uncovering Motivation
Consider asking the following 3 questions next time you’re prepared to write a check:
Why are you doing this?
How did the company get started, and why did you do it?
What’s your company mission/vision, and how did you come up with it?
Final Thoughts
Motivation shapes our behavior. Therefore, it’s important that startup investors consider what motivates an entrepreneur before entrusting them with capital.
What do you think?
Do you consider an entrepreneur’s motivation as part of your decision-making framework? If so, how do you go about uncovering it? If not, why?
Weekly Observations: 3 Lessons Learned
Trust is more valuable than money.🤝>💰I continue to be reminded of the invaluability of trust. A half dozen introductions, meetings, and new projects arose this week that never would have happened in the absence of trust.
Getting trusted clients in a room together is a good idea.📆This week two of our most dedicated clients were kind enough to join me for a 1-hour video call. Instead of “tinkering in the dark” we decided it was a better use of time to propose a product idea to them and see what they thought. The call was extremely helpful. I left with a much clearer picture of what is important to each client and a clear path forward for how to proceed. Well worth the effort to coordinate.
Having a team is the greatest thing ever.👥I’m continuing to learn how to delegate. It’s fantastic. This allows me to focus my time and energy on projects and activities that are of the highest value to the company and that I’m best suited to. It’s a work in progress, and it’s not been easy, but I’m excited to continue growing and investing in our team.
Weekly Links: 3 Things I Found Interesting
Thanks for reading, have a great week.
-Andrew
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P.S. - I recently finished creating The Angel Network Toolkit: 90 Resources for Cultivating a Thriving Community of Pre-Series B Investors, and I’m sharing it with anyone who refers a friend.
How did I do this week?
About Me
I cultivate flourishing.
I'm also the CEO of PitchFact, where our mission is to cultivate flourishing specifically through efficient and collaborative early-stage diligence. I'm a proud husband, grateful father, and honest friend. My love languages include brisket, bourbon, and espresso.