Earlier this week a prospective founder of a new business was pitching their idea to me, and I asked them the question I often use.
“Tell me about some of your failures in the past”.
It was like I had struck them with an iron bar, I truly got the feeling that they resented the question. Fair play to them though, they asked me why I would ask that, so I told them, and I thought it would be good to share on here, so that other founders who pitch me, and take the time to read my dogma on here will be better prepared.
I think that learning about a founder’s previous failures can provide me with valuable insights that can help me make better investment decisions.
Here is why I ask that question.
- I want to understand their risk tolerance: A founder who has experienced failure in the past may be more risk-averse than someone who has not. Knowing this helps me evaluate how much risk they are willing to take with their current venture when we are working together. It will help me guide them if they are losing confidence in a great idea because of this.
- I like to see where they are on a learning curve of starting a business: If they have failed before, they may have learned important lessons that they can apply to their current venture. It helps me assess if the founder has learned from their past mistakes and is applying that knowledge to their new venture.
- I use this to assess their resilience: I find that someone who has experienced failure in the past may be more resilient and better equipped to handle the ups and downs of starting a new venture. This is a really important factor in determining whether I think an investment in their new venture is likely to succeed.
- I look at a founder’s track record: Looking at their past failures and successes gives me some insight into their ability to execute on their plans. If they have a track record of successful ventures, it may be an indicator that they are more likely to succeed in their current one.
- It tests their honesty: Before I speak to potential founders, I look at their background, it’s easy to do. If they have failures they don’t mention then this is a red flag to me and I will either challenge them on this, or simply not invest. I want to work with people who are honest, and I trust.
