Why bear markets make me less likely to invest in your startup

First of all, I have less money. This one is obvious and cannot be underestimated.  Have the respect to understand that someone with “excess cash” typically likes having MORE “excess cash”, not less of it.

What under-capitalized people don’t understand is that this is purely psychology. “More than enough” or “plenty of money” are the words of simple men.  I don’t care if your target investor has a $20,000 bank account or a $20 billion bank account….if he’s down 30% on the year, he’s far less likely to give you money.

Secondly, you have less options. I mean this in two ways.  First, because of my first point above, I know that there are far fewer people with “excess cash” in the psychological position to invest in your idea.  In addition, I also realize that even if you are successful, there are far fewer exit strategies where I, as an investor, can actually realize a return.  IPOs are impossible and M&A is dead….so I’m counting on either dividends or a massive turn in the markets to occur.  All of this in an environment where my money is likely the only money that will keep you going should things get worse?  Yuck.

Finally, I have more options. The great thing about investing in startups is that as an investor, I have an edge.  There is no public market for your unknown company, so essentially I have an opportunity to invest where no one else is seeing value.  But, in a raging bear market, I can come close to that SAME opportunity in fully liquid, established companies.  Babies are being thrown out with bathwater here, and at some point it’s more attractive to just buy 1,000 shares of GOOGLE at $250 than it is to put $250k into your idea.  Yours may have the possibility of a 10x in the next five years, but Google has a chance to 4x….and with Google I can get my money back out within SECONDS of deciding to—at any point in the future.  In other words, the premium of liquidity is so low that it outweighs the edge of potential return that you offer me.

Summary:

I’m not saying this to discourage you, unless you are easily discouraged…in which case you shouldn’t be reading this blog or starting a company.

What I’m telling you is that now, the filters are thicker.  The demands are higher.  The obstacles are tougher.

Which, as always, means that the opportunity is greater.

Make no mistake….the company that I start, and the companies that I invest in (along with those that make it through other investors’ THICK FILTERS) during the next 2-5 years will be the most financially and personally rewarding investments of a lifetime.

Welcome the challenge.  Prepare yourself for the battle.  Win.