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November 28, 2010

Taking Control

Every day, whether in mainstream media, blogs, Quora or the like, there are myriad stories and questions relating to problems created by others. Bubbles, storm clouds, and other atmospheric disturbances are all the talk, as well as issues of ethics and fairness in dealings among institutional investors, angel investors and entrepreneurs. What I am here to tell you is the following: It is just noise. Most of it doesn’t matter and is beyond your control. What does matter is focusing on the stuff you can control, namely your strategy, plan, and the way you comport yourself in business and in life. These are not shallow, squishy words, and I’m dead serious. Take control of all aspects of your life. Because if you become distracted by the intentions and behaviors of others, you might end up doing stuff you’ll regret and lose focus of your original mission and goals. Be true to yourself and good things will happen. Even in failure.

This is never quite as clear as it is in the entrepreneur-angel investor-venture capitalist dance. Entrepreneurs are naturally wary of investors of all stripes. Angel investors are often scornful of venture capitalists. Venture investors sometimes act in ways that feel against the best interests of entrepreneurs and investors. Finger-pointing abound. So much time is spent worrying about “bad VC behavior” that something essential is lost in the shuffle - namely, the entrepreneur’s ability to simply say no. If an entrepreneur is unhappy with a particular venture partner, then network to one who is likely to be a better fit from a different firm. And, by the way, multiple discussions should be going along in tandem - partners from multiple firms, angel investors, etc. - to maximize optionality during the fund-raising process. The entrepreneur should be taking control of their own destiny, and not ceding control to another party or complaining about the rules of engagement. The dance is pretty straight-forward if you make it so, which means being crystal clear as to your goals, preferences and time-lines. If your parameters are unrealistic the market will tell you so and it is incumbent upon you to adjust. But once the adjustment is made, re-take control of the process.

Investors should act in the same manner. For instance, in my opinion, there is way too much squawking about valuation. For those who think valuation doesn’t matter, no problem. But for those who believe valuation is an important factor in the seed stage investment decision, the sharp rise in early-stage round pricing is causing consternation and angst. “YCombinator is driving up prices” or “the influx of super angel capital is causing deals to get overheated” are common refrains. My take: who cares. If deal pricing gets out of whack relative to what you believe is fair, simply walk away. Nobody is holding a gun to your head to invest in a particular company. Might you feel badly if you pass due to valuation and the company becomes super successful? Of course; but this kind of disappointment is part and parcel of being an early stage investor. Remorse around deals done and lost is part of an investors’ DNA. It would be far worse to stray from your mission and discipline and to start doing deals that feel uncomfortable, because more likely than not it will be a mistake for you to have invested in deals outside your zone. “This time it’s different” and juicy rationalizations like that will only get you into trouble. So, as with entrepreneurs, it is incumbent upon investors to take control of their destiny and not make excuses for seemingly irrational market conditions. Stay on the sidelines. Wait until the right deal comes along. Don’t force it. But by all means, don’t whine about the actions of others. They’ll self-destruct in their own good time, and those who have remained disciplined throughout will be there to pick up the pieces and to benefit from a corrected market.

It is so easy to feel un-empowered and to blame your lot on the actions of others. That is a natural, but unproductive, response to adversity and complexity. Clarity of thoughts, beliefs and actions are what will ultimately set you free and create the conditions for success. In a flattening, hyper-competitive world knowing what your utility function looks like is more important than ever before. Take control of your destiny - you are more powerful than you think.

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