There’s a Calvin and Hobbes cartoon in which Calvin asks Susie if she’ll give him a nickel for eating a worm. When she quickly says yes, Calvin realizes that he could have gotten more, and asks for a dime. Susie says no. Calvin complains “Man, you’d think that a guy eating a worm could get a dime.” Unmoved, Susie replies “I got news for you. Guys eating worms aren’t the ones calling the shots.” (Apologies if I don’t have the quotes exactly right.)
How true it is.
It’s easy as someone starting the hottest new company to get carried away, and think that this opportunity is unlike than any other opportunity out there. Hey, this is the best process in the world to make flawless synthetic diamonds / teach people Mandarin Chinese in three weeks / increase fuel efficiency 50% – how could any investor pass it up?
Easy peasy lemon squeezy.
Investors aren’t investing to make diamonds or teach people Mandarin. They’re investing to make money. Even if you have something really cool, there’s no guarantee you’ll actually make money, day in day out, from it. And then even if you do make money, how and when will the investors get their money out?
It’s a bit like that joke about the two campers in a tent. They have their shoes off, and they suddenly see a bear running right at them. One guy starts running, but looks back and sees his buddy lacing up his shoes. “What are you doing,” he asks. “You can’t outrun a bear!” His friend smiles, and replies “I don’t have to outrun the beat. I just have to outrun you.”
Investors don’t have to do better than your technology, they just have to do better than your return on investment, and there are lots of worm eaters out there.