Proverbs for Entrepreneurial Paranoids

I had occasion to pull out my dog-eared copy of Gravity’s Rainbow tonight, and came across one of my favorites of author Thomas Pynchon’s Proverbs for Paranoids:

If they can get you asking the wrong questions, they don’t have to worry
about answers.

I would never — never — suggest that startups follow this advice, but I know some who have very successfully done so.

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Comments

  1. Michael Robinson says:

    This raises a question that’s been bothering me lately.
    Why are VCs so bad at asking the right questions?
    There seems to be this “cult of the team” that VCs follow, where one judges the viability of an investment by the resumes of the principles.
    If numbers or analysis enter the discussion, its usually some faddish, easily manipulated, and often irrelevant “valuation metric” du jour, and by that point investment is often a foregone conclusion.
    I’ve occasionally done due diligence work as a freelance consultant, and I’ve found that investors are not particularly receptive to having deals to which they’re already emotionally committed being exposed as smoke and mirrors.
    I’ve also occasionally been on teams seeking (and getting) venture funding, and I’ve never had a VC ask any of the questions that were ultimately determinitive of business success or failure. And this goes right up to the top of the VC food chain.
    It seems this is a market failure of some kind, but I can’t say that I understand it.

  2. Ah, as you surmise, most VCs get very comfortable with the “thing” that they believe is crucial in early-stage companies, hence the never-ending “tastes great, less filling” debate between team vs. technology.
    Even within those frameworks, however, VCs end up with a set of questions that they like to ask. A senior venture guy I know is guaranteed to ask a particular set of three questions to every single startup that wanders by. It’s a lead-pipe cinch, even if the answers doesn’t matter in every case. It’s apparently just a pleasant way of passing the time in meetings.

  3. Alex Krupp says:

    Are you saying that startups have raised money by getting investors to focus on irrelevant questions, or that startups have found customers this way?

  4. The former. I’m saying that I’ve seen startups raise money while being not at all helpful about the “right” questions to ask about their business.
    Is that a good idea? It depends on what you want. Personally, I think it’s better to have venture investors know from the get-go the real metrics by which your business operates, but that’s just me.

  5. Brent Buckner says:

    Paul, I think you mean “the former”.

  6. Michael Robinson says:

    It seems to me that the stronger the team behind a startup (experience, intelligence, education, etc.), the better equipped they are going to be to obfuscate the weaknesses in the mechanics of the business, and, hence, the harder the prospective venture investor should exercise his/her brain to tease those weaknesses out.
    In actual practice, the exact opposite seems to happen.
    “Personally, I think it’s better to have venture investors know from the get-go the real metrics by which your business operates, but that’s just me.”
    I would argue that this is only true for those investments where the VCs need the deal more than the startup does.
    If the choice comes down to throwing up some smoke and mirrors, or shutting off the lights and sending everyone home (and it often does), I would expect in most cases that smoke and mirrors would be the preferred option, assuming the team truly believes the business can work.