A lot of investors say they are “active investors”. It’s almost in every pitch deck you see. The definition of an active investor is fuzzy. What’s it really mean?
Does it mean you simply lead deals and take board seats?
To me, that’s not super active. Doing that stuff is the easy part. Lots of investors like to sit on boards and just be a judge. Quarterly, they get the numbers and then opine.
To me, active means interaction with the CEO. If the CEO is okay with me talking to someone else on the team, then it happens. You never go around the CEO.
The other hard thing for investors is to know when the right time to become active is. Do you do it immediately when you spot something you think is out of whack? Do you wait-or go?
The key thing to remember is startups aren’t cookie cutter. Each one is different. The solution for one is not necessarily the solution for all.
I find in situations like that the best thing to do is take a step back and do an inventory on your own emotional state. Is there something going on in your life that is pushing you to act?
When people have other people’s money (OPM) on the table, they act a lot different than if it’s their own. I have seen people do some really wacky stuff when it’s their own money and the chips are down. It’s when you find out the true character of the person.
Even if it’s all OPM, it could be that the investor has a tenuous relationship in their fund. Maybe this investment is make or break for them and if it fails they are out of a job.
For an investor, it’s really good to do an inventory of yourself before you start in on someone else.
This is a real world thing. A lot of people think it happens only in early stages but what about a company like Uber?
If you decide to act, it’s always best to ask questions. The entrepreneur will reveal a lot more than if you simply go in and tell them what you would do.