Wikipedia (where else would you look....) defines Buyer's Remorse as "an emotional condition whereby a person feels remorse or regret after a purchase" and "a natural human reaction, rising out of a sense of caution". I certainly remember the feeling after buying my first house. The feeling is fleeting and then you go about making the house into your home.
I have noticed this same feeling when making a venture capital or angel investment. While spending time with the entrepreneurs and championing the deal through the group, you tend to become emotionally attached. Of course, rigorous diligence is performed, the team is challenged, and assumptions are tested. Once the point is reached where you want to move ahead, we put the sales hat on and convince our partners about the incredible opportunity that we are lucky enough to be able to invest on the ground floor. However, once the deal is completed and the wire hits the start-ups bank account, all the warts seem to jump out. In most cases, the entrepreneur hasn't hidden anything, it is just buyer's remorse kicking in and the realization that the hard work is beginning. As early stage investors, our goal is to eliminate as much risk as possible with the least amount of cash spent.
Of course, the opposite of buyer's remorse is exercising too much caution and not making an investment where your gut was saying yes. I've found that the opportunities we let pass often stick around longer than many that we do. I started thinking about this yesterday when Jeff Fluhr, founder of Stub Hub spoke at my San Jose State class. I first met Jeff about 8 years ago when he was finishing his first year at the Stanford GSB and was beginning to raise money for a business plan he developed for a secondary market ticket exchange. This was the beginning of the dot com bust and getting a consumer deal through the partners at my venture firm was next to impossible. I liked the founders and considered making a personal investment, but ended up passing.
However, I was glad to see they were able to raise financing and launch the service. I used it as a buyer and seller on a number of occasions and rooted from the sidelines for their success against the Ticketmaster, state regulators and others trying to knock them down. Jeff was able to build a profitable company and a successful exit when Ebay acquired Stub Hub for $300 million early last year. Jeff shared some entrepreneurial lessons with the class and I may include in a subsequent blog post.
Of course, I'm not the only one to feel this way. I was listening to a podcast recently on Venture Voice with legendary VC Tom Perkins. When asked the question about the worst investment he ever made, he turned it around to mention the one that got away, Apple. Kleiner Perkins had looked at a few other computer start-ups and weren't interested, so didn't even take a meeting with the Steves. Bessemer Venture Partners lists an anti-portfolio of investments they passed on that includes Apple, Ebay, Intel, and Google.
Now, back to that house in Mountain View, California. Hard to believe you could buy a nice house like that in the Bay Area for only $300,000....
Funding Friday: The Thinker Lamp
1 day ago