At a startup event this week, I got asked one of those cringe-worthy omnibus questions investors occasionally get from newbies: What is the one factor we require before we invest in a company?


Of course, it isn’t that simple. For example, timing is critical - bad timing is the single biggest reason companies fail. And the strength of the team matters immensely, naturally. And tech that is not only novel and powerful, but also applicable to real world problems. And then there are the factors related to the overall business category. And macro-economic factors. And on and on.

This question is like asking a jazz man which is the one and only note he needs to play to make a great chord.

Still, the question got me thinking: Alongside all the obligatory elements of any investment, is there any factor we actually do honor above all others? And, to my surprise, I realized there is.


We seek entrepreneurs who tell the truth. To their investors. To their teams. And most of all to themselves.

On first blush, this may seem a straightforward requirement. But it is actually anything but.

Human beings aren’t built to tell the truth. We are built to tell stories, create fables, extend, expand, color and personalize what we experience. If most humans reacted rationally and promptly to the reality in front of them the world would be a fundamentally different place.

Telling the truth to others demands discipline and courage. But telling the truth to one’s self requires even more. Almost all of us, somewhere inside, have our own little Wizard of Oz, our quaking persona lurking behind the curtain, fearful of discovery. To tell the truth to yourself, you need to rip open that curtain and see just how small you are, how little the world cares about you, how many mistakes you have made, how many people you have disappointed, how few times your talents have fully lived up to your expectations. And then, you have to come to be unembarrassed about that and use everything learned from each of those tough moments to push ahead. You have to refuse to fail in the face of overwhelming evidence that failure is real and could happen to you.

As I go over our portfolios, we have had more companies fail than I’d like to accept that showed all the attributes for success, but were led by individuals who parsed reality as they wanted it to be, rather than as it was.

In one case, a young founder repeatedly understated his company’s problems. He never missed payroll. He was "only a couple of days behind." His customers never churned; they just "took a break." His customer management platform didn’t have bugs; his customers "preferred the human touch." For two years he was able to spin this positive yarn to himself, his team and his investors. Then, inevitably, came the day that he couldn’t quite knit up the dark reality with his sunny certainties. The company went from everything-is-great to insolvent in, literally, days. It crashed. Hard. This CEO never gave himself a chance to make things stable because he never allowed himself to see problems and deficiencies as they were.

Another company fell prey to the binding power of CEO ego. This entrepreneur was of the act-like-a-bigshot-to-become-a-bigshot school. What this person thought, to him, was reality. The hard facts, to him, were the illusion. He would change them. The world would bend to his will. Repeatedly, he overstated goals, missed them, but then acted as if what had been achieved were the actual goals. He over-torqued his valuation at each stage after inception, and early on, was able to find suckers (including us, alas) who would buy his extreme view. But in the end, the puffery blew up. At the Series B, nobody would lead. His requirements had grown so askew from the facts that it was now obvious that reality had nothing to do with his actions or the company’s direction. He wound up taking a company that certainly could have been a modest success and plowing it into the ground.

When a truth-teller leads, we may not always get a great outcome, but we will get the best possible outcome. We have had truth tellers move steadily from rational win to rational win, calmly and efficiently building huge value. We have also had truth tellers who realized now wasn’t the time, and who returned their investments back to us. Others, seeing they held weaker cards than expected, have negotiated their way to reasonable small exits or retooled operations toward immediate small profit, so they could endure until a stronger moment to accelerate appeared.

 I cannot recall a single example of a truth-telling entrepreneur who face planted.

So, we believe, not only shall the truth set you free. In the end, it will make you more money.