The facts: Psychological security is critical for entrepreneurs

The facts: Psychological security is critical for entrepreneurs

Imagine that you are an investor investing in early stage companies and a startup presents its idea to you. How do you act when the team tells you that they all have full-time jobs around the corner?

Christian Brathen

Christian Brathen (Photo: Halvard Lisand)

If you’re like most early stage investors, you’d assume they’re not committed enough to the startup. She says no politely and shuts the door to this company.

This creates a catch 22. Entrepreneurs often need funding to only work in the start-up, but early stage investors want entrepreneurs to only work for the start-up before they get funded.

This position means that many of the best minds do not become entrepreneurs. The better your career already has or has the potential to become, the more you will have to sacrifice to enter into an uncertain everyday life as an entrepreneur. The higher the opportunity cost, the less attractive it is to start a company and create new jobs – all else being equal.

But if investors in the early stages choose to get out of this situation, it may be profitable for them.

  • Psychological security of business is important

Investors who enter early stage companies often say that they primarily invest in the team, not the company. The research of Therese E. Sverdrup, Vidar She, and Bard Finn shows the team that Psychological security It is the deciding factor in whether a team is doing well – at Google, too.

When it comes to entrepreneurs, it is important that the concept of psychological security extends to also include the security of entrepreneurs outside the workplace because entrepreneurs are largely is being The company is in its early stages.

In the book “Origins” by Adam Grant, professor of organizational psychology at Wharton, results are found showing that entrepreneurs who stayed in their jobs while building their startup earned 33 percent minimum An opportunity for failure from those who quit their jobs to focus fully on the startup.

The key is that ex-entrepreneurs balance the enormous risks and stress of starting themselves with financial predictability from another aspect of life. Thus, they achieve psychological security by choosing to live a very balanced life.

So these startups should not be blacklisted by investors. On the contrary, they should be considered as additional interesting investment opportunities.

  • Early stage investors need to stand out

To be able to compete in the battle for the best investments, early-stage investors must outpace the competition on entrepreneur-friendly terms. Unfortunately, many early-stage investors have outdated perceptions of how friendly they are to entrepreneurship.

There are three main factors that early stage investors bring to the competition with other investors for the best startups: capital, expertise, and networks. Since the value of experience and network is uncertain at the time of early stage investment, the terms of capital are particularly important when selecting investors.

These conditions are gradually becoming more favorable for entrepreneurship. However, as the same terms become more widely available by more investors, access to capital becomes more homogeneous. It creates a blind spot where early stage investors who think they are entrepreneurial friends lose deal flow to others who are more friendly. And who benefits from it.

It creates a blind spot where early stage investors who think they are entrepreneurial friends lose deal flow to others who are more friendly.

A simple and lucrative first step to becoming more entrepreneur-friendly is to draw attention to the entrepreneurs’ psychological security, for example by accepting the startup’s gradient. Not only is the invested money better used, but the chance of failure is reduced.

Another consequence of such a move may be that the wisest minds fill the investment portfolio. In addition, and most importantly, the gender gap among entrepreneurs can be reduced because lack of funding is one of the main reasons That women still do not start companies to the same extent as men.

Despite the benefits, it is admittedly not a free lunch for investing in startups where entrepreneurs wait for “everything”. But as long as many early-stage investors haven’t seized the opportunity yet, could it be a cheap breakfast?

Note: Author and Professor Adam Grant, referred to above, chose to decline an early investment in Warby Parker because the founders at the time had other jobs nearby. The company was listed on the stock exchange in September of this year, and today it is worth about six billion dollars. Grant’s wife has now taken over responsibility for the family’s investments.

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Hanisi Anenih

Hanisi Anenih

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