Let's just put it out there: entrepreneurs can be an unrealistic bunch.
That is of course good and bad. You need some unrealistic people to really push the scene and, as cliche as it sounds, make things that seem impossible possible. You need a little bit of crazy.
Now, to be clear, I will say that energy tech entrepreneurs are generally pretty good about not being completely unreasonable. I've seen some entrepreneurs from other industries that are completely off the mark to the point where you can't really get through to them. The individuals in the energy tech industry are slightly better about being reasonable. Their numbers and models are a bit more on the mark. But still--there is a long way to go.
It's important to realize that there's is a time and place for that gunslinger type of unrealism and a time for not having that attitude.
If you're unrealistic with yourself--well, that's OK--that's kind of your thing. The important thing is to be realistic and reasonable with other people, and in particular investors. And here's where the real crux of this blog post comes in and what I want to emphasize today, and it's this:
Be realistic with investors.
Why does that matter? Why is this important?
Why do entrepreneurs and startups need to be realistic in regards to dealing with investors?
The reason is because you fundamentally want them to be on your team and in order for that to happen, they need to be able to trust that you're a reasonable.
You have to be able to create that trust between all members of your team including the investors. You do this by being realistic. I've heard investors tell entrepreneurs that their valuation is flat-out delusional. I've heard all sorts of things. Entrepreneurs come to me and tell me about all these types of problems.
You would not believe the amount of investors I've spoken to that see one or two important clauses or numbers that are so unrealistic, it completely turns them off and can kill an otherwise pretty good deal--just because one provision is so out there.
Additionally, and I've often spoken about this--an investor is more than just your cash supply. A good investor brings more than money. They bring systems, networks, connections, and other items. When you show that you're reasonable and when you show that you can work as a team in a realistic manner, that opens up those avenues more easily.
So how do you demonstrate reasonableness to an investor (and others)?
There are a lot of things you can do but the most important thing is to be able to back up what you're saying. There are many ways to do that. Here are some ways:
1. Use comparables.
Your company is not the only company that's doing what it's trying to do. Use examples of similar companies, or even different companies trying to do similar things as your company, to show that what you're saying makes sense. On the flip side, be able to show why certain companies that are similar and have numbers that don't match yours are not good examples.
2. Use data-points as much as possible. If you think that some crazy amount of growth is likely, that's completely fine. Always be able to back up what you're saying. Real concrete numbers are fantastic for this.
3. Look at historical and geographic trends.
Use geography and historical data to back you up. Different markets have different numbers. The energy and oil and gas market here in Houston and Dallas, Texas are different than the markets elsewhere. Use this type of data as you need to.
4. Do your homework.
Read this site. Read newspapers. Study the markets. Know what matters, know what doesn't. Studying and knowing your shit helps a lot.
5. Use guidance from this site.
As a lawyer focused in the startup and entrepreneurship space use my site to help you. I'll tell you what area where you definitely need to be realistic on is when dealing with legal matters. The law is very focused on "reasonableness." There have been entire legal books written just about this reasonableness concept. This site covers that aspect.
If you can do these things, you will be able to show that you're actually playing ball.
All of that being said, I know that it is in the nature of entrepreneurs to be at least a little unrealistic. The idea is to know when to be what.