Venture Optimism

Buy low, sell high

This adage is applicable in investing as well as in business, whether it is buying an equity stock at a lower price and selling it when it goes up or buying some goods at a cheaper price and selling them at a higher price to pocket the profits. But there is a crucial middle element here that goes unnoticed, the element of HOPE.

Buy low and hope to sell high

Enterprises are built on hope and optimism. Enough empirical evidence shows that it pays well for entrepreneurs and investors to be optimistic. One can sound smart by being pessimistic in the short term or choose to be right in the long term. History tells us that the latter is almost always the right choice. With this thought in mind, I jotted down some reflections (in no particular order) on Venture Optimism, particularly at the intersection of entrepreneurship and fundraising. The idea is to leave you with some food for thought and feel free to add to the list.

• Think about it - Isn’t Entrepreneurship an act of being irrationally optimistic? The odds of success are completely stacked against it. But there is a team with the nerves to make it happen.
• Inherently Fundraising is also an act of being optimistic. The rational assumption here is that one would not raise funds (because of the fiduciary responsibility towards an investor) if one wasn’t optimistic about achieving the desired outcomes.
• Are first-time founders more optimistic than repeat founders? Or are they just more delusional? No direct answers here, but experience does make a person more rational.
• Measured optimism of experienced founders or 'in-domain' founders (founders who have past experience of working in the same space in which they are building their enterprise) is valued in certain sectors that require compounding knowledge i.e. internalization of the historical evolution coupled with innovative thinking for the future. ??
• Fundraising from external investors also has an element of being not-so-confident wherein entrepreneurs who have the insider advantage of knowing that the risks are very high, opt for raising external capital over putting personal capital at risk.
• The type of financing (Equity v/s debt etc.) raised depicts the level of optimism of the entrepreneurs and investors involved. Debt capital typically assumes the robustness of the enterprise to make timely repayments.
• Similarly, the tenure for which financing is raised is also an indicator of optimism in the system. Generally, very optimistic entrepreneurs feel that long-term financing is unnecessarily expensive and opt for short-term cheaper financing, often disregarding the risks involved.
• Does the size of funding raised depict the optimism of the entrepreneur of achieving hyper-growth? Or is it a sign of entrepreneurial caution to have enough funding runway buffer to build something at the end of it all? Typically, optimistic times lead to larger funding rounds. ??
• The timing of fundraising also speaks about the level of optimism of the entrepreneurs and investors. Raising when there is a good funding runway available shows that the team wants to double down on a product or a channel quickly. It also shows positive investor interest or fomo to invest, inspite of the company not requiring immediate capital. ?
• Fund utilization plans of enterprises are indicators of the optimism involved. Incurring capital expenditures to build fixed capacities is a lead indicator of confidence in the system. Also utilizing funds for non-core activities is an indicator of core operations not working and the team looking for greener pastures elsewhere.
• How long should an entrepreneur keep going on? Keep pushing the envelope when there is no pathway in sight, no visible destination at the end of the tunnel? No easy answers here as well but calibrated optimism helps to manoeuvre the landscape better.

Venture optimism is not always easy. Also, it may not always be the ‘right choice’ from the perspective of different types of stakeholders involved. My learning from my limited experience though is that:

Optimism leads to endurance, endurance creates moats and enduring moats compound...