VCs That Get It! - The Entrepreneur's Magic Number
Christian Mayaud, in his excellent post, Know Your Entrepreneur's Magic Number, says,
"If you look at the professional life of a typical successful entrepreneur, their ability to tolerate personal risk varies over time. If one assumes a linear increase in net worth over time (rarely the case) then this curve also roughly correlates to three distinct phases.
Phase I — The entrepreneur has essentially no personal net worth [and is able to absorb substantial risk]
Phase II — The entrepreneur is building personal net worth [becomes more risk-averse as personal net worth grows up to his "personal magic number"]
Phase III — The entrepreneur feels relatively secure financially [risk tolerance grows in proportion to their personal net worth]
Young recent college graduates behave differently from middle-aged first time entrepreneurs, serial entrepreneurs behave differently from first-time entrepreneurs, senior managers behave differently than founders, etc., etc. — in part, due to the existence of their Personal Risk Tolerance Curves and where they are along them."
David Beisel comments in his post, that the entrepreneurs magic number may also change over time based on other factros:
"The question I would raise is if an entrepreneur’s (or anyone’s for that matter) magic net worth number shifts over time. I agree that an inexperienced entrepreneur may see things differently than one who has a few successes under his or her belt, but don’t those successes broaden the view of what is in fact potentially achievable? Moreover, I would also maintain that entrepreneurs specifically are not just driven by extrinsic motivations, but also by intrinsic ones as well. There are often deeper reasons than financial ones why an entrepreneur – especially a serial entrepreneur – is willing to take significant risks with both his/her private wealth and career."
In my recent post, New Breed of CEO: Beyond the Bootstraps, I mention this situational predicament from the entrepreneurial/start-up CEO perspective. Many VCs and angel investors still seem to expect that the entrepreneur is either at:
The reality is that many of us who have started and successfully built companies are at Phase II, balancing risk and personal net worth.
I am grateful that at least two VCs, Christian and David, have recognized that entrepreneurs also have their "magic numbers". If some really smart VCs could figure out a way to harness the energy and creativity of all those Phase II entrepreneurs with a more balanced risk profile, perhaps the rare MOTU might actually be bagged!
If you are looking for an awesome Phase II entrepreneur/CEO to go bag the MOTU, check this out!