The big rub is that so many of us get involved in start-up endeavors but incorrectly estimate timing on the respective company's market. I have my share of deals where I was too early and cash went to ZERO way too fast. I got sucked in by some empirical false positive and believed that a new market may be starting to trickle my way. But...I was too early. Eventually I was right but I was too early. So the question I am considering is what was the empirical false positive that created the vacuum pressure that drew me in?
This is going to come across as very odd but I can't shake feeling that pleasant customer testimonials of very early-stage software companies is a big-time false positive with regard to market timing - why?..you ask. Don't you want customers to say really good things about the software company into which you are about to make an investment? The answer is "yes" but within limits.
As software companies mature their customers make more demands and complain loudly. This happens because customers have an increased dependency on the underlying solution. At any point in time, most budding software companies are better today at what do for customers than when they were younger. They advance and get better. This should mean, by deduction, that customers that complain today had louder complaints before - provided they really needed the underlying software solution. Taken a step farther it can be reasoned that, early on, customers were not "ecstatic" (which some due diligence calls may suggest) but rather were "tolerant" of the software provider. The tone of tolerance suggests that the customer of the early-stage software company has a significant need and he is tolerating the youthful incompetence of this stumbling vendor.
Earlier in my career I would listen to a due diligence call and get this very pleasant report on an early-stage software vendor in which we might be considering an investment. My internal messaging would go something like this:
"Wow...what a great company...the timing must be right to invest in this area."
The more experience I gain the more I consider that, within certain parameters, positive customer feedback is a negative and a negative customer feedback is a positive. Specifically stated, I want to hear more people complaining. The more tolerance I hear the more I know that a real problem exists and I am speaking with someone whom is counting on the software vendor to solve the problem. The more verbally angry they are, the bigger and more immediate their problem (yes this sounds crazy). I am starting to believe that this may be one of the better clues that it is time for this start-up to begin.
