Greed or Fear: What Really Motivates Investors

I've seen venture capital firms change their mind at the last minute -- even after shaking hands and celebrating a negotiated set of terms. Entrepreneurs are justified in feeling betrayed and frustrated by this type of behavior. But it's important to remember you have little control over individuals who hold the purse strings and make decisions based on gut instinct.

Something you do have more control over are good business fundamentals, which are necessary to entice venture capital firms to own a piece of your company. For large VC firms, the market opportunity for your company's product line needs to be large enough to support a billion dollar market capitalization in the future.

A few hundred million used to be large enough; now a billion is the target. In addition to a large market, VC firms typically like to see some combination of other strong fundamentals, such as sustainable competitive advantage from unique technology or relationships, proof of concept, experienced management and a growing industry category.

Seek out venture capital firms with consistent interests and behavior that can coach entrepreneurs to grow the business and increase shareholder value.

On the other hand, the best angel investors are those that keep out of your way -- for the most part -- and provide counsel and contacts when asked. Angels, as the moniker suggests, make investment decisions with an interest in helping you succeed, not just achieving financial objectives.

While the greed of earning a very high forecasted return on investment is often considered the primary driver, I've found the motivation to get involved with a company has more to do with a mix of bragging rights and vicarious fun than simply forecasted investment returns.