One of the phenomena I witness so frequently among founders in Japan that it warrants a dedicated blog post is the topic of agility in a potential venture investor.

This topic reared its head again the other day in a discussion with a local startup founder who was grappling with his VC investor base. The founder’s business was facing some challenges requiring relatively urgent and decisive action. Unfortunately however, he was struggling to obtain consensus from his investors.

Part of the problem in this particular case was contextual. Certain operational decisions required the approval of his investors before the founder could act.

Yet another part of it was more general. The founder was finding that his investors were lacking an agility to take a position. Some of his investors were hampered by internal organizational hierarchy, which slowed decision-making, while other investors were simply uncomfortable with making choices based on incomplete information.

Struggling to choose is choosing to struggle

Postponing difficult decisions is more likely to kill a startup, than acting decisively, even if the decision turns out to be the wrong one.

Let me repeat this because it is a counterintuitive concept for some:

Making the wrong decision in a startup, but doing it quickly, is usually less harmful than performing extensive and time-consuming analysis in pursuit of the perfect solution.

The reason for this is that innovation requires experimentation, and startups are essentially a collection of repeated experiments. Each decision is an experiment. The results of each experiment provide insight, which is more reliable and helpful than months’ worth of analysis.

Perform an experiment; measure the results; adjust; iterate. Sometimes the adjustment requires only minor tweaks, whereas other on other occasions, backpedaling on a misstep is necessary. The benefit, however, of making decisions quickly is that it breaks down complex challenges into more manageable parts. This also means that the consequences of a wrong decision are less damaging.

When we evaluate a prospective investment for our fund, we assess the founder’s level of comfort with the risk of making wrong decisions, and their adaptability to measure and adjust accordingly.

Yet the obligation flows both ways. When raising capital, startup founders are perfectly entitled to assess each prospective investor’s comfort level with decision-making in an environment of incomplete information. In fact, I would submit that startup founders should perform this assessment, because this trait will be an ongoing requirement over the life of the startup.

Practical tips for founders

So how can founders evaluate for this characteristic in a prospective investor ?

One way is to solicit feedback from founders of other startups in which the VC has invested.

Additionally, there’s another way that is staring all founders directly in the face: the investment process itself. The fundraising discussion with a prospective investor represents the most accurate glimpse into that investor’s comfort level with decision-making in a context abundant with uncertainty. Here are a handful of questions that a startup founder might consider asking their prospective investors in order to make this assessment.

• How hierarchical is the investor’s decision-making process ?
• How many steps and approvals are necessary ?
• How long does it take from start to closing: a few weeks, or a few months ?
• Is the investor willing to take a leading role by making a written investment proposal, or would they rather wait until others commit for reassurance ?
• What is the timeframe of their due diligence ? Do they insist on speaking with customers before making a written proposal ? (a practice we advise founders to reject)
• Are their interactions during the negotiation phase efficient, or does each point require extensive reflection or analysis ?
• Is the investor generally exhibiting a fear of ambiguity in their interactions with you ?

The agility (or lack thereof) with which an investor conducts themselves during the fundraising discussion is a good indication of how they will approach decisions over the life of your financial partnership together.