THE BEST INVESTOR IN HISTORY
My Texas law firm represents both investors and entrepreneurs. I've come across a lot of interesting types of both, but I want to talk about one of the best.
Now this is far from Houston, Texas and Dallas, Texas. Going to go elsewhere for this article.
Marcus Licinius Crassus was not just one of the best investors in ancient Rome, he was one of the best investors in all of human history.
He was one of the richest men ever. Crassus was brilliant and financed a ton of operations.
He also lived in Rome at a time when Rome was mostly built of wooden buildings and the city didn't have a public fire department.
So what did he do?
He created a private fire brigade.
Here's the deal though: Crassus didn't run his private fire department as some sort of quasi-public entity. He didn't run this as a charity. I'm sure he could have. But Crassus didn't work that way.
Instead, if a building was on fire, his firemen and business agents would go to the site of the fire and, if they felt the building was worth it, would on the spot offer to buy the building at a discount (obviously).
If the owner agreed and sold the building, then the firemen would rush and try to salvage the building. If the owner didn't agree, the firemen would just pack up and haul out of there.
WHAT BUSINESS LESSONS COULD BE TAKEN FROM THIS?
No, it's not to exploit people like Crassus. Though you could if you wanted to.
Even though Crassus is far from Houston, Texas and Dallas, Texas his lessons teach a few things:
A. Be prepared with Your startup
You’re starting your company with your best friend. You need to realize that even though this is a collaborative effort and your buddy wouldn’t leave you for the world, would take a bullet for you, blah blah blah, there are times when the building gets lit.
I've seen it happen to some otherwise fantastic entrepreneurs. And yeah, when the building gets lit--it really does tumble down. Some of them had to start new companies. Some of them are left holding the pieces together. It's a shame.
Entrepreneurs are full of positivity when starting up their company.
In fact, I would be concerned if someone started a company without any optimism.
But even then, entrepreneurs needs to be prepared in case things fall apart and the building is about to tumble.
This means that you have to have the important building blocks in place already before you talk to investors. Don't just go by the seat of your pants. Take the effort to be on top of things.
You can still have a positive attitude but make sure you prepare for the worst. You need to make sure there are proper stock transfer restrictions in place, or buy-sell agreements, or a properly drafted right of first refusal, or many other items.
Yes, this means having difficult discussions, but difficult discussions are a part of preparation.
So prepare for things to go wrong and know how you will deal with them.
B. The business world is ruthless
Competition is extremely fierce. Know your shit. Don't waste time on stuff that doesn't matter.
Be on the top of your game. Get an overarching fundamental understanding of all areas that involve your business but concentrate on what you do with unbelievable focus. Because the competition is fierce and you can't be weak in any area.
This is why this site exists.
It exists to give investors, entrepreneurs, and all interested parties that overarching fundamental understanding of the legal areas. You wouldn't believe how many basic, dumb questions I get.
And that's not the entrepreneur or investor's fault.
Sure, they can go out and read a giant, old, and dusty law book, but they're not going to do that. That's my job to read those books. I actually enjoy doing that. It's my thing.
I don't blame others for not wanting to do that. The real problem is that no one really took the time to explain to entrepreneurs and investors matters in a comprehensive but simplified manner.
But you still need to know your stuff. There are people out there that want to just rob you blind, but those people are easily avoided if you're on top of your game.
C. Negotiate When You have Some Leverage
Many startups need funding and need it pretty badly. But even in those circumstances, it’s worth the time and effort to make sure you negotiate properly and get a deal that makes sense.
What you do now sets the precedent.
You may not have much leverage later on and additionally, investors at future rounds of financing expect the minimum terms that were set in earlier financings. If an earlier round received certain information rights, then future rounds will probably get the same. If an earlier round received full participation rights, then future rounds will expect likewise.
You need to know that this is the time to draw the line on things.
You need to know that now is the time to make sure there aren’t full ratchet anti-dilution rights in place. If you’re giving away something ridiculous like 4x liquidation preference, then you need to think about if the whole thing is worth the opportunity cost.
Yes your startup may need the money, but you also need to make sure that the deal is fair.
D. Don't be an asshole in business
People hated Crassus. You can understand why. Supposedly, he was killed by the Parthians pouring molten gold into his mouth.
So don't be an asshole. Actually, that goes beyond just the business world.
Respect yourself, respect your investor, respect your competition.
I've run into plenty of assholes in my work--entrepreneurs and venture capital investors of all sorts. This is both in the tech space and oil and gas/energy.
I've also seen many entrepreneurs paranoid that some investor is going to come by and steal the company from under them. That's not going to happen if you know what you're doing. That doesn't mean that you have to be tough on every term and not give an inch.
What it means is that you have to be reasonable and work with people. Work well with your potential investors. Don't think of your investors as Crassus. After all, the investors will be your co-owners and people you will need to work with down the line.
Here's what I stress:
ALWAYS work and treat others with integrity and sincerity.
You’re creating something together. It’s a collaborative effort. YOU NEED TO BE ABLE TO WORK TOGETHER.
So be prepared, remember the world is ruthless, negotiate when you have some leverage, and don't be an asshole.