Why Investors Love Failed Entrepreneurs

The idea that an entrepreneur who has failed in the past (ideally, more than once) is a better entrepreneur is not just a cliché. It’s a fact that proves itself time and time again. Investors know it, and prefer to work with entrepreneurs who already have a series of glorious failures behind them than with entrepreneurs who are building their first start-up and might believe they are bullet proof. And yet, when many entrepreneurs talk to investors, they rarely want to show off their failures. That’s a shame. Failure is one of your most important and valuable assets. Don’t hide it.

The modern tendency to embrace experienced entrepreneurs, even if they haven’t yet managed to build a successful company, and prefer them over inexperienced entrepreneurs who haven’t failed yet has some sensible explanations. First, entrepreneurs learn from their failures. They take the painful and expensive lessons that they’ve been given and apply them in their next project. Our ability to change and improve is at its peak after a traumatic event, whether it’s in our personal lives or in our professional lives. If our mistakes don’t cause us real damage (financial, reputational, mental, etc.), the chances that we will discover them and fix them are much smaller.

Failure also hits us in the ego, and that is a great thing… provided we have the power to recover and move on, of course. Ego is destructive for entrepreneurs. It makes them ignore advice from people with experience in areas where they lack understanding, and it allows them to believe that the person who leads the project is also the person who knows what’s best for it. It makes them fall in love with the product and continue to invest time and money in the wrong direction long after it’s clear that it’s not going to work. Failure helps entrepreneurs develop a critical trait: humility. It’s one of the most important requirements for an exit.

The biggest mistake of entrepreneurs who have not failed (enough times) is to rest on their laurels. An entrepreneur who has not experienced a total crash of their project, even after everything seemed to be working fine and success was right around the corner, won’t be prepared to keep fighting against the world during the good times. An entrepreneur who has tasted failure, on the other hand, won’t stop looking for mistakes. He’ll keep searching for problems and areas to improve, even after he has managed to raise funds and customers are lining up, income is flowing and everything looks rosy. Investors know that which is the reason they feel that their money is safer in the hands of an entrepreneur who understands that the Champagne is only opened after the sale.

One of the most important tasks for investors is to try to understand whether your failures are due to a lack of experience or a lack of the basic traits that an entrepreneur must have to succeed. The more you share with investors the mistakes you have made in the past, the failures you experienced and the lessons you learned from that experience, the more you help them to do their job and increase your chances of raising funds. You failed? Great! You’ve earned another chance to fail!