Posted on May 1, 2017 @ 11:20:00 AM by Paul Meagher
Without trust between an entrepreneur and an investor, no deal is going to happen. It takes time to earn trust
so one limiting factor on the speed of a deal is how long it takes to earn trust.
Entrepreneurs have often asked me how long it takes to complete a deal. My typical response is that it varies based on a host of factors and I would proceed to list a few factors. I didn't include "trust" as one of those factors but that was a big mistake.
There are lots of tips on how to build trust. The tips vary and there are potentially lots of them. One tip you might encounter is that it takes time to earn trust. It is not clear how much time and presumably the other tips are designed to reduce the amount of time. But how far can you reduce the time required? Mistakes can be made when there is a desire to close a deal quickly and trust is allocated too fast. Due diligence involves slowing things down, doing your homework, talking with each other and hopefully building up a healthy sense of trust between each other. Once this is done, adding a lawyer can help to slow things down again and avoid additional mistakes.
The Slow Food movement encourages us to slow down the system for producing and consuming food as it can produce lots of individual and societal benefits. Likewise a Slow Deal might be the best deal. A slow deal might be defined in terms of the level of trust between the parties finalizing the deal. When both parties have a high level of trust, that might set the stage for other good outcomes in terms of an ongoing working relationship and eventual success of the venture. If
there are lots of lingering trust issues then the venture might be doomed from the start.
An entrepreneur can't wait forwever for a deal to close and needs to make decisions, often quickly, about whether to
pursue or close down a funding lead. One of the determining factors is again the level of trust and a forecast of whether
it is likely that you can build the requisite trust level in a reasonable amount of time.
Trust as a mathematical concept is interesting because it can be easily framed in Bayesian terms. Trust involves
the notion of prior trust and updating prior trust levels based upon new confirmatory or contrary evidence. Googling
the term "Bayesian Trust Model" returned this paper Bayesian Network-Based Trust Model (2003, PDF Link) with 433 citations.
Looks like an interesting attempt to formalize some important aspects of what trust consists of. Many years ago
I worked with one of the authors, Julita Vassileva, on Supporting Peer Help and Collaboration in Distributed
Workplace Environments (1998, PDF Link).
When seeking seed funding a common piece of advice is to ask friends and family for financial assistance. Funding at the seed level is quite risky so you generally need a backer who trusts you alot. To get similar funding from someone who is not "friends or family" will be more difficult because of the high trust level required and how difficult it might be to obtain. Once a project is seed funded and has something to show for it, then funding from outside sources is easier because they don't have to put as much trust in you that you will do what you say.
Trust can be used to analyze many of aspects of deal making.
Inspiration for this blog came from reading chapter 2 (title "Speed") of the book by noted designer John Thackara called In the Bubble: Designing in a Complex World (2005). I am currently awaiting delivery of John's most recent book How to Thrive in the Next Economy: Designing Tomorrow's World Today (2015).