When Greed Turns To Fear

There is a cliche in the financial world that has been around forever.

“Two things drive decisions: Greed and Fear”

For the past few years, we’ve been a zone where greed has been dominating. Every now and then a little fear creeps in and then gets squished into the corner by chants of “things are different this time” and “that’s just PTSD from the Internet bubble.”

Recently, the fear seems to be sticking around. There are plenty of people trying to kick it away, shake it off, or ignore it. But it lingers. And the smell of it gets stronger.

I had an exchange with a CEO the other day who was at an event in the bay area and commented on the attendees at the event. The telling line was:

They’ve never read the RIP Good Times deck, they don’t remember the Bin 38 fiasco, they think it’s the first go round.

I once again rolled out my favorite BSG line.

All this has happened before and all of it will happen again.

I’m a strong believer that you can build great companies in time of both greed and fear. But you have to be paying attention and operating under the right assumptions. You don’t have to believe history repeats itself, but you should accept that history rhymes. And one big rhyme is that the shift from greed to fear happens much faster than the shift from fear to greed.

If you are a founder running a high growth, VC backed company, here are a few questions to ask your investors today.

  1. What is the maximum amount of monthly net burn you are comfortable with for us right now?
  2. Based on our current course and speed, we run out of money in X months. If we can’t find a new lead investor, will you write us a check? How much and on what terms?
  3. If companies start failing left and right, do you think it will impact us in a meaningful way (either good or bad)? If yes, how?

There are no correct answers to these questions but they’ll give you a sense of how your investors are thinking along the greed – fear spectrum. You get bonus points if you ask the investor to walk you through what they were doing the last time things shifted from greed to fear and to tell you stories about things that went well for them, went poorly, and what they learned.

Don’t be afraid to explore what could happen well before it does. Our history rhymes with the famous John Galt quote “Nobody stays here by faking reality in any manner whatever.”

  • I was nodding throughout. You nailed it.
    That’s why those like us who have been there & seen this before need to continue sending reminders that if reality seems distorted, then it is.

  • All this has happened before and all of it will happen again.

    Love that. Perhaps why it’s easier to invest in a CEO who’s lived through a successful rodeo.

    Still need to watch BSG.

  • It’s interesting to watch in real time how much the conversation has changed in just a few weeks.

    And there still will be people who shall not have seen it coming….

  • I wonder what “fear” impact a person may have reaching out to their investors with these questions. I would imagine they would be immediately quizzed on why they are asking. Maybe a healthy head in the sand approach is advisable.!

    • Fear changes you emotionally, and SO does greed. It also changes the way you physically react to things. Another word for greed might be hubris, or cockiness. As soon as I felt I had everything licked, I’d get my clock cleaned. If I acted only out of fear, I always seemed to make bad decisions.

      • I agree that making decisions under the duress of fear seems to always end badly (and go against the gut feel)

  • Sam

    Curious if you are seeing more startup opportunities where founders are proactively positioning the business as one that has defensive characteristics in a recessionary economy.

  • I love and use your history rhymes quote. Since we’ve been at it the same amount of time, we’ve seen it twice before, and hopefully twice more.

    You left out: Can I calculate a way to get to breakeven before I run out of money?? Really when you do this you should be calculating a way to get to 20% operating profit and have several months of burn rate in the bank because inevitably some things will not go right.

    I’m not saying execute it now, I’m not saying change what you are doing, I’m not saying its not going to be without pain and lost opportunity.

    I’m just saying take a hard look at can I do this? I’ve had people tell me this is fatalistic, but I always think you should have three plans: The plan you are going with, the crazy upside and downside plans.

  • DaveJ

    “This
    life, as you live it at present, and have lived it, you must live it once more,
    and also innumerable times; and there will be nothing new in it, but every pain
    and every joy and every thought and every sigh, and all the unspeakably small
    and great in your life must come to you again, and all in the same series and
    sequence…”

    Nietzsche, The Gay Science

    • Until I die …

      • DaveJ

        He is actually saying that you will live your life repeatedly, exactly as it was, forever. At first it seems like reincarnation or nonsense but if you take a perdurantist view it’s potentially reasonable.

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  • The three questions are awesome. Why? Because there is no right answer-it’s a conversation. My whole life has been living on the edge of fear and greed. Just remember, pigs get slaughtered.

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