It is easy for investors to get blinded by startup successes. They forget about the failures.

Investors see failed startups as the “other” and act as if failure will not happen to them. They see failure as the result of stupidity and incompetence. They forget that people that fail go on to success, and people who succeed go on to fail. Sometimes success and failure is just timing, or luck. Not a judgement of your intelligence or morality.

Startup success is fluid. At Contemporary Analysis, I have succeeded, failed and succeed. I always worked hard, but success and failure came down to timing.

Overconfident investors think failure is not possible for them. This creates an environment that counter productive to entrepreneurship. I have worked with investors that have taken too large of a position. They used up all of their liquidity. This created a toxic environment. They were so worried about losing their investment that they couldn’t focus on building a better future.

They invested in my business because they thought they would get rich. I was treated as their Golden Goose. They bet everything they had on my startup. They were content when things were good, but became resentful as soon as there was turbulence. Their anxiety made a bad situation worse.

No one should bet their entire net worth or future on your startup succeeding. This is too much pressure for something that has such a low chance of success. Startups are not sure things and should not be counted on to produce stable and consistent returns. Startups are a gamble.

As a founder, I now look for investors that are interested in Racehorses.

Racehorses are expensive, elite, and provide a chance of a return — not a guarantee. No one invests in a racehorse expecting to make money. They do it because they are looking for excitement and the chance to earn a great return.

Entrepreneurs are the new racehorses. Investing in startups is exciting. We are building new businesses and solving problems with cutting edge technology. Investing in us gives those investors bragging rights.

What Racehorse Investors want

The good news is that there are a lot of people looking for Racehorse Investments. Perhaps they dream of founding a startup, but can’t. They have great jobs, make a lot of money, and are accustomed to certain lifestyle. They can’t leave it all behind to take a risk on an uncertain future.

However, their startup dream is real. It gnaws at them. Investing in your new startups allows them to realize their dream while keeping their job and lifestyle.

Racehorse Investors have the same goal as entrepreneurs. They want to create something new from nothing. They want you to be creative and build your businesses. They want to you to provide them solid business plans, provide regular updates and work hard.

Racehorse Investors have three traits:

1. Experienced owners. They are comfortable owning a business through all the ups and downs. They have done it before: perhaps as partners in their firms, running a business out of college, or owning a franchise.
2. Not interested in control. They are willing to provide advice and introductions, but leave the decisions to you. You are involved in it everyday; they are not.
3. Limited exposure. They are excited about possible future returns; not worried about losing their investment. Investing in your startup will not have a significant negative impact on their net worth.

The best investors understand that failure is a real possibility. They understand that too much pressure will hinder your ability to make good decisions and build a great business. They know that you want to succeed, and they don’t want to get in the way. They don’t create a situation where failure isn’t an option.

Beyond early investors

Eventually, you will reach an inflection point where scale becomes important. You will need the bigger checks an institutional investor can write. However, you will probably be surprised by how far you can get with Racehorse Investors. I bet you can get past $1M in annual revenue before you need to approach institutional investment.

No matter your stage, be cautious around any investor that is too formulaic and treats you as a “Sure Thing”. Startups are never Golden Geese. There is always risk.

You want partners that enjoy the journey as much as the destination. Be a Racehorse.

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Grant Stanley is the CEO of Bric. Bric is a product that increases employee utilization for professional service employees through more accurate project planning and time tracking. On average Bric’s clients make an extra $850 in profit per employee per month. For a 10 person team that is an extra $102,000 a year in profit.