So, you wanna be a rich man?

Every now and again I ponder ideas here surrounding what I am encountering on a daily basis in the working world. As a VC, you're somehow constantly talking about money. Be it valuations, exit gains, dilution, liquidation preferences, whatever.....you name it, it all comes down to money. At the heart of most discussions is money. I know this, I accept this, I embrace this, yet I am constantly reminded how uncomfortable a concept this is for most people. The biggest problem in my opinion is that the majority of people are so concerned about money that every discussion somehow associated with it immediately becomes emotional. Anyone who knows a thing or two about this combination will tell you that it is completely wrong to allow these two things to co-exist because it's almost a no-win situation due to human nature. Even worse, there are the people who know that money is an emotional thing and immediately play that card when discussing anything vaguely connected with money, i.e. "don't worry about what happens later (usually associated with money) but think about now (usually something emotional)".  In a previous post, Seth Godin had a formula for brand. Here's my formula for measuring whether your future delivers financial success or disappointment:

(Current situation * current emotional expectation) + [(future situation * financial gain/loss) * future emotional expectation]

Let me define this a bit. The current situation is whatever offer, deal, etc. you have on the table and are discussing. Emotional expectation is what you expect when you negotiate. Of course, we always think we're going to get the best deal for ourselves but we always compromise a bit. These small gains and losses at the current time are your emotional expectation. This number will almost always be positive (if you could put numbers to this) as we naturally tend to think (or at least somehow justify to ourselves) that we managed to get a good or at least a decent deal. Future situation is what actually happens. Here it gets a bit tricky and subjective. Future situation is what happened but not the financial aspect of this. You never know what is going to happen in the future. You can only predict. At the same time, when things happen in the future we are either surprised or disappointed the majority of the time. It is a rare thing to predict the future just right. This is the number meant here and it can obviously be either positive or negative. Financial gain in the future is easy. This is what you either make or lose. Finally, you can't forget to multiply this all times the emotional expectation you had when you originally made the deal (usually long forgotten by this point). This unfortunately is usually a negative number as we always tend to see things as very rosy in the future but just so, so when we get there. Remember buying that something you always wanted and then very quickly realizing it wasn't exactly what you expected. This is exactly the thing we are trying to quantify here.

At the heart of this formula is the fact that you should not let money and emotions mix. If you do, the formula above is triggered immediately and the reality is that the second half of the equation is almost always going to be negative and significantly more negative than the first part of the equation is positive. If you leave out emotions it simply becomes a case of buy low and sell high. That's so much easier to understand and implement. You'll also understand that you can save yourself a lot of grief by optimizing this point instead of allowing emotions to take hold, especially up-front.

Finally, (and here's the kicker) since you'll actually never be able to completely detach money from emotions, there's always a good bar near no matter where you are and what the situation is. I'll keep a stool warm for you next to me.