I have
been investing in start-ups for almost 20 years. These investments have not
changed my life financially but they have given me the opportunity to see the
world differently and that in itself has changed my life. Here is my
perspective on early stage investing as a non-professional investor.
It is
important to note that my tech investing is not my primary business. My
investments in Real Estate and distressed assets, which is my primary business,
follow a very different strategy, risk level and business model.
My macro
investment thesis:
1.
Disruption - One of the companies we invest in hopefully will disrupt an
industry, maybe even my industry. I can either be part of the disruption or
watch from a distance.
2.
Playing the odds - Early stage companies have a very high failure rate but also
high payouts to winners (10x - 100x). Therefore, you need to make lots of micro
bets to see what happens.
3.
Diversification play - Industries are changing fast and the lines are blurred
between them. Making investments in numerous areas provides coverage for when a
company pivots into another industry.
4.
Consumer demand – It’s impossible to predict. Only way to create luck is
to be invested in various areas. I have a 12-year-old daughter and I have no
idea what she is going to like next month let alone 5 years from now.
5.
Timing - I invest for the future and not for today. In an exponentially
changing world we need to focus on what the world will be like 5-10 years from
now, and exponential change creates chaos that we cannot always
comprehend. Industries move linearly while tech/early stage companies move and
think in exponential terms.
6.
Teams – important, yes, but never under estimate the power of a passionate
leader. They can find smart, experienced and skilled followers to get them to a
successful place.
7. Cool
tech - I don't invest as a profession, so I am not solely focused on short
term IRR or return on investment. I want to be cool and have something to
talk about. The Uber of this or that or another subscription service is
not great conversation, being ahead of the curve is.
8. Future
deals and rounds - When you invest in a team and a product, many times both
don't succeed but one probably will. I have invested in companies that
completely pivoted into different areas and then made money and I have invested
in teams that originally failed but made it on the second or third try. Think
long term.
9. Scale
- Always look for an opportunity that can be big.
For my
micro view, I focus my fund on:
1.
Industry Knowledge - I only invest in groups of 20 members or more that are in
varied industries and can provide a qualified assessment of the investment.
2.
Network - It is important to use the combined network effect of the partners to
grow our investments.
3.
Competitive – As a group we hate losing and will do what it takes to make these
investments work.
4. Funds
- We are connected to money and will make sure that if portfolio companies
deserve it they will get their next round.
5.
Multiplier effect – We invest with the understanding that our investment is an
entry to further funding.
7.
Existing businesses - One of the companies we see will be a disruptor to our
businesses and we hopefully will pay attention and learn from them. This is
probably more profitable for us then any investment.
8.
Increasing luck - The more our funds invest the more opportunities we see. I
currently see almost 100 deals per month and only invest in about 1 per
month.
Again, financially, these investments are not life changing
but since many of the things we do, create a mindset, early stage investing for
me has created opportunities to accept change, focus on growth and think about
the future. That is why I invest early stage.