After the acquisitions of both ExitEvent and Automated Insights over the last couple years, my life has taken a few strange turns. Nothing earth-shattering and nothing I wasn’t prepared for; Inbox fills up pretty quickly, lots more unsolicited contact, more people know how to pronounce my name.
That last one is nice, but it’s always been pretty simple. Pro Tip: All the Os are long.
One recent turn that sort of threw me for a loop was when I sat down last week for an hour-long interview about my investment strategy.
Because I’ve never really thought about it.
Well, let me walk that back a bit. I’m not new to investing. I’ve been investing in my own endeavors since college, and in other companies for the last 10 or 12 years. There’s just a lot more inbound now. And with inbound comes questions. My answers to these questions usually raise eyebrows, not because they’re necessarily contrarian or zany, but because they’re honest. And maybe because I always feel like I get asked the wrong questions when it comes to investment strategy.
Q: “How did you get started investing?”
A: “A rock band.”
So yeah, that just sounds stupid. But I’ve touched on this before. Forming a rock band is a very good startup learning experience. You put together a diversely-talented founding team, you spend a ton of time perfecting a product, and then when you’re ready, you throw dollars on top of time and make a run at it. I did that sophomore year. Twice.
Towards the end of my college career, I started to apply the same concepts to other pursuits that were a little more based in reality. After college, I founded and funded two companies that went nowhere. Then I joined my first actual startup and got an idea of what the process actually looked like.
Total A-ha moment.
Since then, I’ve always been eager to throw whatever burnable cash I had on hand at whatever I was doing—in business, art, even well-roundedness of person brought on by paying for unique experiences.
Oh, and for the record, I don’t come from money. I’m the son of a teacher and a nurse and I’m the oldest of four. Anyone can do this. It isn’t rocket science.
Q: “What’s your investment thesis?”
A: “I invest in companies I wish I had founded.”
That one makes a little more sense. I’ve been an investor for as long as I’ve been an entrepreneur. But now I have access to all of these opportunities in which I can invest but in which I will have no control. Zero.
I’m not sure I can do that.
I’m not sure I should do that.
I’ve never followed a rule book for entrepreneurism. In fact, I’ve gone so far as to sneak a peek at the rule book and then do the opposite just because. This strategy has done well for me and, on the flip side, the startup experiences I’ve had that were the most by-the-book of paint-by-numbers startup were the ones that failed most spectacularly.
Do what everyone else is doing and you’ll finish behind them. How far behind them is totally up to you.
Investing should work the same way, but it actually works in the exact opposite. Elevator pitch. Deck. Learn my thesis. Insane financial projections. Don’t waste my time. TAM. Get one maverick to get behind you and then me and a ton of others will (usually) fall into place.
I understand this phenomenon and the necessity for it. It’s herd mentality driven by capitalism and a desire for deal flow. Actually makes perfect sense to me. But what I don’t understand is why we expect it to work every time even though there’s such a minuscule success rate.
And also why we don’t address and attack that minuscule success rate.
Am I just doing this wrong? Because here in the doorway peering into the party, it sure looks that way.
Q: “How many companies do you invest in at any given time?”
A: “One? Maybe two?”
Well, now I just feel inadequate.
It’s conventional wisdom that most VCs and angels take a scattershot approach to investing. They’re looking for that one of out 10 in the high risk pool to cover losses from the other nine. But I don’t understand why this is still the case.
The unicorn phenomenon is only a few years old. And before that, those phenomena that looked like the unicorn trend blew up dramatically. Dot com. Energy. Real estate. Apps.
But we’re still doing it.
The best kind of investors, especially in the entrepreneur-turned-investor class, are far more valuable for their insight and experience than they are for their money. Thus, if I’m going to invest in something, it has to be something close to me, that I can participate in, and that I can help get to the next level with more than just a bridge to deeper pockets.
It takes me, what, two or three years before I can turn an idea into the beginnings of a company? Maybe another year after that to forge it into something investable.
How do I figure that out in three weeks? Or three months?
The last year has taught me a couple things. One, if you’re an entrepreneur looking for smart money, double your runway then double it again. Right now. Two, if we truly want to tackle that minuscule success rate, it’s time to start thinking two out of two instead of one out of 10.
And maybe the way to do that is for us investor-entrepreneurs to invest more experience and less money, focus on fewer, closer companies, and build pathways to exit instead of to the next round.