Investors series — What I learned, talking with top investors with 10B AUM
1. If you can’t decide, the answer is no. There are an infinite number of promising investments out there. If it doesn’t feel right, pass.
2. Proprietary dealflow means ‘they want you’. Nobody thinks they have a shortage of dealflow, the hard problem is getting access to the best startups. You never want to hear, “I will come to you if I don’t get money from Sequoia.”
3. Investing takes years to learn, and longer to see returns. Get started with angel investing now. You want to invest in 30 companies at a minimum and some investors advise 70 to 100 — that takes time.
4. Valuation matters. You can’t build a portfolio of pre-traction investments at $8–10M pre-money and expect to make a venture return. On occasion, you can make an exception, but you can’t do all of your investments at this price.
5. Back $0B companies. Focus your attention on companies with the potential for a 100–1000x return. Venture returns require massive, edge-case exits.
6. Judgment is important but overrated. Judgment is not about doing a lot of research, digging and homework. Instead, learn a few markets really well. Buy all the products and try them. Find the best scientists in the market and invest in them (this is an unfair advantage you will have).
7. Invest only in technology. The best returns come from investing in technology companies. Avoid companies that don’t develop meaningful technology (either software or hardware). There are exceptions to this, but it’s a good rule of thumb.
8. Some of the best investors have no opinions. Almost any entrepreneur will be smarter in their market than an investor. The investor’s job is to listen and have intuition about whether the founders are smart, honest, and hard-working. Re-evaluate the business from scratch when a new round comes.
9. Incentives make for bad advice. Incentives influence the advice you get from VCs, lawyers, incubators, and us. Everyone serves their own interests first. The best source for angel investing advice is other angels and founders.
10. Play fantasy football. Build your instincts by looking at startups without investing. This will build up your instincts, which are what you use to make investment decisions. And you need a lot of data to build up your instincts.
11. Power beats contracts. Contracts can be renegotiated. You will be pressured to renegotiate your investment if you don’t understand power. Contracts are written for worst-case scenarios, real-world decisions are usually based on power.