Adapt or die. That’s why I’m changing my investment strategy. Check size doubling to $10k, no reserves. I’ve written 2 of them this week and hope to write many more.
Here’s why I’m making this change…
A Wake-Up Call
Up until now, I’ve written $5,000 first checks and reserved $25,000 more to go into the most successful companies. I’ve been writing those $25,000 checks to roughly the top 15% of my portfolio.
In total, my portfolio was allocated 50% to primary bets and 50% for follow-on.
But recently, something happened that made me question everything.
One of my startups rapidly jumped out to tens of millions in revenue. We should have a chance to re-invest, but the price will be 5-10 times higher than I expected.
That price will be 100% worth it, justified by a mountain of revenue. It just all happened much faster than I expected.
Growth So Fast Your Head Spins
I am seeing this over and over, in my companies and across the market.
Another startup of mine, a 2022 investment, also grew way faster than I ever could’ve predicted. On top of that, its capital needs were so minimal I haven’t been able to re-invest yet, and may never get the opportunity.
That’s $25,000 I can’t put to work in a really awesome company.
Or take Lovable. They grew from 0 to $100 million ARR in just 8 months.
That is the fastest in history. Getting to $100 million might have taken 10 years before generative AI, best case scenario.
How Reserves Used to Work
In a slower growth world before generative AI, reserves made tons of sense.
We watched companies develop slowly. We gathered information as we worked with the founder, much of it proprietary.
If revenue did the classic triple-triple-triple-double-double-double, that was a big winner!
Then a year or two after the Seed, you got a chance to re-invest in the Series A.
The price was around 3x higher, generally. Getting in a second, larger bet in the winners was a chance to dramatically increase your returns.
Why Reserves Are Outmoded
It doesn’t happen like that today.
The next chance to invest comes at 30, 40, or 50x the last price, not 3x. That 2nd bet won’t do nearly as much for you. The entry price is too high to give you much upside.
Today, you generally have one chance to invest early, in the pre-seed or seed.
Once the company hits product-market fit, it jumps out to tens or hundreds of millions in revenue in a matter of months. The next chance to invest will be at a price that looks more like a Series C or D, not the Series A of yore.
How I’m Investing Today: All or Nothing
Today, we get one chance to buy in before the train leaves the station. So I’m buying all my ownership upfront.
No more “$5k now and $25k maybe”. Instead, it’s “$10k now and that’s probably it.”
Occasionally, I may still put a follow-on check into an exceptional company. If I do, that check likely won’t exceed $35,000, based on the amount of money I’m comfortable allocating to any single startup.
So, my check sizes are now $10k to $35k. Expect the $10k.
Wrap-Up
Founding and investing in tech startups is the fastest changing business there is. If I don’t adapt, I will be a dinosaur. 🦖
So I’ve retooled my strategy for a world of much faster growth. And I gotta tell ya, not worrying about whether I’ll get space in the A is a load off my mind anyhow. 😂
If you’re building something special, tell me about it in the comments below. Perhaps I’ll have $10,000 for you!
More on tech:
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