Starting Your Raise? Talk to Angels!

July 11, 2023

Yesterday, I had a great conversation with a founder kicking off his Series A. He had an awesome product with serious traction — but one thing was missing.

He had no idea how to price the round!

Who could blame him? Though this founder had raised money numerous times in the past, he hadn’t come to market in a couple of years.

And what a couple of years it’s been!

I explained that with his nearly two million in revenue, he’d probably be looking at a pre-money valuation of around $20-25 million. In 2021, he might’ve commanded 5 or 10 times that.

Start with Angels

Although he faces a tough market, this founder’s approach is brilliant. Chatting with angels is a great way to start your fundraise.

Founders only come to market every year or two.

But we’re here all the time! We see actual deals get done and the prices at which they happen.

How to Get a Meeting

To get in front of us, show us what you have to offer. This is a good cold message:

“Hi Francis,

I’m the founder of Uber, a marketplace for black car rides. We have $20,000 a month in revenue, growing 20% MoM.

We will dominate the $76 billion taxi market. Our rides are cheaper, easier, and more comfortable.

I’m kicking off our seed round raise. Got 15 minutes?”

I’d respond to that.

But if you just connect to random angels on LinkedIn with no clear reason, don’t expect a response.

And if you’ve already got angels on your cap table, you’re really in luck! Booking a chat with them should be easy — it’s in their interest to help you!

Ask for Brutal Criticism

Angels can also give you feedback on your pitch in a low-stakes setting. No angel, whether they invest $1k or $100k, will make or break your company financially.

Where would you rather work out the kinks — in a pitch where $50,000 is on the line, or when $50 million is?

Whether you get a check or not, ask the investor for his most unfiltered feedback. You might hear something like this:

“It’s a cool concept, but black cars are a tiny market. This isn’t venture backable. No one’s going to invest in this.”

That stings. But take that feedback and act on it.

Do a better job of explaining how black cars can compete with taxis and how the taxi market is massive. Paint a vivid picture of a future multibillion dollar company.

Moving Up the Foodchain

Once you’ve perfected your spiel with angels, move on to VC’s. Start with mid-tier funds, then the top tier ones.

By the time you meet Sequoia, you’ll have made your pitch as compelling as possible. And you’ll have spoken to so many investors, you might even have competing term sheets!

Wrap-Up

Angels give you valuable market color and feedback in a low stakes setting.

And we like helping founders! It’s what gives us meaning in our work.

Take advantage! With the right advice, you just might raise like it’s 2021.

Do you talk to angels? Why or why not?

More on tech:

Why I’ve Never Invested in Crypto

How VC’s Could Have Avoided FTX

The Trick I Stole from Benchmark

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Miznon: The Professors of Pita

July 10, 2023

“Smell this.”

“Oh my God.”

“Amazing right?”

I attacked the massive mushroom pita, sauce spilling down my chin. Charred, umami, wonderful.

This is Miznon, an Israeli restaurant with several locations across New York City. Founded in Tel Aviv by chef Eyal Shani, it produces some of the best Mediterranean food anywhere.

I ordered the “whole forest” of wild mushrooms in a pita. The cooks used a broad variety of mushrooms, a great way to build flavor in any mushroom dish.

Each mushroom was beautifully caramelized yet retained it’s moisture. I have no idea what the spicy sauce is, but had I been alone, I would’ve licked the tray.

The grilled scallions give the sandwich a little extra kick. It’s wonderful to see veggies given the attention they deserve.

My friend had the lamb kebab. She’s a bit of a picky eater, but the lamb disappeared in a flash.

No one can resist Miznon.

Her lamb came with beautiful grilled vegetables. An ideal compliment to the unctuous meat.

“So, you’re not going to eat that pita?”

“No, it has gluten.”

“Can I have it?”

Miznon’s pitas may be different from those you’ve had before. They are Israeli style – thicker, softer, and pillowy.

I like to fold them up like a slice of pizza and stuff them into my mouth. The tender bread’s mild flavor is also the perfect home for Miznon’s deeply flavorful meats and veggies.

The whole check for 2 people was less than 50 bucks. Good luck finding that anywhere else in New York.

We went to Miznon’s Hudson Yards location, on the mall’s fourth floor. Seating is plentiful and the environment quiet.

Miznon has 3 locations in New York, including the bustling Chelsea Market. Stop in if you want an incredible meal at a great price!

What are your favorite NYC restaurants? Leave a comment and let us know!

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The Tonic of Wildness: Stokes State Forest

July 7, 2023

“We need the tonic of wildness…At the same time that we are earnest to explore and learn all things, we require that all things be mysterious and unexplorable, that land and sea be indefinitely wild, unsurveyed and unfathomed by us because unfathomable. We can never have enough of nature.”
― Henry David Thoreau, Walden: Or, Life in the Woods

As our car pulled up to the little cabin, I was full of anticipation. A whole weekend to enjoy the outdoors, greasy food, and good company.

Our Walden is Stokes State Forest. This beautiful state park is located on the northwestern edge of New Jersey, just over the border from Pennsylvania.

It’s only about 90 minutes from Hudson County, where my friend Tim* and I live. Even in July 4th weekend traffic, we made it in good time.

For this trip, we were in the lap of luxury: we had a lean-to! These little cabins give you a roof and four walls — and you never know how important that is until you don’t have it.

They even come with a lovely wood stove. But on this balmy summer evening, we wouldn’t be needing it.

Tim got the fire going faster than any city boy I’ve ever seen. On went the dogs — Thumann’s. If you haven’t had them, get some. They’re the best I’ve ever had.

Then we went non-traditional: nachos! You’d be surprised how easy they are to make over a campfire.

Just layer tortilla chips, cheese, corn and beans in a cast iron skillet. Put it on the grill for a few minutes until the cheese melts, and top with salsa and sliced serrano chilies.

¡Buenísimo!

We laughed and chatted by the fire, then headed to bed early. Those little lean-tos make for a cozy night’s sleep.

The next day at breakfast, I finally tried Taylor ham! 9 years in Jersey, and believe it or not I’d had it. It was perfect with fried eggs and leftover buns to sop up the grease.

Then we set off to hike Tillman’s Ravine. After all that sitting around stuffing our faces, getting moving was a nice change!

Tillman’s Ravine is a pleasant, easy hike. The trails are well-marked and not particularly steep.

There’s even a little waterfall!

We stopped at the Walpack Cemetery along the way. The graves are mostly old, a surprising number of them children.

“We have it so much easier now,” I thought.

We pulled back into camp, sweaty and tired. Time to grill up that special porkchop we’d been saving.

It came from Kinderhook Farm, which makes the best pork chops around. If you’re in the area, check it out!

As we sat around the fire, we mused on trips to come.

Tim’s brother just had his first child, a son. Soon, he and his dad will join us too.

“Before long, there will be a little chair there right between ours,” I said.

Our lives unfold from trip to trip. Things change, but that fire stays the same.

I hope to be out there when I’m 100.

What are your favorite memories in nature? Leave a comment and let us know!

Have a great weekend, everyone!

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*Name has been changed

Hedge Funds Have Performed Miserably for 30 Years

July 6, 2023

The hedge fund industry manages $5 trillion dollars. That money is managed so poorly you could do better throwing darts at a board.

From a Financial Times report out over the holiday weekend:

Using backtested data for the HFRI 500, hedge funds continue to be a clear laggard on a long view, returning 61 per cent in the 10 years to December 2022, versus 227 per cent for the S&P 500. Even that Vanguard 60/40 portfolio beat the hedge fund index seven years out of the 10 and returned 79 per cent over the decade.

How is 2023 shaping up? As of May 31, hedge funds were flat, year to date. US bonds were up 2.5 per cent. The S&P 500 had returned 9.6 per cent.

In 2008, Warren Buffett bet that the S&P 500 would outperform the best hedge funds in the world over the next decade. He won the bet.

It Gets Worse

But the deeper you dig, the worse the picture gets.

Hedge fund performance over the last 30 years has been abysmal. The Credit Suisse Hedge Fund Index has delivered a 7% annual return since January 1994, versus 9.8% for the S&P 500.

The Missing Million

That might sound similar, but it isn’t.

Let’s take the example of a $100,000 investment made in January 1994. Here’s what you’d get in hedge funds:

And here’s how you’d do in an S&P 500 index fund, like the ones I own through Vanguard:

Congratulations, you made an extra $953,000! In total, you came away with more than twice as much money as the hedge fund portfolio.

Fees Galore

Despite their miserable performance, hedge funds also layer the fees on thick. Most funds charge 2% of assets and 20% of gains.

To make things even worse, many investors go through a “fund of hedge funds.” You give a firm money, they pool it with other investors’ money, and then allocate it to a portfolio of different hedge funds.

That usually adds another 1% of assets and 10% of gains. You’re up to a 3% management fee and 30% of assets, every year!

No wonder hedge fund investors can’t make money.

And this, my friends, is what hedge funds are really about.

They’re vehicles for charging you fees. Nothing more.

But What About…?

There is the rare hedge fund that massively outperforms the market over the long haul. Jim Simons’ Medallion Fund is one.

Tellingly, Medallion is closed to all but the firm’s own employees.

Perhaps you can find another Medallion. But the odds are against it.

The Illusion of Success

So why do hedge funds continue to manage trillions? Because they look successful.

The managers drive sleek sports cars. They went to the right schools.

An ETF just isn’t as sexy.

Do you invest in hedge funds? Why or why not?

Leave a comment and let us know!

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More on Fundrise in this post.

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The Trick I Stole from Benchmark

July 5, 2023

Benchmark Capital might be the greatest venture firm on the planet. I stole a trick from them — and you can use it too!

This morning, I was chatting with a great young founder. We got past all the numbers and on to a real conversation.

He opened up to me about some a–hole investors he’s dealing with. I couldn’t believe some of their behavior.

And then, our time was up.

Here’s the trick…

I didn’t schedule any meeting right after ours. In fact, I almost never schedule back-to-back meetings.

How could I tell him I had to leave?! We were just starting to have a great conversation!

I just kept kibitzing with him until we finished what we were talking about. At the end of our call, I had a much better understanding of him as a person.

Benchmark avoids back-to-back meetings whenever possible. I read about that trick in the wonderful book The Power Law and stole it for myself.

Our business is all about the great founders. The one in 1,000.

When you meet someone great, you want to have the freedom to chat and kick around ideas at length. The conversation goes where it goes.

This helps me truly understand people. It also helps me build relationships.

You can’t always get to know people in 30 minute chunks. Sometimes, it takes longer.

I always want to have time for those great founders.

So if we book a meeting and I pick a weird time, this might be the reason. I want the freedom to chat with you longer if we need to.

We angels and VC’s are in a service business. We are here to help founders.

We do that best when we make every conversation a priority and treat each person with respect.

Part of that is keeping our calendars in check.

Give this a try and you’ll be amazed at the great conversations you have! And you never know…one of them might lead to an incredible investment.

How do you handle meetings with founders and investors? Leave a comment and let us know!

Great to be back! 😊

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More on tech:

How VC’s Could Have Avoided FTX

Why I’ve Never Invested in Crypto

Late Stage Startups Face Bleak Funding Environment

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

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I wrote a detailed review of Misfits here.

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How VC’s Could Have Avoided FTX

June 30, 2023

Sequoia Capital lost $115 million investing in FTX. Partner Alfred Lin says they’d do it again.

From Bloomberg:

“I looked at the work we did 15 different ways,” Lin said Thursday at the Bloomberg Technology Summit. “We probably would have made the investment again.”

Sequoia’s business lies in trusting founders and taking calculated risks, he said, and the lesson learned is sometimes the investments won’t deliver.

“It stinks,” he said. Then again, the $115 million investment Sequoia lost on FTX was just 2% to 3% of its global growth fund, he said, adding that the firm was “still very excited about the concepts of crypto.”

Alfred Lin is a legend. But here’s why I think he’s wrong…

A venture capital firm investing a substantial sum should do due diligence. They owe it to the people who trusted them to invest their money.

Even a cursory diligence process should’ve uncovered huge problems at FTX. Those problems would easily be enough to stop any investment in the company.

From a CNBC report:

[New FTX CEO John] Ray, who helped shepherd Enron through its own bankruptcy, minced no words about the state of the company or the behavior of the former executive team, describing it as one of the worst examples of corporate controls he’d ever encountered. It was a damning remark from someone who has 40 years of legal and restructuring experience.

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”

The losses for investors may reach as high as $8 billion. But with nonexistent or deficient accounting, auditing and disbursement systems, it will take Ray and his forensic investigators “some time” to uncover the truth.

VC’s with a strong diligence process log into a company’s Quickbooks. They make sure the numbers add up.

They also comb through bank statements, looking for unusual expenses. The odd employee mansion would certainly qualify.

The big firms that invested in FTX, like Sequoia and Softbank, have large teams of people and massive budgets. They can easily afford a few accountants and lawyers to dig through financials.

I know firms that do this when they’re investing $500,000. Surely Sequoia’s nine digit investment should trigger at least the same level of diligence.

Without diligence, a VC’s investors have no security for their money. The firm also gets a reputation as light on diligence, which will have every huckster beating a path to their door.

So what happened to Sequoia and all the other top firms that put their money with this criminal?

They succumbed to FOMO, just like everyone else. After all, if they took time for diligence, they might lose out on the deal!

FOMO is the ultimate killer of investment returns. It gets us rushing headfirst into rotten investments, incinerating our capital.

We have to be willing to miss deals. We have to maintain standards.

Since an angel investor like me doesn’t have the right to deeply diligence a startup’s books, I partner with lead investors I trust. I know their diligence process is thorough and I can rely on it.

It’s okay to make mistakes, in investing or anything else. But we have to learn from them.

The lesson of FTX is that no matter how special a deal seems, always kick the tires.

Do you agree with Alfred Lin? Leave a comment and let us know!

The next blog will be on Wednesday, July 5. Have a great holiday weekend, everyone! 🎆

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More on tech:

Why I’ve Never Invested in Crypto

Late Stage Startups Face Bleak Funding Environment

Masa Pivots to AI

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

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I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order.

Why I’ve Never Invested in Crypto

June 29, 2023

“Did you own a lot of crypto?” my lunch companion asked?

“Actually, I never put a dime into that.”

“That’s impressive.”

Since the market peak in 2021, crypto has been crushed. What was supposed to be the future looks increasingly like the past.

The NASDAQ Crypto Index of major tokens is down by more than half.

FTX has collapsed, and Binance may not be far behind. Even Coinbase stock is down nearly 80%.

In 2021, I saw countless crypto startup deals.

Each one sounded like an incredible opportunity. If I didn’t hop on this trend now, I might be left behind!

But then I dug just a bit beneath the surface.

Company after company had no product in market. That means no customers and not a single dollar coming in the door.

Except from fundraising.

Pre-launch companies raised at $100 million valuations or more, day after day.

Meanwhile, I was investing in companies with real products and customers at much lower prices. Startups with hundreds of thousands in revenue were available at prices below $20 million.

I realized that a lot of crypto startups are just fundraising exercises. They create hype, pull in checks, and take them to the nightclub in South Beach.

Okay, maybe I wasn’t seeing anything promising in crypto startups. But how about the tokens themselves?

I researched Solana, Elrond and others. Some of the technology was impressive.

But as I considered buying Solana in the fall of 2021, its market cap was around $100 billion.

“In anything speculative, I want to see the possibility of a 100x return,” I told a friend. “So what, Solana is going to be worth $10 trillion? I don’t think so.”

Despite the innovative tech, the price seemed obscene. Over time, markets came around to my opinion, and the price fell 90%.

Before I dislocate my shoulder patting myself on the back, let me explain something. This took no special insight.

I just applied to crypto the same criteria I apply to all my startup investments.

I want to see a product in market with real customers. I want to see a few hundred thousand a year in revenue, growing fast.

I want to see a real business.

If a crypto company hits those benchmarks, I’d be happy to invest. But good luck finding one.

My hunch is that crypto is over. I expect to see all those hot 2021 crypto deals become zeros.

It’s been 14 years since the introduction of bitcoin. We’ve yet to find a use case aside from speculation

Meanwhile, in just a few months, LLM’s are widely used across the world.

My lesson here: focus on the business. Don’t focus on hype, FOMO, or the actions of the crowd.

If you buy slices of great businesses at reasonable prices, you can win. If you throw money at every passing fad, you’re toast.

What do you think the future holds for crypto? Leave a comment and let us know!

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More on tech:

How I Research a Startup

Late Stage Startups Face Bleak Funding Environment

Masa Pivots to AI

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order.

Hedge Fund Andurand Loses Majority of Fund

June 28, 2023

Pierre Andurand was sure oil prices would soar in 2023. He placed massive bets. Now, one of his funds faces an existential crisis.

From a report out this morning in Bloomberg:

Oil trader Pierre Andurand’s losses deepened this month, with his hedge fund slumping to its worst-ever phase of decline.

His main Andurand Commodities Discretionary Enhanced Fund, which makes leveraged bets, fell by another 7% this month through June 23, extending this year’s losses to about 51%, according to an investor letter seen by Bloomberg News.

Andurand buys energy options, hoping to profit on huge price swings. This year, he expected oil to surge due to China’s reopening.

Instead, the price has fallen on a tepid global economy. This resulted in huge losses for the star trader.

Commodity options are notoriously risky. A small swing in price can quickly wipe out a leveraged position.

Andurand has never taken losses this large. Despite many years of strong performance, a loss of the majority of the fund could spook investors.

The key is psychology. If people see you down by more than half, they assume you can go down all the way.

And they certainly don’t want to be there when it happens.

Hedge funds under pressure frequently see huge withdrawals. This leaves the fund hurriedly selling positions at whatever price it can get.

In such a downward spiral, the best employees leave as well.

Perhaps Pierre will make another risky bet that saves the firm. But that may only delay the day of reckoning.

The most successful investors over the long term buy great assets and hold them forever. That’s the group I want to be in.

What do you think the future holds for Andurand? Leave a comment and let us know!

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Correction: An earlier version of this article estimated Andurand’s losses at over $1 billion.

After publishing the article, I heard from a representative of Andurand. They explained that while one fund is down over 50%, Andurand manages four funds.

Since Andurand refused to disclose the size of each fund, it’s impossible to estimate the dollar losses here. So, I removed references to any specific dollar amount.

Since the fund that took the large loss is the main fund, per Bloomberg reports, I assume the loss is quite significant. But without more transparency from Andurand, we cannot know the exact size of the loss.

I always strive to bring you the most accurate, up to date information. When more information becomes available, I will let you know about it right away, as I have in the past.

More on Fundrise in this post.

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Misfits Market

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I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order.

Late Stage Startups Face Bleak Funding Environment

June 27, 2023

Late stage startups are running out of options. For every $3 they want to raise, just $1 is available. From a new Pitchbook report:

The capital landscape during H1 has not seen significant improvement for late-stage and venture growth companies. The capital supply and demand dynamic is still skewed, with late-stage companies experiencing a particularly pronounced imbalance. Demand for capital in the late-stage sector is about 2.84x more than the available supply—a stark difference compared to the 1.29x overextension observed in the venture-growth stage.

Getting to Breakeven

These startups are valued in the hundreds of millions of dollars, if not more. Many have tens of millions in revenue, every year.

With cash like that coming in the door, there ought to be a path to breakeven!

I know we sound like a broken record, but investors big and small have told companies to cut burn for over a year now. Many did, making hard decisions to lay off staff.

Now, those startups are in a strong position.

Once they hit breakeven, they no longer need to raise money. If they decide to do so, it’s on their own terms.

The Punitive Funding Environment

But for startups that refused to adapt, the picture is grim. If they can raise money at all, the terms are often punitive.

Nearly 1 in 10 funding rounds now includes a liquidation preference above 1x, up from almost none a year ago. You can bet that figure is a lot higher at the late stage, given capital scarcity.

If a VC invests $50 million at a 3x liquidation preference, that means he gets back $150 million before anyone else gets anything. If the company exits for $150 million or less, he gets it all.

Nothing for founders, nothing for employees, nothing for early investors.

When employees find out about this, the best tend to leave. After all, their options may now be worth nothing.

What’s more, the company becomes hard to finance in the future. Take that cap table to the next investor, and they’re going to squint and say “What is this mess?”

Late Stage Outlook

Don’t expect the late stage funding market to ease up any time soon.

At the peak, the vast majority of capital came from crossover hedge funds. Those funds are largely out of the market, licking their wounds.

Meanwhile, VC’s are raising fewer new funds. This means they’ll have to dole out their existing capital more slowly.

Wrap-Up

Getting to profitability is tough. It can involve saying goodbye to great employees.

But it beats the alternatives.

A startup’s ultimate goal is to become an independent, public company.

This means it will have to get to profitability anyway. Public markets aren’t buying unprofitable tech these days.

No time like the present!

What are you seeing in the late stage market? Leave a comment and let us know!

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More on tech:

How I Research a Startup

Masa Pivots to AI

The Perfect Pitch

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order.

How I Research a Startup

June 26, 2023

I’m finalizing my biggest ever investment in a startup. Let me take you inside the research process I used to make this decision.

Read the deal memo and deck. Simple, but you’d be amazed how many people don’t do this!

I read all materials, often multiple times. I extract key passages and take notes on them.

Find growth rate and burn multiple.

For every company, I want to know how much money is coming in the door.

I also want to know how fast the revenue is growing. I calculate growth rates for the last 6 and 12 months.

For seed stage, I want to see a company tripling year over year. Around Series A, that may slow to double as the numbers get larger.

Growth is great, but we also want to make sure startups are capital efficient. If they’re burning $10 to get another dollar in revenue, they don’t have a viable business model.

So I take the most recent month or quarter’s ARR increase and divide it by that period’s burn. This produces the burn multiple.

I got a burn multiple of 1.6 for this startup, a very strong result.

Calculate market size. I do what’s called a bottoms-up TAM.

I take all the potential customers and multiply that by the cost of the product. In this case, it’s a SaaS product used by in person stores.

I found that at least 2 million such stores exist in the US. At the startup’s average pricing of $4200 a year, this yields a healthy $8.4 billion potential market in the US alone.

I like to see that potential market around $10 billion or so. This gives me a chance of hitting a major outcome.

Demo.

The demo is really undervalued. You can’t judge a product from a bunch of slides.

I want to see the product in action. And if it’s a consumer product, I want to use it myself.

Is it pretty? Is it easy to use?

If so, it just might sell!

Meet with the founder. This step is crucial.

When I meet with a founder, I usually already have most of the financial information. What I’m looking for above all is to get a feel for a person.

I want to know his personal connection to the company’s mission. Will he give up if things get tough?

I often like to ask, “Who do you admire?” This founder smiled as he mentioned Elon Musk.

That gives me a sense of the scale of his ambitions.

I also ask myself who this person reminds me of.

In this case, he reminded me of two other founders I’ve met with, Brett and Aaron*. He calmly fielded questions and answered with enormous detail, just as they did.

Brett and Aaron both run billion dollar companies. Maybe this founder will too!

Research competitors.

I look into the competitors the founder mentioned. But I also look for ones he may not know about.

In this case, I saw no serious competition. But even if there had been, it doesn’t mean the deal is a no-go.

It just means they need a great strategy to win.

Research co-investors. The first question I get from most investors when I send them a deal is “Who else is investing?”

I don’t operate that way. I make my own decisions.

But I do want to know who else is in a deal. If top investors are joining, it’s a small plus.

Decision Time

I read over everything in the research document I’ve compiled. What’s the overall picture of this company?

In this case, I had a great founder taking on a huge, untapped market. His traction was impressive, reaching millions in revenue in just 3 years.

Since I first invested two years ago, he’d done everything he said and more.

So I decided to re-invest!

My last step is to write a short memo on why I’m investing. I keep it to a couple of hundred words.

This forces me to be clear on why I’m making an investment. Win or lose, I can go back and check the quality of my thinking.

In total, the whole research process took me a little over five hours for this company. That’s on the high side for me — I usually spend about 4 hours on research before saying yes to a startup.

For companies that don’t make the cut, the decision could come in just a few minutes.

But when I’m on to something good, I like to dig deeper. But I also keep in mind that eventually, I have to make a decision and move on to the next bet.

In the end, we can’t control outcomes. All we can do is improve our process.

My hope is that with enough carefully considered bets, I hit that home run.

How do you research a startup? Leave a comment and let us know!

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*Not their real names

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