As an advisor to startups, I’ve spent a lot of time developing my skills at teaching, guiding, and influencing people. But things aren’t always so rosy for startups – people who have done startups before know that there can be incredible highs but also incredible lows. The tough moments can be extremely challenging to the psyche. But who can guide them through these times?
Lately, I feel like I’ve been playing the role of helping entrepreneurs through tough times, not only with what they do, but what they feel also.

It’s hard being an entrepreneur. Sometimes, you have nobody to talk to. This is why we encourage entrepreneurs to have a co-founder, and to find good advisors. But I’ve found that while many give great advice and are awesome at the “doing” part, and are great problem solvers, they are awful at the “feeling” part.
Therapists have lots of skills – among them are:
1. The ability to listen.
2. The ability to be non-judgemental. What is, is. Don’t place value judgement on what is there in front of you.
3. Be able to practice “tough love.” Don’t be wimpy and only shower someone with good feelings; listen and then guide them to a better place. Don’t be afraid of confrontation – too many people, especially in California, avoid conflict. It’s stupid.
4. To be able to reflect what you heard from them and then guide.
If there is anything I’ve learned in my life, it’s that humans are AWFUL at the above. A good friend said it to me best:
Our society is awesome at creating doctors, lawyers, physicists, scientists. We put them through 12 years of grade school, then another 4 years of college, and then another few years of advanced training. They become AWESOME at what they do. YET we do not train someone to deal with another person positively and for a long time which arguably is just as or more important than your profession.
Those of you who know me know that I am mentor at 500startups, Lemnos Labs, and StartX. I was also mentor to Ycombinator startups when they had a short trial mentor program. And since 2006, I’ve been advisor to 20+ startups, and Venture Advisor at Betaworks. I’ve learned a lot about being a mentor and advisor over the years (see Advising with Influence and Resonance, Advisors for Early Stage Startups Presentation at Yale Entrepreneurship Institute, How Does One Advise So Many Companies at One Time?, The Three Faces of My Schizophrenia, What If I Advise But Don’t Invest?) but think one aspect that has come to the forefront lately is mentor-as-therapist.
So I listen. I hear what they are saying. I don’t be judgemental. I hear the problem or problems.
I can’t get my co-founder to agree!
Why haven’t I got 1 millions users yet? I think my product sucks!
I gotta bridge at a terrible valuation! Depression sets in!
My bank account is at zero! What do I do?
I can’t raise $100M at a billion dollar valuation! The world is so unfair!
Instagram got a billion, why not me?
I’m outta my comfort zone! Panic!

I may suggest solutions, but sometimes I suggest nothing – (in case you didn’t know, suggesting NOTHING is actually an effective way of helping!). Sometimes it can take several conversations. My intuition is fully on – can I actually push a solution now or should I wait? Maybe I can toe one in to see if it will work? I sense their receptiveness or lack thereof. I use a bit of humor. I rag on them to see the absurdity of it all (after all, what’s REALLY important in life – this stupid startup or something else?). If the time is right, I practice tough love. Some get defensive – that’s too bad – some take it in. It can be very taxing on me – isn’t it frustrating when the other party just won’t change or see the light fast enough? I just relax and be very patient because in my experience, the right answer always eventually comes. But ultimately, my hope is that I get them to a more positive place than they are today.
Yep, I’ve got a new job title – just call me “Venture Therapist”….

Since the beginning of this year, I’ve been helping a number of my startups prepare for series A (you can read some tips I’ve collected in my last post Some Suggestions on How to Prepare for a Successful Series A). This seems to have become a full time job in itself.
When I first started investing as an angel back in 2006, I wanted to be helpful. I offered up my previous experience as a UX/product guy to startups and they were thankful for that. Since 2006, I’ve learned a ton about startup building in and around the product and have broadened my areas to help.
In yesterday’s world, having a kick ass product equalled getting customers which then equalled getting your series A. In today’s world, it’s a LOT more complex.
Think about it. Everyone is out there trumpeting the entrepreneurship horn. Never before has it been so easy to start an internet startup; all the costs and barriers have dropped. But this also means that competition for the next round of funding has grown more fierce. While the number of startups has grown exponentially, the venture funds who fund at the series A level has not grown to match. Some have called this the series A crunch – see Elad Gil’s excellent post Why Fewer Companies Are Successfully Raising Series A Rounds. Others have denied there is one. Still, as I watch my startups start their funding meetings with VCs, it’s obvious that you better be better than the best of the best of the best or else you won’t have a chance.
Startups must exhibit the correct strengths and have minimal weaknesses. But what are those strengths? And how do you minimize weaknesses? Startups without guidance aren’t going to have a great chance at getting their next round. Thus your chances increase when you have help, hopefully in your advisors and investors.
I’ve been involved with over 30 startups now through my angel investing and through Launch Capital. While I started with helping with just product and UX, I find myself now more importantly broadening that help to prepping the startup for their next round. Perhaps this was obvious to those more experienced than me as an investor; however, just this year, I’ve become painfully aware that while I can help on product and UX, it’s much more important that I am helpful with a broader overview of the startup, with the specific aim of successfully landing a series A.
So I sit with founders and drive them to exhibit all the characteristics an investor may want to see. All of those are detailed in my previous post, Some Suggestions on How to Prepare for a Successful Series A. I push them to spend all their waking hours (before their bank account runs too low) to figure out their key metrics, work on whatever their weaknesses are, make money and/or get tons of users, and to put their business in the best light – especially against the competition. I bring them news from the marketplace on what investors might look for, and which ones are the best ones for their market and which ones are not. I watch the calendar and make sure they hit the fund raise trail at the right times of the year. I dress them up for the funding prom and hope that they are the prettiest one there.
To me, preparing startups for series A has become the most important function an early stage investor can perform for their startups now, more than any other function. Early stage startups should strive to not only find key advisors and investors with expertise in the right fields, but also those who can help and are willing to spend time with their startups to successfully land their next round.

I’ve been thinking a lot about investment theses and their development and use over these last few months. As I observe some of the theses that I’m investing against now, I find that investment theses move through a cycle similar to Geoffrey Moore’s Crossing the Chasm technology adoption life cycle model:

Source: Powerpoint-Templates on Slideshare
The earlier we develop a thesis, the further left on the graph we are. Thus, we truly are “Early Adopters” of this thesis because practically no one else has spotted yet, or very few. As we invest, we approach the chasm. This is where we find out if our thesis is right or not; if we are wrong, the thesis hits the chasm and falls to a brutal market death (taking our investment dollars along with it). Internet startups in this phase tackle the broad market since it is wide open with almost no competitors.
However if some of our investments start to do well, they gain market notice. Now other investors start jumping on the bandwagon. They too start to fund those startups which fit the thesis. Other (less imaginative) entrepreneurs start to see that startups got funded in a certain category before them, and they join in building startups too seeing that the investor community is beginning to favor these startups and raising money for them is easier. For internet startups, this begins the explosion of startups who start niche-ifying the early companies who tackled the broad market and try to do better by attacking a smaller segment more effectively than someone who is trying to satisfy the broad market. Series A investment rounds start populating the early startups who are still operating. This phase is the “Early Majority.”
Now the early startups have survived and gained a lot of traction and are making money and/or generating excitement by their growing size. Later stage VCs start funding series B and beyond, infusing large amounts of growth capital to companies whose traction has largely been proven. Still, entrepreneurs begin companies that tackle the space; for internet startups, this means not only further niche-ifying but also additional feature development for those things we wish the giants would do but do not have time to build.
At the end of the cycle come the laggards. This can mean simply that there are those who believe that they can still find some startup that can survive the existence of heavy competition that can grow to great heights. It can also mean that the next phase is IPO, as the largest of the companies drive towards the public markets and the stock market takes hold, which usually means there is significant traction and revenue generated. But paradoxically, once companies become big, history has shown that they stop innovating and then it can be a great opportunity for new investment theses to develop in areas where opportunity was disappearing not too long ago.
When I applied this to the theses I had been using up until now, I realized that two of my theses were racing along the graph now. And that was when I also realized that one of my theses was quickly moving beyond us.
What do I mean by that? As an early stage investor, we need certain parameters to fall into place for us to execute a meaningful strategy in selecting investments. One of these is the fact that startups we select must have market conditions maximized for their success. In the case of one of my theses, and when I applied this chasm graph to it, I realized that the market had definitely jumped the chasm a year or so ago and we were racing up through Early Majority and into Late Majority. When this happens, it means that there is still a market opportunity but just that this opportunity is not as viable for us at early stage as it was before. Mostly, this is because companies who emerge in this thesis category require a ton of capital to survive the market dynamics of fast, easy competition and a consumer attention problem of enormous proportions. You essentially need a lot of capital simply to go out and buy users to accelerate the customer acquisition process or else your chances of surviving by utilizing free methods of acquisition are too slow. At early stage, we simply cannot do things to move the odds in our favor any more; these investments become the province of those with a lot more capital than us.
Can you guess which of my theses I refer to?
Developing investment theses has been a fascinating exercise for me. However, now that I had developed some, it is even more fascinating to watch how I apply them to my investment strategy, see them evolve through years (sometimes months now), and then go through the mental and emotional exercise of dropping them when they are not valid for us any more.

Richard White CEO of Uservoice posted a great read entitled Revenue could be fatal: 3 reasons your startup should consider waiting. Check out the comments and see a snapshot of the emotions that are stewing around the net right now (see more on Hacker News). All of this is on the heels of Instagram being purchased for $1 billion by Facebook. How is that fair? How can that be? A startup making no money being purchased for $1 billion! That sucks right?
I feel for you. Some of you are truly toiling away at a startup that makes real money. Some of you are trying to build “Instagram, the Sequel”. Some of you get a lot of VC love and are showered with money while others can’t get a dime. It’s not fair, right?
Let’s not forget investors. So many are quietly or noisily looking for the next Instagram now. Many are bemoaning the fact that they missed that investment and now they shift to go looking for the next one. Darn it, my previous investment strategy made perfect sense – how crazy is it to see that lucky set of investors make off like a bandit on a bullshit company that doesn’t make any money!?! Life blows!
Well, here is some perspective. First, read this post, Mark Fletcher at Startup2Startup and the Evolution of Startup Business Strategy. It was at that Startup2Startup that I had that first AHA! moment about how the broader market can affect an entrepreneur’s strategy on creating a company.
Then I met James Robinson at RRE Ventures who has been investing WAY LONGER than I have and through many market cycles. This prompted this post, Time Diversification: Strategy for Investors and it showed how important it was for investors to watch the market and adjust investing strategy accordingly.
So put the two together and you have a marketplace for startups and investors that can vary widely over the years.
It makes sense that you should just build a company with real revenue. In fact, in the hyper-risky world of startups, this is the conservative approach. Find a great idea, build it, make money, we all get rich. That works fine every time.
But the markets can be really nutty. There can appear times in the markets where it makes sense to build a company for other reasons, potentially not for revenue. As Mark Fletcher had noted, there were times in the past when it made sense to build for acquisition. Pre-2008 most of us were investing in startups whose goal was to get a million users before their money ran out and raise the series A; this seemed to be the norm amongst startups at that time. Thus, a bunch of my startups that raised money right before 2008 and whose money ran out in late 2008/early 2009 were sunk. The economic crisis of 2008 hit and it was nearly impossible to raise money unless you had revenue. A bunch of my startups died during those years which totally sucked. Now the markets have changed again.
As Instagram has shown, tremendous value has been created in a company that makes virtually no money but then became a threat to another company and thus got bought for an exorbitant amount of money. There have to be buyers with the appropriate resources and reasons, competitive conditions which drive those purchases to be made, and sometimes a lot of luck to be an employee or investor in the acquired company. Market conditions were right for this happen; they may have had this fact in mind, or maybe they just fell into it when Instagram took off.
Try this in 2008-09 and you probably would have failed to get funding. Could Instagram have survived through those few tough years? Maybe they could have; maybe they would have died.
So now I’ve been hearing word that investors are out looking for Instagram-ish investments. Doesn’t make those companies raising money with real revenue feel any better when they don’t fit the “momentum play” mold. I would, however, say that feeling hatred and jealousy is natural but it’s time to let go and learn from this.
You need to watch the markets like a hawk. Like Mark Fletcher, he adjusted his startup building and fund raising strategy according to what the markets were like at that time. You go out and try to raise for one type of startup when the markets are looking for another type, right or wrong, and that means your chances of raising a round could actually be much less! (We pesky investors just love to follow the herd and be ultra-risky.) So much luck is bound in this business that the timing could just shift on you and you’re dead in the water – or you just hit the jackpot by raising at a momentum level valuation.
For us investors, we need to also watch the macro conditions and decide how we’re going to invest. Some investors will look at their strategies and available funds and go for what is hot now. Others will stick to their guns and be more conservative. Higher risk = higher potential return…or higher loss. Losing all your money in bad investments is bad enough when it’s your own money; it’s career ending when you lose your LPs’ money. Or you could be one of the investors in Instagram and now you’re a hero. Which one will you go for?
But for each of us, getting cranky, jealous and hateful isn’t productive. For me, this is whole ecosystem is fascinating and why I enjoy being an investor. It is a huge challenge to me to play in this topsy-turvy, ever-shifting world. Will I be right? Will I make the right decisions? Or will I lose everything? How can I be smarter and better than everyone else? Will I be lucky? Have I created enough luck? By the way, these decisions I make today may not have results, good or bad, for months, maybe even years. Timing is nearly impossible. Never hating, always learning and improving.
The pace of change is incredibly fast now. Launch Capital’s research into the megatrends revealed that the speed of these changes is only going get faster. It can be bewildering to think that investing in revenue generating startups was in vogue only 2-3 years ago and now people are chasing startups that have momentum in users, revenue or no. It could be mere months when the next big shift happens.
I, for one, am enjoying the ride on this rollercoaster and patting those on the back who manage to make money no matter what the market conditions are at that time.

Semil Shah (@semil) tweeted a response to my tweet about my post, Working on New Investment Theses:
@bznotes @dshen what if one’s thesis is to simply find the most exceptional technical founding teams?
I thought I’d run this through some of the process described in that post and in my older post Predicting the Future: Research and Thesis Development. I will use YCombinator as an example, since they are the most visible supporters of this thesis (see disclaimer at end of post).
First, some from “Predicting the Future..”:
1. Look at your own personal interests and areas of expertise.
Currently, the most vocal of proponents of this strategy is Ycombinator, who recently announced that they were going to accept founder teams that have no idea. Ycombinator has always looked for hacker credibility in its applicants, accepting only the cream of the crop from top schools all over the world. The Ycombinator group is also composed of hackers as well. Given their experience from a multitude of Ycombinator classes, they have seen that often times all it takes is hyper intelligence plus entrepreneurial traits that can yield a tremendous winner in a startup.
So it would be natural for them to take this leap.
2. What else is unique about you?
a. Do you have a flow of proprietary deals from some source(s)?
Of course YC does. Their brand attracts the best of the best of the best to apply each class.
b. Can you influence outcomes based on your experience, contacts, expertise, etc.?
YC now has amazing support from the community from other businesses, investors and their startup network. They also get amazing press coverage for whatever they do. They are universally respected for everything they say. If you are a startup that has gone through YC, it gives you a badge of honor that you can’t get anywhere else. Investors travel great distances to view Demo Day and then pick the best of the best to invest in, no matter what the valuation. These factors give their startups an advantage in the marketplace over those who are not YC alums.
c. Where are you based?
YC was in Boston, then became bi-coastal, then decided to relocate permanently to the Bay area. Being in “entrepreneurism central” helps them in all their operations, and allows them to optimize them without worrying about missing startup resources in other locales.
d. Now, we move into lots of data…
YC has been doing this for 7 years now. There experience in doing this for so many years, through so many classes of startups has led them here.
Moving on to my latest post, here are some analyses from Working on New Investment Theses:
1. Is there a place where it makes sense for us to play? Do we have or have not expertise in that area?
Yes because YC is made of hackers and hackers is what they know best.
2. What about valuations?
This is one of the strongest advantages of YC – they give a low amount of money for a disproportionately large part of the startup. In the early days, this was appropriate for the risk – each YC startup used to start their project from nothing when their class began. Over the years, this has changed dramatically. Many startups coming to YC have been in operation for over a year and often with significant revenue. Still YC invests relatively low amounts of money and gets a big chunk of the company even at this stage; startups come to YC for the advantages of being associated with YC and are happy to pay that price for the value they receive.
The valuation that YC receives is one of its biggest strengths in getting outsized returns for capital deployed and thus makes sense at the riskiest stage of a startup.
3. What do others think?
YC has always had its bit of controversy. Other investors both applaud and ridicule this style of investing. In many ways, YC walks the world very much as an individual and does not march to any other tune. They hold to their convictions and also adapt quickly and nimbly when things need to change. So investing in founding teams with no idea has its detractors but if anyone can make it work, YC can with all their experience.
And as I mentioned in my post, we have discovered in our own portfolio that not following the herd has resulted in the startups doing the best.
4. What does the world need to look like in order for this area to start taking off?
To me, this goes along with my statement:
By socializing the opportunity to both investors and entrepreneurs, is it possible to literally bring the future to life by our own actions?
The credibility that YC has in the industry means that if they take a stand on something, many will simply follow or believe it to be true because YC said so and they trust their analyses. Therefore, even as that post from YC said they were simply trying this and didn’t know if it would work, many now have taken this to be truth.
NOTE: Even before YC made this move, there are funds that have shouted the “founders first” mantra. However, I would contend that even though they say this, upon further examination of their startups, they still are picking even if one of their criteria is a rockstar founder team.
Calling out one point which is examining Specific Industry Trends from “Predicting the Future…”:
Many things have happened since YC started back in 2005:
i. Development tools became more readily available and it became easier and easier to build high technology startups over time. Amazon’s EC2 and AWS then made it so much easier to setup a server and backend and you didn’t have to worry about that at early stage to test your concept.
ii. Educational materials got better. Credit Eric Ries and Steve Blank for creating startup manuals and methodologies like the Lean Startup and The Startup Owner’s Manual.
iii. The economy went into the crapper. With interest rates near zero and volatility in the stock market going crazy, the only place that seemed to be making money was in startup investing. This meant that the marketplace filled up with eager investors, both large and small, searching for returns in the most riskiest asset class of all.
iv. With so many jobless, and hatred for big corporations at an all time high, and the few outsized returns generated by internet startups of today’s internet boom, young people flock to startups and are encouraged to be entrepreneurs. Incubators flourish to help, universities all offer entrepreneurism programs and classes.
v. Celebrity status of both investors and entrepreneurs also drives subtly the urge to become either. Who doesn’t want to be famous?
vi. The internet marketplace for startups becomes exponentially filled up with early stage startups. It’s so easy to build one now, and there are tons of resources to help people start something. New investors coming to the market help fuel their creation and existence for at least a short amount of time, unless they become successful. Competition becomes ridiculous for most ideas and for each idea, you find many competitors.
vii. Consumers (and the beleaguered IT guy at a big company) are deluged by pokes, flirts, offers, friend requests, requests to join and play – our limited slices of attention are getting deluged by more and more of these interruptions and we can’t keep up. Viral loops stop working. Growth gets harder and harder to get.
Given that the world looks like this for internet only startups, I find that there are still the class of investors who believe in this world which i call “true believers.” These are the people who still think they can find the next Instagram or Facebook even in today’s crowded world.
My contention is this – if you still believe that the internet is place to invest in, and you are a “true believer” and want to find the next Groupon or Zynga, then you have NO CHOICE BUT TO DO WHAT YC DOES – gather all the smart, talented people you can find and then invest in as many as you can, spending as little as possible to get as much % ownership of the company as you can. You have no idea if an idea will work because of market conditions; but there will be some that will even if you don’t know which ones. But betting widely means you’ll increase the odds that you’ll find the next Groupon/Zynga and you need to reduce the chance that you missed one. Rumors say that YC has proven that even with their failure rate, they have gone positive in their return relative to capital that they have deployed.
All investment theses are highly situational – nothing works forever, and something that didn’t work before can work again if market conditions change. Or can work for one person but totally impossible for another. And by the way, luck can confound the best of strategies.
As you think through some investment thesis you’re thinking about investing against, can you muster up as many advantages as YC has, in investing in awesome technical teams without ideas? If you can’t, you might want to think twice about investing against SOMEONE ELSE’S thesis…(yes you do get points for original thinking and for having the guts and conviction to bet against the crowd! Extra points for literally forcing the (your) future into being through your own efforts…)
As I talked about in my latest thesis post, it’s all about swaying the odds in your favor. Unfortunately, they are still odds and no matter what you may still roll snake eyes and lose your shirt. Oh, and that other investor who started investing on a thesis you painstakingly built just become an investing genius because he found the startup that gave him 100X return and you passed on it…
DISCLAIMER: This post was written without any discussion with any YC member but only from outside observations as a friend to YC who has studied their growth and ascendance in the entrepreneurial and incubator community. I may be totally wrong in their thinking. If someone from YC reads this and tells me so, I will be happy to edit this post. But readers, please do take this analysis with this in mind.

Some of us at Launch Capital have been thinking hard about what areas to invest in next. For me these areas have been:
1. Ecommerce
2. Unsexy offline businesses that get the Internet thrown on top
3. Hardware+Software+Internet
But we are always on the look out for the next new areas. Following this post with my conversation with Mark Suster, Predicting the Future: Research and Thesis Development, we looked around the world and found some possible new areas.
With each of these possible areas, we then thought about:
Where is the real oppty? Is it in a single product? is it in the application of the product or service? Is it in the creation of the product? Is it in raw materials that create the product? is it in a business that faciliates product creation? Is it a financing biz that gives them away for free? Or can you make money on some other related way?
Is there a place where it makes sense for us to play? Do we have or have not expertise in that area? Do we care (see my latest blog post about learning new things: The Jack of Neverending Trades)?
What about valuations? Is that area a place where others have not pushed valuations past where we can participate?
What do others think? My managing director and I talked about this yesterday and he recounted that he found that the best investments are where the herd completely ditched them. I concur – many things we will look at will have the world totally against us. I think this is where the biggest opportunity is, which is to find stuff before others do, make the bet, and hope that we’re right. Also we’re going to be wrong – probably a lot. But this is early stage, the next closest thing to slot machine gambling….and we’re trying to find that magic magnetic ring that pulls all the 7s to come up…
Are there like-minded investors? Should we reach out to them and see where there thoughts are? Try socializing the idea quietly at first. Do people think we’re crazy or think that’s the best idea in the world?
What does the world need to look like in order for this area to start taking off? To become mainstream? Is this achievable? Under what conditions is it achievable? How long would we estimate it will take? Are there any big market forces to watch – ie. any big corporations starting to make noise about it? Any futurists, bloggers, or journalists talking about it? Will the US governmentt pass legislation to juice this area (they have definitely juiced others)?
Are there any like minded entrepeneurs? Can we socialize with them? Figure out what they are working on? Use their creativity to seed ours?
Afterwards, we gather all this information and stew on it. Let our subconscious minds mull over it. Think about it in the shower (where i do my best thinking haha!). Let our creative minds pull together all the elements.
After doing all this, do these new areas still make sense from an investment thesis standpoint? If so, then it’s onwards to quietly watch the world and see if investment opportunities come up. Perhaps we can even seed the market by quietly planting ideas. By socializing the opportunity to both investors and entrepreneurs, is it possible to literally bring the future to life by our own actions?
As an early stage investor, I find that this thesis work is really interesting. Given that we need to invest as early as possible into opportunities and trends, we take the most risk from all avenues. This is why I consider thesis development immensely important for us. By thinking about the future and developing visions for it, it is my belief that thesis development can help tip the odds in our favor that we’ll find wildly successful ventures to invest in. Following the herd can also yield good results, but if I take all the possible variables (ie. our fund mathematics, industry trends, valuation trends, competitive trends, etc.) into account, I can only see that developing theses will make us better and smarter investors than the others who do not.
UPDATED:
Two other great recent posts to read on thinking about investment theses and the future:
What I’m Obsessed About At Work by Brad Feld
WIRED: How to Spot the Future

One of my favorite things about being a startup investor is learning about all sorts of new things. The first is about the investing business itself – I can safely say that I’ve only touched the tip of that iceberg for sure. The second thing I learned was much more broad.
Actually the second “thing” is really “things” plural.
As most people know, I invest typically in all things internet. I am fortunate that I worked at Yahoo! where we worked on a pretty broad swath of things, and I’ve had exposure to a multitude of products and services. As head of user experience and design, I oversaw a lot of it and learned a ton about a lot of things, becoming a jack of all trades of sorts. Even then, there were many things we didn’t do. When I started investing, I found my broad exposure very valuable both to me as an investor, and also helpful to entrepreneurs as I could tell them all the good and dumb things we did at Yahoo! in those industries. But then, the internet filled up with the usual stuff.
Now I’m looking at stuff I know little about, or nothing about!
Some things I’ll never get into – personal resonance is still very relevant and important. For others – there could be something there… it would also mean a lot of effort and time in learning about the business, industry, its customers, everything about it I can. Enough to be an expert maybe, certainly enough to be dangerous!
I get extreme joy when I learn about some area I know nothing about. I look stuff up in books and on the internet, I talk to experts, customers, advisors, and others in the industry. I may even visit places where the product is sold, or where the pain point is felt. My team’s research department pulls up every shred of info on a subject and I devour it all.
Then, this is most exciting to me – making a monetary bet in that area in a company and knowing I made the right call if it exits. Unfortunately, the chance of a successful exit is pretty low at early stage but I am still left the knowledgeable I’ve gained which is satisfying and, I’m sure, will prove useful in the future.
There are many in my field who say to never invest in anything you know nothing about. I would say that is true, except that it leaves out the part about going out and learning about that thing that you knew nothing about. It is disheartening to see that many investors stop learning or become lazy and lean on others’ expertise.
To me, becoming a jack of neverending trades is one of the best things about being a startup investor.

If you’re an investor, have you ever gone through this:
You meet an entrepreneur and go over their startup idea. As he’s talking, your mind starts racing ahead and imagining all the wonderful places this startup will grow to be. The entrepreneur continues his demo of the site, faithfully calling out how great his features are, and how the visual design is awesome. But you’re only half listening; your brain is thinking about all the possibilities and how big this is going to get. You voice some of them; the entrepreneur nods and you see his nodding as “Yes I agree with this sage of an investor before me!” He continues onwards with his pitch, noting all the awesome features one by one but you’re still thinking about the $100M opportunity. At the end, he asks for your measly $100K to join him on his journey, him working on his nice product, and you living out your version of his startup along with your awesome vision of where it will go. You sign on the dotted line, transfer the money, and you’re on your way.
As he works on his coding and congratulates himself on his 100th user signup, you start chatting about how he’s going to achieve your ideas and your vision. He nods sometimes, but slowly but surely he starts talking as if he doesn’t have any idea what you’re talking about. He’s got a product to build, dang it! He’s got 100 users who are emailing him and making him think he’s the most awesome guy in the world! He needs to take care of them! You continue to talk about your vision, and he continues to move nowhere near where you’re talking about.
After about a year of this, you realize that the entrepreneur isn’t really listening to you. Instead, he’s been giving you grinfucks; you thought that you were convincing him that there was a better way but in actuality, he’s been thinking that his way was the only way, thank you very much.
In the end, your startup dies a miserable death. The entrepreneur got some awesome lean startup experience, and you (and your buddies too) have wasted $100K. He’s off to raise money on his next big feature for the web, and you’re still not recovered from a year of frustration that someone didn’t listen to your investor awesomeness.
In my early years as an angel investor, I fell into this trap several times. And this trap has many elements to it.
It is sometimes indeed possible that you really do have some investor awesomeness – call it life and work experiences as well as experience in spotting opportunities as an investor in many startups. And sometimes you are probably right in thinking that an entrepreneur should take his startup in some direction or another. The trap you have to watch out for is investing into his startup when you imagine and do not have actual verification that he believes in the vision or direction in the same way you do.
This is not about whether he may be right in the end, or you may be wrong. Or even if the outcome is awesome despite either or both of you being right or wrong. What I’m talking about is thinking you’re investing into a project of a certain nature when it’s actually not – you’re only wishing and imagining it to be something but it wasn’t real.
In many ways, it’s like meeting your perfect significant other, but that perfection is in your mind and you think he/she has the perfect traits for you, but in reality they are someone else and can never be that fantasy significant other for you.
A lot of this is about the fact that it is nearly impossible to transfer your idea to someone else. There can be many reasons for this. You and the other person simply have different viewpoints and experiences. When you say something, they may totally interpret that in a way that you didn’t mean for them to interpret it. Or they may not even know what you’re talking about. If you make a suggestion for a direction, it may be that, given your experiences and skills, you are the only one who can execute that direction and they may not be able to do it at all.
Today I was talking about this very thing with one of my entrepreneurs. Two weeks ago I pushed them on generating a big vision out of what they were working on. We went like this for several days. But they could only come up with something that I considered too likely to produce a small outcome for me to invest in. I sent them an email to that effect and then I went off on vacation.
However, we caught up today after I got back and spoke live about my email. I basically explained to him that I needed to hear that they were on board with some big vision. I had already come up with some possible big vision directions in my mind, but having some experience now I did not imagine them to also have the same visions; I wanted and NEEDED to hear them say it to have confidence that they understood and internalized whatever big vision there was, and were really on board to execute against that, versus what they presented to me two weeks ago. Given my desire for investing in big ideas with world dominating plans, I needed to hear them telling me the plan and not me telling them what the plan was.
To re-emphasize, this is not about who’s right or who’s wrong. It is entirely possible that in my investor awesomeness (in my own mind) that I am totally wrong on whatever vision I am imagining for a startup – and I’ve definitely been wrong many times. It’s all about making sure that you have comfort in whatever you and the entrepreneur can see eye to eye on, or lack thereof, and then making the investment decision based on that reality and not just what’s in your imagination.