“Choose a job you love and you’ll never work a day in your life”
Building our VC fund has been an amazing ride. Each day brings new challenges and new opportunities. The best part about investing in startup companies is that we get to meet great entrepreneurs daily. When we decide to partner with a company, we do much more than write a check. We add value to our investments. We like to be heavily involved in the process and we love to leverage our network in order to benefit our portfolio companies. For many years now, before launching my fund, I have been an angel investor. I have made several investments in early stage companies. Fortunately, these investments have worked out very well. Two of my portfolio companies are Wheels Up and Juice Press. Both companies have valuations above 100 million dollars and are continuing to expand. I saw both of these companies grow from the ground up. This makes investing fun and meaningful. When I invest into a startup and it turns into a 100 million dollar aviation or organic food company, it feels good. And I like to think I’ve had a very small part in the success of these two companies.
I see investing in the very early stage of a company’s growth as very rewarding. It is much more rewarding for me & my team than investing in later stage companies. Do not get me wrong, we do invest into late stage companies on an opportunistic basis. However, these investments are much different for many reasons.
First, let’s look at late stage companies. A late stage company already has a developed, well known product which has successfully penetrated its initial market. Many of these companies on average have reached a point of positive cash flow and profitability. For the most part, one would consider late stage investing less risky. Why?… well first off, these companies are established. They have proven themselves. They have a completed business plan, with an intent to liquidate the company. An IPO, Merger, or Acquisition of some sort is usually on the companies minds, which would allow investments to be more liquid in the public market. The risk here is simply valuation risk. We see this today…some inflated valuations. For certain, some later stage private companies are overvalued. The market – either public or private – will decide the fair value. No talk of “BUBBLES” here.
Early stage companies seek capital from investors to invest in product development, building a team of employees, and for expansion purposes. These companies need funding to prepare for a broader market launch. Let’s understand one thing, startup investing is one of the most risky investments anyone can make. On the flip side, it is one of the most rewarding investments. You must be an intelligent, experienced, accredited investor in order to make smart investment choices. These startups are unproven, and normally functioning without any profits. The risk is failure. Many startup companies fail within their first 3 years. Here is the main thing…When you invest early you build a relationship with the management team. You become an asset to the company, and the founders come to you for strategic advice. You bring more than a check to the table. You add value to the companies you invest in.
In the past month, we have sat down with many entrepreneurs who are looking to grow their companies. I have seen just about everything from waste management companies to disruptive tech companies to energy companies. I tell each founder the same thing…we need to add value to our portfolio companies and if we can’t, we don’t get involved. For later stage companies, I’ll be honest, there is not much value for me to add. Most are grown and already in the direction they need to be. It’s less personal. I have been dealing with investors for 20 years…I like personal. Its just how I am built.