Over the past 6 months, I've started investing more consistently in tech startups through my family office (the website is work in progress but thatâs a story for another day). Ngl I've been very nervous. My first attempt at startup investing was back in 2014. I encouraged my parents to invest a stupidly large amount of money in a logistics business. It was an awful experience and I've been licking my wounds ever since. However, in the spirit of dust yourself off and try again, I'm back
Looking back, the biggest mistake I made was not starting small. This mistake wouldâve been easily avoided if I spoke to a single angel investor or frankly even googled âangel investing in tech startups.â But instead I thought my âsmartâ analysis was good enough and hey presto, I lost $XXX,000 in one exceptionally stupid deal.
If you take one thing from this story itâs this. If youâre doing something new, DO NOT depend on your âintelligenceâ alone. Speak to people whoâve done it before. If you donât know these type of people IRL, look on google for their wisdom. Intelligence is very difference to the wisdom that comes from experience.
This time round, Iâm trying to be far more intentional about learning the skill of venture investing in tech companies. Iâll be sharing some of these lessons as I go. These lessons are helpful even if youâre not an investor. If youâre an entrepreneur, understanding how investors think about what type of businesses will become really really big, can help you refine your thinking about how your business could get really really big.
Hereâs what I learnt these past few weeks:
Do that investment memo. Writing helps you clarify your thinking.
Donât trust the market size that the entrepreneur puts in their deck. Do the hard and boring bottoms up to come to you own conclusion.
When youâre evaluating a businessesâ traction, donât focus exclusively on absolute size. Momentum matters. A business with 100 customers doubling every week is very different to the same type of business with 100 customers doubling every year.
Drill down to really understand who exactly the startup is trying to serve. I was talking to a crypto startup that was building a wallets infrastructure for âbusinesses.â As my friend Kamil wisely said âYou refer to "businesses" in the abstract. What types of businesses are they and why would they need this if at all?â. Pushing the entrepreneur to go very granular on who they are looking to serve is key.
Shout out to Lamide for this framework âStartup X uses Y to do Z. Previously to do Y, company/ user X would have needed to do A, B, C. Y saves them time/ is easier to use/ is cheaper than A, B, C because it does/eliminates Q.â Forcing yourself to use this framework is a helpful way of determining to what extent the companyâs product actually solves a customer pain point.
Talk to a companyâs users. This blog gives 3 helpful questions to ask âWhat was it like before the product? What is it like after the product? What would happen if you took the product away? If they get very upset at the last question happening, that is a very good signal.â
With curiosity,
Yasbo
That investment memo is gold!