Posted by: Paige Craig
Posted on 06/5/2015
Money is all around us. We can’t get away from it. So regardless of whether you like to spend any money that you have saved away, if you like to use it to buy crypto mining equipment like the kd box goldshell to increase your funds in the future, or if you want to invest this money into something worthwhile, such as stocks and shares, or retirement funds, these are all crucial aspects that must be taken into consideration when it comes to your finances.
Once you dive into the investing world, you can quickly become buried in a tornado of potential deals or the “Dealnado,” as I call it: a swirling, twisting mass of co-investors, scammers, screaming founders, substandard deals, shiny objects, and baby unicorns buried somewhere inside the chaos.
To sort through this mess, you need a methodology to filter the gold from the dirt. Filtering is critical for any type of investing, including real estate, crypto, or startups. For example, hiring a reliable realtor you’ve worked with before is a great way to ensure you’re only shown properties with the most potential. Or, take advantage of resources like this Swyftx Review online review to ensure your first investment into Bitcoin is done on a trustworthy platform. But what about startups? How can you filter through the chaos when it comes to this type of investment?
Crafted from 7 years of angel investing and over a decade of operational experience and research into people, business, and conflict, here are five simple but critical questions I always ask before investing.
This question forces me to think about the quality of the people and the founding team’s dynamic. When I sit across from founders, I ask myself, “Would I join them?”, “Am I inspired by them?”, “Are these the brilliant, crafty leaders I can follow to glory?”. In this context, I’m not thinking like an investor or a leader but rather like a prospective early employee. I try to understand their character, values, capabilities, and passions.
A common mistake we make as investors – particularly investors who’ve previously built companies – is asking, “Could I lead this team?” or “Could I be a cofounder?” That’s the wrong approach. As investors, we can’t actually lead these teams, and we can’t make up for significant deficiencies—it’s their business, and if captains are weak, the whole ship will sink.
When I met Melody McCloskey and Dan Levine (founders of Styleseat) in 2010, I was overwhelmed by their vision, talent, and character—I couldn’t resist the impulse to work with them and invested within 48 hours. And the AngelList office could have been my home – I loved them so much that I invested in their seed and offered to join them full-time (luckily, Naval and Nivi were only hiring engineers at the time).
Since this article’s publication in 2015, question #1 has evolved into our proprietary, 38-point Outlander Founder Framework.
This is a question of your interests—do you really care about the problem they’re solving and love their solution? This is a personal question you need to answer truthfully. Many investors follow a deal because it’s “hot” (i.e., includes famous investors or is highly competitive) or because we get sucked into the hype around a broader trend (“motherf’ing BitCoin is going to disrupt everything”).
Your love for the startup matters not just for mental health but financially as well: you’ll be a better investor if you genuinely care about a startup’s solution and the space they’re disrupting. You’ll spend your spare time learning about their space, playing with their product, proactively recruiting talent, and making key introductions—all things that benefit the company and build word-of-mouth about your value as an investor.
We recently led a small pre-seed round in a company called Service that’s doing “on-demand customer service.” Aside from knowing the founder (Michael Schneider) for six years now, his approach to solving the global customer service problem from the consumer demand side felt brilliant to me. I submitted two customer service issues myself right after our first meeting – both representing about $3000 in goods – and Service solved them in no time. Companies failing to deliver on their promised experience really bugs me, and Service’s ability to smooth that over is something I want in my life. Plus, it’s a problem that hits everyone weekly, if not daily!
You’ve got to offer more than just money if you don’t want to be left on the cap-table cutting board in a competitive deal. Do you have contacts, expertise, or industry knowledge that makes your involvement matter to this team? Great deals are competitive, and great founders guard their cap tables like precious berthing. Only value-add investors get in, and if you’re not bringing something of value, you probably have little chance of getting onboard when it comes down to sorting out allocation in a round.
When you bring value to the entrepreneur in the early days of their company, however, you can directly increase the odds of them winning—and winning big. Of course, influence at the early stage doesn’t mean you get to lead the company, but you can help the company scale and get a unique edge. A great example is when James Jerlecki pitched me Mytable earlier this year: I’d been researching the concept of “crowdsourced food production” for two years and had an Evernote notebook titled “Chowtown” with over 30 companies, notes from dozens of interviews, and countless hours of research (in fact I once hired my sister to set up shop in my home and conducting pilots). So I was ready to add direct value to Mytable from day zero.
I meet many companies that fulfill the first three questions—the fourth one narrows them down a lot, though. You meet great people with interesting ideas where you can add value, and then you realize, “Damn, even if they win, I don’t think it’s going to be huge.” But, of course, this is all relative. Your definition of “major impact” and my definition may be different. I think about it in a couple of ways:
Central to this, of course, is the character and ambition of the founders – are they capable of scaling this company to the highest peaks? Generally, when I see founders primarily focused on getting acquired and making money, my interest disappears because it’s clear that they’re playing the short game and not driven by the intense need to impact the world that top founders possess.
When we discovered Honk in May of 2014 (thanks to a text from my buddy Avesta of Coloft), I realized how massive Corey’s company could be in our first meeting. Corey had almost single-handedly created one of the most unique and scalable platforms to solve the global roadside assistance problem. There was no doubt in my mind that he would disrupt towing with a solution 100x better than anything AAA or the industry had tried previously.
Timing an investment right requires a healthy knowledge of history, an insatiable curiosity for the world, and a reflective mind that thinks deeply about where the world is moving. Where are societal, economic, technological, and other trends moving, and how fast are those shifts impacting the startup’s intended market? Are you in the middle of a technology hype cycle, and is it better to wait? Is this social shift going to become more prominent over time, or is it a momentary blip? Of course, the landscape of trends that could impact a company is vast. So you have to boil each startup down to its essential elements and consider how those elements fare over the next 5 to 10 years.
For example, I’ve worked with Cy Hossain (Founder/CEO of Crowdcast) for almost 18 months as he bootstrapped the development of his new webinar platform. Existing B2B webcasting tools are outdated and don’t offer a compelling, interactive experience. However, the market’s growth and how people are adopting live-streaming video now (versus just a couple of years ago) shows we’re at an inflection point that he’ll be poised to seize.
I also dig into the founders and explore their perspectives on the timing. I want to know if they’re deliberately thinking about the network of broader trends that may impact them and how they plan to adapt if these trends play out differently.
As an individual, I need a resounding “Hell, Yes!” for each of these questions. And if I’m not excited by all five answers, I’ll pass on the deal. If you’re working in a team environment the way we operate at Outlander VC, then your grading will change to reflect your partnership. You need to be open to how your colleagues think and feel.
Of course, every investor has their own methodology that matches their unique perspective—mine comes from what I’ve seen over seven years of investing, plus my background in art, intelligence, and founding a successful defense company. Other investors will have their own questions and weigh the importance of answers differently than I do. If you’re new to investing, crafting your own method for sifting through the Dealnado is the key to efficiently finding the companies you want to bet on.
Paige invests in brilliant founders from across the US, using his Outlander Founder Framework to drive returns in the top 5% of VCs globally.
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