Posts Tagged: fred wilson
As someone who is still relatively early in his investing career, I often think about what qualities set successful investors apart from the rest. Good investing doesn’t just happen. And while luck may help at times, it’s not the answer. Here are few key ingredients that I consider important for being a great investor:
Live in the future
Paul Graham advised start-ups to “Live in the future, then build what’s missing.” Once you’re living at the leading edge of a rapidly changing field, you’ll see things that are missing…challenges or frustrations that need to be solved. And, once these problems are solved, they’ll seem very obvious in retrospect. This same advice applies to investors as well. You can only create above-average returns if you invest in companies that are ahead of the mainstream.
Have a well-defined investment thesis
Fred Wilson once wrote, “So many folks in the venture capital business are sheep that just want to follow the herd. They are momentum investors purchasing highly illiquid investments. That is a recipe for disaster.”
In order to not follow the herd, you need a strong set of convictions to serve as the foundation for making bets, and then following through on them. For Version One, I’ve created a map of what particular areas we should focus on and where they’re going over the next few years. Then, I can evaluate each potential investment within the context of this map/thesis.
Stick with it
Not every investment is going to be wildly successful right away and one of the hardest things to do in the venture capital is hence to stick with a struggling investment. However, if you’re going to be successful as an investor, you need to realize that once you are in, you’re in. There’s no turning back, or ignoring a flailing start-up until it just goes away. Of course, it’s much easier to stick with your guns, if you’ve made the initial investment based on your own core principles/investment thesis, rather than simply reacting to market trends and current momentum (point three).
Be both a cheerleader and a critic
There will be times when your portfolio teams need an enthusiastic backer and a quick pep talk. Then, there are other times when honest, sometimes even harsh, feedback is necessary. I think an investor needs to be a start-up’s biggest cheerleader and their most honest critic. You can’t just be one or the other: praise without honesty are just empty words. Yet, a constant focus on the negative won’t generate the results you want either.
Remember who runs the company
Successful investors are usually active investors; they show up at board meetings, respond to emails and phone calls from the founders, and constantly think about the company and the ways they can help. However, the exact level of participation is a delicate balance; an investor should never cross the boundary of getting too involved. At the end of the day, the entrepreneurs run the company; the investor is an active bystander. Founders make the ultimate decisions; investors can only advise.
Those are the five essential ingredients that I’ve been thinking about lately. If you have other thoughts, share them in the comments below…
Fred Wilson’s blog post on Dave McClure’s investment thesis a few weeks ago reminded me that I needed to do a better job on spelling out my own. I had done some preliminary work when I started W Media Ventures almost 3 years ago but it was very high-level only addressing the sector (consumer Internet), the investment size ($50K-$250K) and the geography (Pacific Northwest / Western Canada). As I have learned a thing or two since then, I now have a much better understanding what kind of entrepreneurs and ideas I want to invest into. So here is what I am looking for:
- Early-stage consumer internet / SaaS companies located in the Pacific Northwest / Western Canada. Geography is a must for leading a deal but I do co-investments outside of that area.
- Large addressable and capital efficient market: company addresses a large market (hundreds of $ millions +) and does not require more than $1-$3 million in funding to become a $25-$50 million (exit value) company
- Strong founder team with a visionary and passionate (yet coachable) CEO at the helm. Team must include at least one technical person who can actually build stuff.
- Differentiated product: no “me too’s” and strong technical focus
- Easy-to-understand business model that does not depend on scale and can generate revenues within 9-12 months from launch
- Initial traction with – at the minimum – an existing prototype/alpha version that is currently being challenged by users
In reality, no investor will ever only make deals that fit 100% with their investment thesis but it is important to have a consistent set of criteria against which investment opportunities can be benchmarked against. So here is mine, looking forward to feed-back!
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Call it the Fred Wilson school of thought but hanging at the Union Square Ventures offices in the past month has really convinced me that I should blog more. And I have already started to do so in the past weeks (here, here, or here). Why?
- It is a great way of connecting with your customers / audience and spreading your thoughts. Take Mint‘s incredible success with their blog (leading to their $170 million sale to Intuit) or Fred Wilson’s blog at avc.com that attracts tens of thousands visitors every day. Or look at how Chris Dixon suddenly went from an angel investor mostly known in NYC to one of most followed seed investors in the country.
- It is the easiest way to get feed-back: comments on blog posts are just one feed-back channel but putting out your thoughts usually starts a lot of new conversations that you wouldn’t have had before. So when I put up a post last week looking for the StartupCFO of Vancouver, I got 5 leads within a couple of days.
- It helps structure your own thoughts and ideas. Blogging is a lot of work but it really forces you to think through a problem in a concise way.
I am most definitely not the first person to say that blogging is important but take this post as an encouragement if you have been thinking about starting a blog for a long time and just needed a little push. I needed it, I got it – you got it now, too!