5 Questions I Ask Before Investing

5 Questions I Ask Before Investing

Once you dive into investing you can quickly become buried in a tornado of potential deals – the “Dealnado,” as I call it. The Dealnado is a swirling, twisting mass of co-investors, scammers, screaming founders, substandard deals, shiny objects and little baby unicorns buried somewhere inside the chaos. To sort through this mess you need a methodology to filter the gold from the dirt. This is my framework for picking the best startups, crafted from 7 years of angel investing (and a decade before that of operational experience and research into people, business and conflict). It’s comprised of 5 simple but critical questions.   #1) Would I start a company with them? This question forces me to think about the quality of the people as well as the founder dynamics. When I sit across from a team of 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, their values, their capabilities, and their 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 major deficiencies– it’s their business and if captains are weak the whole ship is going to sink. When I met Melody McCloskey and Dan Levine (founders of Styleseat) in...
The 4 Ways Investors Find Great Startups

The 4 Ways Investors Find Great Startups

Investing in seed stage startups can be exhilarating and highly lucrative, but it can also be incredibly risky and time consuming. Identifying the most promising new companies requires a lot of cutting through the weeds – I interact in one way or another with well over 2,000 entrepreneurs a year and take meetings with over 200 of them, all in the process of finding just the 15 I’ll invest in. When I first began investing, I wasted a lot of time. Tracking down the most promising entrepreneurs was a crapshoot and I didn’t know where to start. But as I developed as an angel investor over the last 8 years however, and now in running Arena Ventures, I’ve recognized the pattern of where my investments come from…where I get the highest ROI on my time. There are 4 activities you can do as an investor to get to the good deals most quickly: hunting, trapping, farming, and trading. #1) Hunting Hunting is outbound work – hustling at events and parties, scouting for products online, reading and reaching out to people. You go anywhere you can to find great people. You don’t have a specific target in mind, you’re simply looking for unique, brilliant founders. When you first start investing this will probably be the majority of your time until you have a reputation, network and better idea of what you want to invest in. A good example of hunting is Klout: I found the earliest version of Klout in 2009 while scanning Twitter posts and then tracked them down via friends in Boulder who knew Joe Fernandez. I pursued Joe...