the investment life.
I don’t know if I have come in to my own as an investor or somethings just piss me off but it could easily be a combination of the two.
I am always learning in this business. I have certainly learned that nothing is standard when it comes to investing. A few things happened recently that I truly learned on.
I have a thesis which is that I want to own 1% of the company from the very beginning which based on that amount I like to put in I pretty much have to put money into the very first round. Not an idea but a real live product that I get excited about and an entrepreneur I believe can grow the beginnings of something into something larger. That means hiring a team, raising money, thinking out of the weeds, making tough decisions and being completely out of their mind focused on success.
I always get a side letter that insures that I can continue to invest to keep my pro-rata share at every capital infusion until I choose to opt out. At one point I have too much exposure (probably around the Series B) and then I choose to pass. Then I look at the amount I have in the company not as a percentage but as a dollar amount that will hopefully have a multiple exit. It is purely a head switch.
So here is how I screwed up. I forgot to get a side letter with a company I invested in. At the beginning I wasn’t on top of this but I finally figured it out. I think that I was in between figuring out the side letter thing and this company might have been the last one without it. Alas because one of the things I have noticed is in SF they like to raise notes over notes over notes. What that means is when they finally do get their Series A and the note converts into stock what you believe you own is not what you own. Needless to say I was pissed, I had a pissy fit and then I blamed myself. Lesson learned.
Move forward on to other things that piss me off. There are a few investors out there, not angels but funds that I refer to as micro-funds that love to get some sweet deal that is better than everyone else in the round because they can write a larger check. It is that or they demand some kind of advisor shares on top of their investment. Everyones money is the same in each round as far as I am concerned. Some investors are more active others and some are completely passive but that money helps the entrepreneurs get to the next stage of their business. The good news is that in my side letter I negate getting screwed by the micro-VC who comes in with their better terms than everyone else in the seed round.
So returning to reality after being off the grid for a full on month has been quite a whirlwind. Perhaps while I was gone I found my voice but maybe it is just the last 9 years of investing and seeing some really not great stuff out there that I just do not like and I just help not holding back my anger.
I’ve heard about these scenarios of successive rounds where the angels get screwed somehow. I’m keeping my eyes very open.Have you considered selling back a part of your stake on the way up, to get some money off the table that way? E.g. if a valuation has gone X5 since you were in, sell 20% to the next A round participants, get your money back, and ride the rest.
No. I like the business and the entrepreneurs. Just mark it as lesson learned
You can blame yourself, but there’s also a right way for entrepreneurs to act and a wrong way. Stuffing and cramming your earliest investors is insulting to the folks that believed in you before anyone else did. Sorry you had a bad day. Here are some kitties to make you feel better…http://jypsidream.files.wor…
Some investors are more active others and some are completely passive but that money helps the entrepreneurs get to the next stage of their business. I’ve always wondered about this specifically. Active vs. passive.For example if you only own a small part of a deal along with other investors isn’t that demotivating in some ways to providing help and assistance (which may be very time consuming) to an investment?In the sense that while the investment will grow and it’s good for you it must be a little disconcerting to do a large amount of work when others who sit around and do nothing have the same upside and none of the downside (time loss).I realize everyone brings different things to the table. And that helping is fun and it’s own reward.I’m just wondering to what extent this is something that goes through the mind of an investor. And alters what they will do or can do for an investment.
Some people just make the decision and then they are done. It is not a bad idea to have some investors like that. I am not like that and just couldn’t ever be.
Same here. And I’m glad everyone isn’t like me. I just think that that effort needs in some way to be recognized and acknowledged for the value. On the other hand I’m sure you (as I wouldn’t) want to be obligated to do more or anything in particular. Then it becomes a burden and no fun.
We have both kinds of investors. If all of my investors were active, It’d be a full time job managing them. I’m as grateful for awesome people like Joanne who I can ping at any time for advice and suggestions as I am for investors who make the decision, write the cheque and are not involved.I sincerely value the opinion and guidance of a few investors whom I make an effort to keep up with on a regular basis (once a month average).They are also the ones I’m happy to offer Pro Rata rights to. 🙂
Needless to say I was pissed, I had a pissy fit and then I blamed myself. Lesson learned.I think this is great. Looking at it as a lesson as opposed to the easy and often route taken by most people blame which is “get mad at the other party and blame them”.Interesting phenomena that I noticed along the same lines.Many times I will get a totally lowball offer on something that I own.And my tendency is to get mad and angry that such a low offer was made.When I thought about it some more (this actually happens fairly frequently) I realized that I am (and should be) mad at myself. Not the person making the lowball offer.Why? Because I got my hopes up and now I’m dissapointed. So the anger is misplaced.
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My husband and I were just talking about this learning process. It’s hard, for sure. He and I have both learned some lessons about what types of things to look out for in early seed funding – some are the (now) obvious mistakes of investing with the wrong founders, not getting lawyers involved early enough, etc. But I’m feeling, like in some other areas of my life, I worry that I’m only still fighting the last battle, not looking out for the next pitfall. It’s good to hear what pitfalls others have already seen and benefit, so thank you.
Yup. There is so much bullshit that happens behind the scenes. It pays as an investor to understand it, anticipate it-and have a really good attorney that understands it. Personally, I agree with all of what you have to say-and really dislike Judge/Jury investors that don’t lead, demand to sit on the board, and then don’t do the outside groundwork necessary to help the startup succeed.Additionally, when I look on the investments that I made that didn’t work out; some of the responsibility for the failure is mine-because I didn’t do the right due diligence.
Additionally, when I look on the investments that I made that didn’t work out; some of the responsibility for the failure is mine-because sohbet chat I didn’t do the right due diligence.