We were in London a few weeks ago and had dinner with an investor who used the word “‘picker” when describing the best investors.  Fred and I talked about pickers for the next few days.  It is such a great word.

In the mid-90’s, I was at Silicon Alley Reporter.  At the time, Meckler would put on a classic trade show event at the Javits Center around the start-up world.  SAR always had a gorilla presence giving out our publication without paying for a booth.  We also put on a party one of the evenings around the show.  I remember walking into the party, that was humming with people and a person who walked in with me, turned to me and said: “Wow, it feels like the record industry circa 1980”.  I remember that conversation as clear as it was yesterday because what it said to me is this whole thing is going to crash.

The world of venture capital has grown rapidly over the last decade.  In the 80’s everyone gravitated towards investment banking and now everyone is gravitating towards venture capital.  Right now, companies are overvalued from the onset.  Too expensive early on means too expensive later on which equals minimal returns for venture funds which means at one point LP (limited partners) will start turning their attention to other investment opportunities.  It will take time but it will happen.

The successes we are currently seeing were seeded 5-10 years ago.  Those companies were not valued at the prices we are seeing today.  They were valued significantly less and the inflation of the past 10 years does not equal the inflation of these new companies value.  Currently, the successes (and that means exits) look great for everyone involved and it should but look back to where it began.  As in, at today’s prices to believe that the winners will have the same payback well I would say, don’t believe the hype.

The rise of the big fund means bigger management fees and less returns but for the firms that stay lean and mean, the Catch-22 is that it is hard to get into deals at reasonable prices and get the ownership that their thesis calls for.  In the past weeks, I have seen one company do their first round, on a consumer brand product without having a product yet to sell, at a software valuation.  I saw another get a price that was so out of whack to the value that has been created.  I don’t get it.

Let’s get back to the pickers.  It is the pickers, who find the gems that nobody is looking at, understand the voids in a market and are able to find a small group of people working on a problem that nobody else sees.  Those companies will be valued at what they should be and the investors who are counter-intuitive to the herd will be the winners.

These days I feel like I am back at that Silicon Alley Reporter party and the aftermath was really not very pretty.

Comments (Archived):

  1. Pointsandfigures

    Discipline. Hallmark of a great picker

    1. Gotham Gal

      for sure.

      1. Donna Brewington White

        A post on this? 🙂

    2. Donna Brewington White

      And a certain courage?

  2. awaldstein

    Yup–My greatest filter lately is what is important to me and find that more than not, stuff that really matters, is still not getting done.One of these will become my work for the next phase of my life I’m pretty certain.

    1. Gotham Gal

      I’m moving into the next phase too

      1. awaldstein

        Gonna be a great one.

    2. Donna Brewington White

      Having similar thoughts about how I invest my time (the founders and companies I devote my efforts towards).You’ve earned this, Arnold. What you have to offer is special.

      1. awaldstein

        I thank you for your kind words my friend.It has been a good year personally and professionally and I think the closer I bring being productive to doing things that can impact the world, the better it is.Next time in LA, we need to get together in a leisurely way.Have a great one!

        1. Donna Brewington White


  3. LE

    The other idea is to maybe fund ideas and not people.What do I mean?Nobody is doing the following: Thinking of an idea and then floating it with potential funding and attracting a group (or person) that is willing to execute that idea. That turns things in favor of the investor a bit. The investors can name the terms within reason.Plenty of business ideas that are not being done. And not all ideas have to be born out of some bullshit connection that the founder dreamed up because of a personal pain point. Or be billion dollar.Let’s even take kickstarter. What do you see? You see ideas that someone came up with that they are trying to sell. What if instead you got people to say ‘this is what I need and what I would buy if it was out there’. Then at that point if enough people were interested entrepreneurs would bid for the right to execute that idea as well as investors. <— The idea to even do this is an idea for a site in itself.Or just my original simple thought. “Here is something that I would invest in and I will give money to a group or person that feels they can execute on it”.Maybe the money would just initially fund the work needed to prove out the market.Right now it’s the other way around. Of course this assumes someone feels confident and creative enough to come up with ideas that they would also fund. Or find them.Passion? Entrepreneurs will have passion for anything that works and that can put money in their pocket. Big thing in the 80’s were men who loved golf and ‘I would love to have a business around golf’. To me that is bullshit. I’ve done all sorts of business ideas and the thing that gets me excited (and I don’t think that I am unique) is if the idea works and I make money. Then you learn to really love what you are doing.

  4. AMT Editorial Staff

    However, as parents to youngers, “picker” has a different connotation at this point in life…not a good one.

  5. Donna Brewington White

    What a great post. Relevant to so many of us who are devoted to working within the startup ecosystem even if not financial investors (or not yet).Devoting our time, effort and passion is a form of investment, of course with different type of returns.You do seem to find very interesting and unique investments. Fun to watch your choices. Will be even more enlightening to observe your direction as the industry continues to change.

  6. Eric Kerr

    Would love to hear your thoughts on this, basically a pure picking portfolio I started keeping track of in 2011 http://erickerr.com/investi

    1. Gotham Gal

      Very interesting how you went about it. Smart.