Food service businesses, the dark matter (the other deals investors see), etc.

Thank you. I appreciate your approach. I’m actively investing, but I’d say this is a long-shot investment for us and that we’re not good prospects. But, I wanted to give you some thoughtful comments to try to be useful regardless. You sound like a great person. I’ve been helped and am being helped by hundreds of people and try to contribute myself.

Food: Is a topic that I am passionate about and spend a lot of time thinking about. I am a celiac and often work in areas, especially when outside of San Francisco (but even in the city), where the food landscape is a just a wasteland of bad food in general and also contains few options for people with dietary restrictions. I would love to see all the Subways, 7 Elevens, etc. replaced by Smalls. That place is the future. Because of the above, I bring my food with me to work everyday. If I see a food truck that is gluten free, I am surprised. Food is unsolved, especially in the work day and travel world.

Investing: I approach investing as a professional investor would and am building a portfolio that is diversified over time and business type. My goal is to exceed the returns I would see via an index such as the Russell 2000 and also see returns sufficient to justify the risk and illiquidity.

We tend to invest in pure tech (analytics, network performance, etc.), business software, cyber security, payments / new financial services / crypto currency ecosystem products, and consumer / business mobile apps. This is for a few reasons.

We understand things like business software and pure tech a little better than other things, so it’s easier to evaluate.

On that topic, I find that investors like business so they’ll get excited about a lot of things and can often conceptually understand a business, but when it comes to actually investing, they trust their decisions more in areas where they have experience or feel they better understand the business models, and thus, they tend to act in those areas.

We tend to invest in those zones I mentioned because they often present highly defensible businesses —competing will be daunting for other teams at entry or at traction.

Startups in the above markets tend to be capital efficient when compared to businesses that require physical assets. This is key for a few reasons: there are fewer risks (e.g., the entrepreneur’s ability to raise a steady stream of large rounds efficiently is less of an issue. They are probably more durable in a recession), and they are less dilutive for early shareholders. I run the numbers on deals. Even if it’s a rad company that I think will succeed, if the price is high or the likely dilution to extreme, I pass, even if I’m close to the person building the company or name brand investors are involved. I'm anti-FOMO. I don't take things for granted and am grateful for all the things I see. I also think that if you add value, help people and stick to it, there should be opportunity. Entrepreneurship is fundamental. Sometimes the relationship takes time to lead to a venture.

We also tend to be attracted to stuff where the pattern looks like — this team did this really hard thing in this context (developed this cyber security system) and now they are doing it here (developing this security system which is the next generation because of xyz) or this team was one of the earliest to use this technology in a production environment, and as users they found out about all the limitations, and now they can build and sell the solution to what they experienced.

Often we know other people involved in the deal or working with the teams. Although people like [ceo & founder of portfolio co.] are new to us and that is a rewarding part of the process -- meeting new great people -- if we’re not co-investing with a firm or individual that’s done the due-diligence, then we typically only work with entrepreneurs where we have sufficient bandwidth to get to know them, add value and decide on the deal in the process of doing that.

Also re teams, we do invest in entrepreneurs doing something in a totally new market for themselves. The definition of an entrepreneurial venture is that someone’s never done it before and often outsiders and semi-outsiders have a fresh view and fresh energy. I am doing that myself (working in new areas, say product, and new markets that are different than what I have on my linked in profile) and face questions about that. But, we also see a lot of teams that have worked together or have some type of spring board into their current venture.

The markets we tend to go for also have aggressive buyers with big budgets they control. I faced challenges with this in HR with my own startup. There are $Bs to be made in HR software, but it’s a slog. Most likely, I wouldn’t invest in an HR software startup for that reason. Whereas, areas like sales, marketing, security, finance, have big and freer flowing spending and more action.

The dark matter: In the entrepreneur / investor relationship is constituted by the other deals people see. I see this with my own ventures and startups I’m involved in where were raising capital. This is one of the hardest things to gauge, even though it has a big influence.

I've learned and believe that it's key to find your investor sweet spot quickly. Sometimes that's a surprise, as I've recently encountered.

Food services is probably something I would shy away from simply because I don’t understand it that well. I would worry about the margins, where the labor force will come from, the logistics and how these things scale, the competition, etc. Whereas I understand a little better how these things work in other businesses. Even though foodis somewhat recession proof, I would be concerned about models that could be effected by a down turn in venture capital investing or the general economy.

My guess it’s people that have built companies like Amazon or took a really serious look at other funded companies in the space, but weren't able or didn't choose to get in.

With my cards on the table, I can offer one thing that might be useful. Please feel free to ask me anything, and I will treat it with respect and hold it in confidence. Sometimes it helps to have people you can ask questions of.

#Investorbehavior #Marketselection