Josh Burwick: My early investment mistakes
We present you the translation of a note by Josh Burwick, managing partner at Sand Hill East Ventures. Josh shares his own experience, which is the result of past mistakes and blunders.
4 mistakes that I will not make in 2016
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The beginning of the new year is an excellent time to analyze the mistakes made in the past year, so as not to repeat them in the coming. For investors who invest in the early stages of project development, which is your humble servant, some mistakes are inevitable. Looking back, I highlighted some errors that I plan to avoid in 2016.
1. Calls about the founder
I made the first and biggest mistake in my venture capital career last year. In retrospect, the error seems childish.
Sometimes we are so keen on the prospects of solving certain problems or future instability in a certain startup that we don’t listen to the annoying inner voice warning us about the founder of the project. If there are doubts about the founder’s personality, his involvement in the project, his interest in success, listen to this voice and do not invest. In our firm, Sand East Hill, we invested in a couple of projects last year, whose leaders raised some doubts, but we allowed ourselves to be persuaded. The technologies were impressive, and the market niche was asking for it.
Work on a startup is a difficult task requiring an experienced team. From the very beginning, strong, success-oriented leaders should be at the helm.
Following the philosophy of Warren Buffett, I set the task for the next year to apply the “rule of twenty”. According to his rule, an investor has some kind of 20-slot payment, which he uses during his investment career. I regard each project in which I invest funds as one of the future top 20 projects in my investment practice. With this approach, you learn to choose. You should not invest, because the moment is right, or because the technology seems cool. If the founder / team does not deserve a place in your top twenty - give up the deal.
2. Almost finished product
Investing in a technology company that does not yet have a finished product is always a mistake. If the founder is not Mark Zuckerberg or Steve Jobs, then investing in the early stages is very risky. Do not believe the founder, who claims that "the product is almost ready." I watched as almost finished products are being finalized for three months and three years. Better to wait.
Warren Buffett once said: "I have never tried to hit a ball that has not yet been thrown." It is necessary to follow his example.
If you are not offered to invest in a cure for cancer or a self-charging iPhone, wait until the product enters the market. I can practically guarantee that you will still have the opportunity to invest in the company under the same conditions when the product is ready.
I would like to make a reservation that the products are not "finished". And as Reed Hoffman, co-founder of LinkedIn, said: "If you are not confused by the first version of your product, then you are delayed with its release to the market."
Some founders adhere to the principles of “lean start-up” for products with minimal functionality, but still find many reasons to postpone product release to the wide market. You can't make a perfect product; there will still be bugs, there will be dissatisfied users; this is inevitable. But experience shows that some companies in the early stages of development are simply not able to release a product, which in their opinion is not nearly perfect, into the market. No matter how you press them, they will not hurry.
3. Using third-party technology
Technology is a strategic tool that cannot be outsourced. If technology is not a key asset, then your business can be easily copied.
Once I made a mistake by investing money in a company that gave the development of key components of its software to the side. The developers were among the best on the market, and had experience working with many high-tech technology customers, many of whom were public organizations. There were no complaints about the work of the developers, but the problem was that they were not employees of a startup. And they applied the experience and skills acquired on the project when fulfilling orders from other clients.
No matter how closely you work with third-party developers, they are not your employees. For them, the priority is their own company, not yours. They work on your product because you pay them. The knowledge and experience gained in the course of working on your product should remain an asset to your company. And so, they become an asset to the developer. Moreover, in difficult times, and these often happen in the early stages of development, these developers will not be together with you to overcome difficulties; they are likely to start a new project without much regret.
4. Investing in areas that are not your specialty.
The main activity of my investment company is technology, in particular financial technology, software and business. Technology is such a capacious and vague notion that even companies that include only a stretch can be referred to as “technological”. We have achieved some success by investing in companies that are not within our core business. But when you invest outside of your specialization, and there are some difficulties, you can’t help with anything, and this can lead to failure.
I invested money in a music company, whose activities were not my specialty, because I was struck by their video, which showed exciting options for applying their technology. Instead of taking a pause and appreciating my knowledge of the field, I jumped at the opportunity to become part of the next SoundCloud. I did not conduct a standard rigid assessment, which is mandatory for me for all new investment projects, partly because I did not know which questions to ask. Then I showed a project to a friend who is knowledgeable in this area, and he was skeptical with him, asked in particular about the record companies involved, which I myself did not think about. His questions were very important, and the company did not have satisfactory answers to them. I immediately felt an alarming feeling in my chest, which I did not feel since I worked as an investment portfolio manager and watched helplessly as one of my investment projects was suspended due to impending trouble. Moral: Do not deviate from their own rules, regardless of how cool and attractive technology does not seem.
If you invest in a company that deals with projects in segments that you are well acquainted with, then you have the opportunity to help it orient itself in case of unavoidable difficulties. Indicate whether you are talking to a person with whom you should talk to a potential customer, hire a qualified specialist or give strategic advice on the product; you can benefit from the project. And beyond your specialization, you can no longer be useful for the project.
.
Only calm
I look with hope in 2016. Investing in the early stages of the project development is fraught with many pitfalls, and sometimes failures. But if we analyze our mistakes impartially, we will be able to continue our activities more clearly recognizing our weak points and will be able to promote the emergence of new cool technologies this year.
Josh Burvik is Managing Partner at Sand Hill East Ventures. Previously, he managed the technology portfolio at Moore Capital, Pia Capital, and GLG Partners, and also worked at Goldman Sachs in the technology sector in sales departments for research centers. You can follow his blog sandhilleast.net/blog.html and twitter @jburwick.
4 mistakes that I will not make in 2016
')
The beginning of the new year is an excellent time to analyze the mistakes made in the past year, so as not to repeat them in the coming. For investors who invest in the early stages of project development, which is your humble servant, some mistakes are inevitable. Looking back, I highlighted some errors that I plan to avoid in 2016.
1. Calls about the founder
I made the first and biggest mistake in my venture capital career last year. In retrospect, the error seems childish.
Sometimes we are so keen on the prospects of solving certain problems or future instability in a certain startup that we don’t listen to the annoying inner voice warning us about the founder of the project. If there are doubts about the founder’s personality, his involvement in the project, his interest in success, listen to this voice and do not invest. In our firm, Sand East Hill, we invested in a couple of projects last year, whose leaders raised some doubts, but we allowed ourselves to be persuaded. The technologies were impressive, and the market niche was asking for it.
Work on a startup is a difficult task requiring an experienced team. From the very beginning, strong, success-oriented leaders should be at the helm.
Following the philosophy of Warren Buffett, I set the task for the next year to apply the “rule of twenty”. According to his rule, an investor has some kind of 20-slot payment, which he uses during his investment career. I regard each project in which I invest funds as one of the future top 20 projects in my investment practice. With this approach, you learn to choose. You should not invest, because the moment is right, or because the technology seems cool. If the founder / team does not deserve a place in your top twenty - give up the deal.
2. Almost finished product
Investing in a technology company that does not yet have a finished product is always a mistake. If the founder is not Mark Zuckerberg or Steve Jobs, then investing in the early stages is very risky. Do not believe the founder, who claims that "the product is almost ready." I watched as almost finished products are being finalized for three months and three years. Better to wait.
Warren Buffett once said: "I have never tried to hit a ball that has not yet been thrown." It is necessary to follow his example.
If you are not offered to invest in a cure for cancer or a self-charging iPhone, wait until the product enters the market. I can practically guarantee that you will still have the opportunity to invest in the company under the same conditions when the product is ready.
I would like to make a reservation that the products are not "finished". And as Reed Hoffman, co-founder of LinkedIn, said: "If you are not confused by the first version of your product, then you are delayed with its release to the market."
Some founders adhere to the principles of “lean start-up” for products with minimal functionality, but still find many reasons to postpone product release to the wide market. You can't make a perfect product; there will still be bugs, there will be dissatisfied users; this is inevitable. But experience shows that some companies in the early stages of development are simply not able to release a product, which in their opinion is not nearly perfect, into the market. No matter how you press them, they will not hurry.
3. Using third-party technology
Technology is a strategic tool that cannot be outsourced. If technology is not a key asset, then your business can be easily copied.
Once I made a mistake by investing money in a company that gave the development of key components of its software to the side. The developers were among the best on the market, and had experience working with many high-tech technology customers, many of whom were public organizations. There were no complaints about the work of the developers, but the problem was that they were not employees of a startup. And they applied the experience and skills acquired on the project when fulfilling orders from other clients.
No matter how closely you work with third-party developers, they are not your employees. For them, the priority is their own company, not yours. They work on your product because you pay them. The knowledge and experience gained in the course of working on your product should remain an asset to your company. And so, they become an asset to the developer. Moreover, in difficult times, and these often happen in the early stages of development, these developers will not be together with you to overcome difficulties; they are likely to start a new project without much regret.
4. Investing in areas that are not your specialty.
The main activity of my investment company is technology, in particular financial technology, software and business. Technology is such a capacious and vague notion that even companies that include only a stretch can be referred to as “technological”. We have achieved some success by investing in companies that are not within our core business. But when you invest outside of your specialization, and there are some difficulties, you can’t help with anything, and this can lead to failure.
I invested money in a music company, whose activities were not my specialty, because I was struck by their video, which showed exciting options for applying their technology. Instead of taking a pause and appreciating my knowledge of the field, I jumped at the opportunity to become part of the next SoundCloud. I did not conduct a standard rigid assessment, which is mandatory for me for all new investment projects, partly because I did not know which questions to ask. Then I showed a project to a friend who is knowledgeable in this area, and he was skeptical with him, asked in particular about the record companies involved, which I myself did not think about. His questions were very important, and the company did not have satisfactory answers to them. I immediately felt an alarming feeling in my chest, which I did not feel since I worked as an investment portfolio manager and watched helplessly as one of my investment projects was suspended due to impending trouble. Moral: Do not deviate from their own rules, regardless of how cool and attractive technology does not seem.
If you invest in a company that deals with projects in segments that you are well acquainted with, then you have the opportunity to help it orient itself in case of unavoidable difficulties. Indicate whether you are talking to a person with whom you should talk to a potential customer, hire a qualified specialist or give strategic advice on the product; you can benefit from the project. And beyond your specialization, you can no longer be useful for the project.
.
Only calm
I look with hope in 2016. Investing in the early stages of the project development is fraught with many pitfalls, and sometimes failures. But if we analyze our mistakes impartially, we will be able to continue our activities more clearly recognizing our weak points and will be able to promote the emergence of new cool technologies this year.
Josh Burvik is Managing Partner at Sand Hill East Ventures. Previously, he managed the technology portfolio at Moore Capital, Pia Capital, and GLG Partners, and also worked at Goldman Sachs in the technology sector in sales departments for research centers. You can follow his blog sandhilleast.net/blog.html and twitter @jburwick.
Source: https://habr.com/ru/post/297898/
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