Ever since I invested, countless people have come to me with questions about startup investing. They think it’s simple—you find a great idea and throw money at it until there’s a huge IPO that makes you filthy rich. Right? Isn’t that how it works? Nothing could be further from the truth. If you want to invest in a startup, here are the three key bits of information you need to know:
1. You’re not actually investing in a startup.
You’re investing in people. When the time came for Help Scout to start seeking angel investors, the three guys behind it were so cool that they wouldn’t even ask me to invest. Why? Because I’d actually been investing in them since they were in college. Prior to forming their own company, they had all worked with me as interns, and then as professionals when they branched out and created a web design firm. Over this period, I took an active interest in their growth as entrepreneurs and young men. By the time they were ready to launch the company, they thought I’d already done my part. When I finally heard they were looking for investors, I asked to see the presentation they were showing to potential candidates out of curiosity. I read it and was sold. “Can I invest in this?” I asked them. “Robert,” they said, “this is very risky. There’s absolutely no guarantee you’ll see your money again.” “Listen, I’m not investing in the business. In fact, I’m still not sure I even understand what you’re doing!” I explained. “But I believe in you guys. I always have. And I’ll believe in you forever.” With that, they had another investor.
2. The startup’s concept doesn’t have to make sense to you.
To this day, I do not fully understand Help Scout. I just don’t have a techy brain, and I’m aware that ideas in that field don’t always make sense to me. But I also never thought a hot dog on a stick would sell so well. The point is to not get so wrapped up in an idea that you think is amazing, because amazing ideas don’t execute themselves. Even amazing ideas will fail unless you have a team of extraordinary individuals putting in 15-hour days week in and week out. The first time I attended a TechStars event (which is the startup accelerator that gave Help Scout its start), just about every company that did their pitch wowed me. By the end of the day, I was ready to write checks to ALL of them. “What’d you think of this one, and what about that one! Weren’t those ideas amazing?” I said to some of the more experienced investors. I was stunned when, immediately, they dismissed them. “Those people will never be able to pull it off,” they said. Don’t focus on the extraordinary ideas. Focus on the extraordinary people, even when you don’t fully grasp what they’re pitching.
3. Don’t do it if you need the money.
This is one of the first things TechStars will tell potential investors. If you are investing your last $10,000, they do NOT want your money. If you are investing with the hope that you’re going to get a huge payday, go elsewhere. I didn’t invest in Help Scout to make money. In my mind, that’s nothing but a bonus if it happens one day. I’m investing in the guys. When I wrote the check, the money, as far as I was concerned, became gone forever. If you’re not comfortable with never receiving a dime in return, investing in a startup is not for you. Period. If you’re interested in investing in a startup, the main thing to learn is to find the best group of innovators and hard workers that you possibly can. Look beyond the idea and assess the people who are going to be putting in the hours. Look for people who, more than anything, you want to see succeed beyond their wildest dreams. Don’t invest in the company. Invest in the hearts and minds of those behind it.
