From Founder to Investor
What makes a good investor?
It’s been two months since I moved to Mexico City to join the 500 Startups LatAm team. With that came a couple of major earthquakes, an apartment hunt and furnishing mission, trips to Lima, Peru and Miami, Florida — and a few hundred interviews with founders for the next accelerator batch.
Sitting on the other side of the table was a new experience for me, one that I’ve been reflecting on over the last few weeks. Some of the questions that occupy a big chunk of mental real estate in my morning showers are: What makes a good early-stage investor? How do you even measure being a good investor; is it even measurable on the short term? Is a good early-stage venture investor just measured by showing an above market/industry returns to his Limited Partners?
During a dinner at our global team retreat, my journey to answering my questions was aided by great insight from Marvin Liao, a 500 Startups Partner in SF, into what makes a good investor. He believes there are two personas that help embody what makes a good investor: The Hunter and The Farmer. These are terms often used in sales, but let’s see how they apply to the investment world.
The Hunter
What makes an investor a good hunter? This can be defined by the ability to find and pick great companies, which can be broken down into:
Deal flow: If you don’t have access to good deal flow you need to go out and hunt, literally, by networking and attending events, dinners, hackathons, etc. where you can meet founders. Plugging into new companies that you come across as a consumer is also a great way to hunt — be the rare individual that actually stops to look at every Facebook ad. One of my team members René Lomelí Ojeda found one of our portfolio companies earlier this year via an ad on facebook (Guru De Viaje, Batch 7 #500LatAm).
Investment judgment: Having access to a ton of deals you need to hone the ability to quickly separate the great from the not so great. Effectively doing so takes a combination of skill, experience and some will argue a bit of intuition. A big part of this is also doing the due diligence. In early stage investing, this could be limited as you are often making bets more on the founders and the problems they are attempting to solve with little validation. If you don’t have the domain expertise in the area that you are investing in, you better bolster that with a good network you can count on to help you vet specific projects.
*Great post from Social Capital on how they are innovating in the selection of companies.
Being a great hunter does not necessarily make you a good farmer, and in my opinion being a good or bad hunter is a part of the ‘good investor’ equation that can require a long time to measure. In my specific case, being a part of 500 Startups gives me access to great inbound deal flow in the region, but my long term goal is to fine tune my hunting skills to be able to bring in deals that would not have necessarily applied to our program.
The Farmer
What makes an investor a good farmer? This can be defined by helping founders grow and navigate the challenges of building a successful company, which can be broken down into:
Passion & Empathy: IMHO this is a must for being a good farmer. If you are passionate about building companies and solving the problems companies face then you will naturally love working with founders and all types of companies. I spend a lot of time thinking about the conversations I’ve had with founders and how I can help them solve their latest problems. Which leads me to empathy, if you are not an empathetic investor, it will be difficult for you to identify with the struggles of founders and be able to help them move forward.
Value Add: What are the ways in which you can help farm your companies? Help during fundraising process, intros to potential strategic partners/alliances, recruiting top positions, strategic problem solving, putting out fires, motivating founders during the harder times, solving disputes between founders, etc.
Experience: It is hard to give someone advice if you can not speak from experience, this experience can come from having built companies or from having invested in enough companies to have seen the process of building and scaling a startup. This is where I think my experience having scaled multiple companies comes into play to help founders not make the same mistakes I made.
“The farmer has to be an optimist or he wouldn’t still be a farmer.” — Will Rogers
In closing as I embark on this new journey I hope to grow not only as an investor but also as a human being in the relationship and value I can provide every founder I have the fortune to work alongside.
Juan.Dulanto@500startups.com
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#500strong #500love #HFGSD
The postings on this site are my own and do not necessarily reflect the views of 500 Startups.
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