You Can’t Think Like an Investor Until You Become One

investor

I can confirm that not only will you increase your network with more successful individuals, you’ll form great relationships, learn from others about what it takes to become a great investor, and (maybe) get an early entry into the exciting and inspiring world of venture investing. You’ll also get a better sense of the big picture of the whole investment cycle.

There are many great success stories of cashed-up investors like Ashton Kutcher or Bono striking it big in investments like Skype, Paypal or Facebook. (Though you never hear about the ones that didn’t)

But for the everyday person who doesn’t have a spare $10 or $20 million lying around, and the cash to spend on a portfolio of financial advisors, what are the opportunities to participate in the new startup economy? (And I’m not talking here about passive online investing, films, real estate or the stock market; I’m talking about active investing in ventures- or ‘smart money’)

There are many paths, like online investor or crowdfunding groups such as AngelList.

But in order to become a great investor, you won’t want to follow the crowd; you’ll definitely need some expert guidance and mentoring in order to frame your own investment ethos and portfolio, which you just can’t get from an online platform, or training program.

And when you invest (& possibly lose) your money, you’ll want the expertise of more seasoned minds to help you dissect why it did (or didn’t) work. Just as in venture creation, in venture investing, you just can’t beat some old fashioned mentoring when comes to making money successfully.

I do love the “well meaning” articles that urge you to think like an investor.

But how can you do that if you:

  • Don’t know what an investor thinks of?
  • Have no understanding of the ‘factors of success’?
  • Don’t know what’s important to them?
  • Have never put your own money at risk (we call that ‘skin in the game’)?

It’s like being a parent. Or being in love.

You can imagine all you like, but until you are there, you’ll never know how it feels or what’s important. And once you are, no explanation is required.

So exactly how do you become an investor?

Well, ‘carefully’ is a good start. I haven’t yet found a good online course to “successful venture investing”, though I can recommend some great books and writers on the topic.

Venture Deals, by Brad Feld and Jason Mendelson

The Art of the Start, by Guy Kawasaki

How to Make Money with Angel Investors, by Troy Knauss, Greg Pool and Michael Cain

There are many paths to entry; and you don’t need a degree or qualification. There are essentially 3 solid paths. Money is one.

Join an Angel Investor Group

Angel investor groups are typically successful entrepreneurs or high-net-worth individuals who pool their money to invest, and share the load of applications, screening, evaluating and completing the due diligence on any potential investment.  They offer access to larger pools of money than individual investors, and have standardized terms and methods of operations, and like you would be doing, they are investing their own hard-earned money (unlike portfolio managers), so they don’t want to make rash-splash-cash decisions.

I joined just such a group, the Melbourne Angels, 12 months ago, and have learned more about investing in the last 12 months, than I had in previously creating 15 ventures, so I can highly recommend it, even from a purely learning perspective.  The challenge here is that to join, typically you need to be prepared to invest your cash, or an agreed period of time (3-5 years) as well as your expertise. Each group (and country) will have minimum expectations, and potentially criteria, as well as methodology.

However there is an opportunity to participate in a different way and learn the ropes.  Because these groups typically run without a large or paid support of staff, you could easily volunteer a small part of your time each month in helping with meetings, administration, screening or membership for 12-24 months to discover if this is part of your path.  If you are trusted by one of the members, your involvement would definitely be welcomed and appreciated. And you would get to know not only the investing members (a valuable addition to your network), but also learn the ‘rules’ at the same time.

Another type of investor is a skills investor, you may know them better as an advisor or business coach.

The Business Coach

Often coming from a professional career, these individuals have recognized the value of their unique talents, and have sought to commercialize their offering, often through professional services in a way that helps entrepreneurs to complete activities, or learn skills & insights in areas of key importance to success. They tend to be very specific in their skill sets (though not always), and seen as key centers of learning in their areas of expertise, well liked & highly trusted.

You can benefit from their recognition of the value of inter-connectedness required, from the full skill set, that entrepreneurs need to possess or acquire in order to achieve success. There is no “one-stop-shop”.

This is a good place to gain an understanding of how things get done on the ground.  And you might just turn it into a career choice yourself. It certainly works well as an entry point for both the pathway examples above & below.

A third type of investor is an ‘experience’ investor, better known as a mentor, though I am talking about the real face-to-face type, not the ‘hero-worship-from-afar’ type. This group invests their experience, typically (though not always) for a “slice of the pie”.

The Professional Mentor

Typically this person is a seasoned entrepreneur themselves, but has now moved into mentoring, advising, often investing, and working in other ways with the 2 groups above. They are often great generalists, broad in their wisdom, experienced, compassionate and considerate, and recognize that they have a need to ‘pay it forward’ and the capacity to help others.

In working with professional mentors, you get to see a deep level of the challenges of any new venture. The difficulty here is that they may choose only to work with specific audiences and markets. So your learning here will be ‘deep’ , but possibly not ‘wide’.  Not all mentors invest money; often they are sharing their knowledge, networks and experiences in order to help their portfolio ventures get off the ground, or to grow.

But working with a couple of these will set you up well for “getting your hands dirty” yourself and learn what it takes to invest your skills and experience, without necessarily risking your own cash. So this makes an ideal first place to start.

There is a fourth path, but it’s not readily accessible to most, which is working either as an associate at a VC firm, or (more accessible) is working with an “accelerator” (that invests) in early stage startups. But you’ll be expected to already know the basics, the terminology, have some deep-domain knowledge or a track-record in one of their preferred sectors, as well as the odd degree, in order to get into either of these.

Note: Venture capitalists aren’t investors in the truest sense, though Angel investors are. VC’s typically aggregate money from investors and invest it according to the investment ethos agreed by the firm and the investors. I don’t have a view about this as right or wrong as a method – I just prefer to pay wholesale price, not retail.

Each of these groups will give you unique insights into the world of venture investing.

As a good first start, I would suggest that you look in your LinkedIn network and see who you know that is a trustworthy investor (ideally that invest their own money, not some-one else’s), or that can introduce you personally to one in your local area.

Go along to an investor luncheon, or evening pitch night or two, and ask for a personal introduction for an investor or two. See who resonates with you, and might be prepared to take you ‘under their wing’.

Tell them what you are looking to do, ask how they got started, and ask for their advice as to how you might become an investor over time, from where you are now. Ask about the risks, what they look for, why they’ve invested in what they have. (And never ask how much they’ve invested – that’s just being rude).

If you aren’t sure where to start with questions, unless you want to spend your time asking stupid questions like “Dude, where’s my money (gone)?” reach out to me via LinkedIn if you would like a cheat sheet about a few smart questions to ask of other investors.

I can confirm that not only will you increase your network with more successful individuals, you’ll form great relationships, learn from others about what it takes to become a great investor, and (maybe) get an early entry into the exciting and inspiring world of venture investing. You’ll also get a better sense of the big picture of the whole investment cycle.

Remember, “money” is not the end goal; but it is often just part of the path to venture success. And no investor wants to come in ‘cold’. They typically want to get to know prospective investees first.

I can guarantee that being a considerate and passionate investor will make you a considerably better founder for any of your own ventures, which in itself will make you more investable.


Daniel Mumby

Also traveling under the alias of 'That Startup Guy' , Daniel Mumby is a "Guest Writer" on FundingSage. A co-founder of StartUp Foundation (The Startup Accelerator for Experienced Professionals), Daniel is intensely, deeply and passionately dedicated to "The intersection between personal mastery & business entrepreneurship".