On being an investor.

1 U.S.A dollar banknotes

I’ve been a full-time investor for the last three years. I do some paid speaking and advisory work here and there, but I make my living generating returns for myself and my co-investors. It is hard — very hard, actually — but it’s also the most fun I’ve ever had. It barely feels like work. Writing checks to entrepreneurs is fun, receiving checks upon liquidity events is downright exhilarating, and it’s absolutely fascinating to watch the dance between startups and investors.

Despite how much I enjoy it, being an investor is a very serious job. I see so many LinkedIn profiles that say “venture capitalist” or “investor.” I used to play pick-up soccer games, but you won’t see “professional athlete” on my profile. Being a VC isn’t something you do on the side. But if you really want to become an investor, here are some tips.

  1. Have a strict investment thesis and challenge yourself to stick to it. My joke is that we need to be able to check 7 of the 6 boxes. A thesis should have details about what you’ll invest in: stage, industry, market, timeline, and more. Knowing exactly what you’re looking for makes finding it that much easier.
  2. This is an investment. You put cash in and at some point you need cash back out. All that matters is IRR. Internal Rate of Return is a metric used to determine whether or not an investment is worthwhile. Figure out your desired IRR, and make sure any potential investments you consider can meet or exceed that. Don’t bother talking about multiples if the time horizon is long, since time isn’t even in that equation. IRR is best because it accounts for time preference.
  3. Startup investing isn’t passive. Why? Because startups are resource constrained. They’re coming to you for help because they’re limited by the amount of capital (both human and financial) they currently have. You provide the time and money necessary to help them grow.
  4. Seed-stage investors have to actually provide tactical value. Help your startup get customers, the right employees, and the next round of capital. Use any knowledge and connections you have to help your startup grow. It’s your job. If you want to spray and pray, go to Vegas.
  5. Operational experience matters. If you don’t know how to conduct market research, develop a product, form a go-to-market strategy, or scale a business, how can you help your startup do any of that? They need your expertise, not just your money.
  6. To be a technology investor, you must know technology. You need to have the research skills necessary to validate the problem in the market, and the technical abilities necessary to validate the solution. If you don’t, then invest with partners who are experts.
  7. I’m a big Ray Dalio fan. Ray encourages an approach where “radical truthfulness” and “radical transparency” combine to create a culture of healthy disagreement. Everyone should feel free to say how they feel, and no one should hesitate to explain their reasoning. When everyone has an opportunity to be heard and to have their ideas seriously considered, the whole team will be more invested. The “idea meritocracy” is alive and well. Even our summer interns have a voice to pitch investment ideas.

And the most important thing: keep learning. I’ve been investing in startups since my first exit in 1998. I learned a lot, but I was no professional. Over the last five years, I’ve been establishing new habits while getting rid of old bad habits. My abilities have been built up and refined over this time, but I still have a lot to learn. In fact, I spend 2 hours a day studying macroeconomic, industry, and socio-political trends. Why? It’s my job.

If you want to be an investor, the learning never stops.

Email me at kpr@shadow.vc if you have questions, if you don’t you weren’t paying attention.