How can you avoid common mistakes when investing in a startup?

1. To begin with, do not invest a significant part of your portfolio. Always remember that for every unicorn, there might be 10,000 dead bodies. Only invest what you can afford to lose. 2. I once invested in a company and the promoter turned out to be a perennial fraud. Never take anyone on face value. Always do your diligence thoroughly. 3. If possible, validate from people in the competition if the company is doing something that will make a moat. Because if they're doing what anyone can do, probably someone will outsmart and pip them. Think of more factors which can make them investment worthy.

?? Working closely with Sequoia has shown me their investment approach, centred on backing entrepreneurs who aim to solve big problems. Their emphasis on sectors like technology and energy has led them to acquire stakes in game-changing businesses such as ??Apple, ?? Google, and Oracle. It's also important to note that an investment thesis isn't fixed; it has the flexibility to adapt to market shifts and the wisdom gained from prior investment ventures. A well-thought-out thesis can dramatically enhance the quality of potential deals that come to your attention. Gaining a reputation for a specific investment area makes you a go-to destination for startups in that field, increasing the likelihood of a successful collaboration??.

I would be looking at how the founders plan to monetise and whether they have the runway to do it effectively. Finding multiple revenue sources and testing the propensity for the customer to pay are critical competencies founders need to demonstrate. Coupled with monetisation is a laser like focus on cost minimisation. How can the startup continue to maximise every dollar invested whilst at the same time start demonstrating the capability to become a sustainable and successful venture.

If you play it too safe, it means you are not taking enough risks. By playing not to lose, you will never achieve outstanding investment returns. Venture capital investments, by their very nature, are very risky. A large portion of your portfolio is doomed to fail, and that's okay. For every one winner, there are a whole lot of losers. The question is whether you can pick the winning team. He is the key to success. Bet on people who have a hunger for success and who know how to make a much better startup than the one they built before. Add a large enough market and momentum, and you will have excellent material for a winner.

Always remember, as a seasoned investor, your primary value often lies in identifying flaws in a thesis (and suggesting ways to address or mitigate them) rather than attempting to outsmart founders by seeking an unrecognized value lever. By rigorously executing your risk-management role concerning the thesis, you enhance its likelihood of long-term success. However, to do this effectively, you must delve deeply into the heart of the thesis and further, using your expertise to anticipate potential pitfalls and support founders in swiftly navigating any challenges that emerge.

Due diligence isn't about making a report card or checking off a list. It's about identifying the right questions to answer, building a thesis around the investment, understanding the risks and opportunities at play, and whether the deal is worth it. Through due diligence, you'll be building a framework of understanding the business and constructing a case for and a case against making the investment. The goal should be to fully understand both sides of the argument without bias and build conviction on a final decision. There will always be questions that cannot be fully answered and risks that cannot be fully vetted. Part of investing is understanding the known unknowns and making the right bets from the information presented.

A real story. Once a founder (Mr. X) was raising money for his second startup from almost every star angel investor in India. Misfits was also keen to invest but we do strong reference check before investing. Mr. X had earlier sold his first startup to a Soonicorn startup. Through mutual connections, Misfits managed to connect with the Soonicorn's founder. A candid conversation ensued, unraveling a startling narrative & a few chilling statements. "Mr. X menacingly threaten my legal team, claiming he'd end his own life if his demands weren't met," "His shareholders who would carry a gun into a meeting so that their terms are agreed upon." We still wonder, how did those "Star Angel investors" decided to invest without the refcheck?

Due diligence is not about checking the previous investment report or previous valuations, rather due diligence is what answers the most basic questions about a company, "what", " why", "how" and the timing of the solution of the problem. Due diligence is the second step in the Investment journey. It all starts with finding the company which is termed as sourcing and then moving forward we try to understand the A to Z of the company which is known as due diligence. We should never rush in taking any decisions!

?? In addition, investors must consider the following: ?? Legal Aspects: This involves reviewing contracts, IP rights ??, and compliance with regulatory standards ???. ?? Third-party Validation: Getting a third-party expert to validate the startup's technology ???, or TAM ?? might be valuable. ?? Scenario Planning: What happens if the startup doesn't hit its projected numbers ??? What is plan B or C? ?? Exit Strategy: Does the startup have a clear exit strategy ??? This is important from an ROI perspective ??. ?? Founder's Commitment: How committed are the founders ????????? Are they willing to stick it out through the tough times ??, or do they have a history of jumping ship ???

As an angel investor writing relatively small checks, take advantage of reputable syndicates. Well run syndicates with responsible leads do thorough diligence and share that with their investors. As an investor, you get to piggy back on this wisdom to learn how more experienced investors think about a deal. There's also no obligation to invest so worst case, you've learnt something.

My rule is here is quite simple - always sleep over any ideas, hunches, thoughts before they become a decision. Allowing your head to cool down, walk through the decision in any possible angle and finalising your thoughts in the morning when your brain is cleanest and clearest can be a life saver in many situations. Never make decisions on the spot as the facts are clear - ego, emotions, lack of data and many other things can impact our mind clarity and decision making capability.

Master your FOMO and invest based on your thesis. If your thesis is solely to invest as a follower in hot deals, go all in. Great TEAMS, in a healthy COMPETITIVE environment, well executed TRACTION , in a HUGE MARKET, usually don't fail.

?? Avoid investing based on emotions or FOMO (Fear of Missing Out). Stay rational and objective. Example: ?? During the dot-com bubble of the late 1990s, many investors made emotional decisions to invest in companies with little substance, leading to significant losses when the bubble burst.

This ties back into having a well-thought-out investment thesis and sticking to your strategy. Consistency will prevail over chasing trends. During a hype cycle, it might feel like you're missing out, but staying true to your strategy will lead to long-term success.

There is a contrarian view that needs to be considered. Investing via Regulation Crowdfunding provides small investors access to great deals. In these situations, investors rely formally or informally on the wisdom of the crowd. There are some great processes for this. Reg CF portals provide for investors to ask founders questions that they, in turn, answer publicly. You can also see what larger investors may be doing and their investment thesis. Sometimes, following the crowd is exactly the right thing to do.

Being a good investor can sometimes involve sitting back and letting founders run the show- the best founders don't make it because of having mentors or advisors, they often already have it in themselves to make it big. Too much 'meddling' could actually be value destruction rather than value creation and investors should really be founders if they truly know so much about the said domain/subject matter... There is certainly a place for guidance and when there is an ask, investors can certainly put on their thinking caps/entrepreneurial caps to suggest how best to problem solve or navigate certain important decisions.

Introductions, shared experiences and assistance with complicated and expensive manners are definitely ways to assist. Just be careful not to step over the line of assisting and move into doing. Doing is the founders & teams job and mentoring / coaching / assisting is where we shall sit as advisors & investors.

Knowing the business the start-up's job, knowing how to optimize it is yours. Make sure you're contributing your inputs and not directing them as per your sensibilities. The market is constantly changing and if a start-up has only come up recently they likely have something unique to offer to. Don't bend them to become what you are, acknowledge and nurture their identity to grow something truly remarkable and distinct.

Sequoia Capital put $8 million into WhatsApp in 2011, giving the startup ample room to breathe and grow. They honoured the founders' principles of ensuring user privacy and avoiding advertisements. The collaboration proved to be a win-win, culminating in a $19 billion acquisition of WhatsApp by Facebook in 2014, which bumped the value of Sequoia's initial investment up to nearly $3 billion. ?? As markets evolve, the VC and the startup may have to pivot. A good investor-founder relationship can make these shifts less painful and more strategically sound. ?? A thoughtful VC can guide a founder through exit planning. ?? The VC's role in mediating between conflicting views within the startup team can be an asset.

Invest only if you can believe founder's vision and support him/her. Become a partner to give founder access to - 1. All Connections you have and let him/her leverage it. 2. Keep an emergency fund with you when startup need it the most at low point (like winter funding) 3. Keep an empathy while things are not working. Invest like a partner.

?? Organized Feedback Meetings: The passage mentions the importance of collecting feedback, but setting up regular, planned sessions for this could help fine-tune your investment strategies. ?? Quantifiable Feedback Guidelines: While gathering insights is excellent, putting numbers to those insights could make them far more helpful in making concrete changes. ?? Cognitive Hurdles: When you're receiving feedback, don't forget to watch out for mental traps like confirmation bias that could hinder you from fully taking in and acting on valuable suggestions.

In venture capital, as in life, clear communication is our guiding star. Inside our firm, we value straight talk—it sharpens our strategies and clarifies our path. Outside, dialogue with founders and peers paints the broader investment picture. It's not about chasing every opportunity but understanding the game. Through open communication and feedback, we navigate this intricate industry, ensuring our decisions are both wise and well-informed. Simple, yet effective principles guide us in the VC dance.

?? Sequoia Capital sank $33 million into Cuil, attempting to take on Google, but the venture flopped. However, the lessons from the Cuil misstep informed their later successful bets on companies like WhatsApp and Stripe. ?? Risk Reduction: Conducting rigorous background checks and diversifying your portfolio can soften the impact of an individual failed investment. ?? After-Action Review: After a setback, have an in-depth discussion with your team to dissect what went awry and spot any overlooked warning signs. ?? Patterns of Failure: Monitor trends in the startup ecosystem to identify sectors that are more susceptible to failure. What are the recurring issues leading to their downfall? Such insights are crucial for future investments.

Frequently, a startup's failure doesn't indicate a fundamental flaw in the founding team. Therefore, it's vital to discern the factors leading to that failure and determine how to enhance the founders' odds of success in subsequent ventures. If you were thorough in evaluating the startup founders before investing, it's beneficial to keep them on your radar for any upcoming opportunities, looking for another shot to build a successful investment story.

Failure is part and parcel of startups and innovation. However, in Singapore (and many other Asian cultures) this is still something frowned upon. It extends even beyond the individual and is a 'reflection of poor upbringing'. While this is usually cited as a reason for a lack of a vibrant entrepreneurial ecosystem like in Silicon Valley, the same can be said of investors. 'Checkbox' investing or going with the crowd and doing tried and tested bets are contrary to warren buffet's fundamental advice of being greedy when others are fearful and fearful when others are greedy. We ought to cut our losses rather than cut our profits and back winners instead of shore up fledgling companies. Let founders fail, let them try again and invest again!

Embracing failure while investing in startups involves cultivating a learning mindset. Acknowledge that not all investments will succeed and view failures as opportunities for growth. Avoid common mistakes by conducting thorough due diligence, assessing the team's competence, and understanding the market. Diversify your portfolio to mitigate risk and set realistic expectations. Stay adaptable and open to pivots, and maintain effective communication with founders. Learn from failures to refine your investment strategy, improving your ability to identify promising ventures. Remember, failure is a stepping stone to success when approached with humility and a commitment to continuous improvement.

?? Market Research: Analyze the target market and evaluate if the startup solves a real problem. Consider market size ??, competition ??, and growth potential ??. Example: Color Labs failed to gain traction as a photo-sharing app due to stiff competition, highlighting the importance of market research. ?? Team Assessment: Scrutinize the startup's team. A strong, skilled team is essential for success. Example: WhatsApp's small but talented team was instrumental in its success, eventually leading to a $19 billion acquisition by Facebook. ??Exit Strategy: Understand the startup's exit plans, like acquisition or IPO. Example: Instagram's acquisition by Facebook for $1 billion provided a profitable exit strategy for early investors.??

Having a compelling idea, vision and pitch are great - and can be exciting and enticing, but make sure the passion is backed by an experienced team with the skill sets required to deliver.

Invest in the people (team) over the idea or product. While it’s always good to take a bet on a first time founder… repeat founders with successful exits have an unfair chance at doing it again

Venture Capital relies on selling a company at a high - often inflated valuation. While all of the above is important, often a well functioning product and business model is less important than understanding what will be hyped in 3 to 5 years. Whike VCs have helped to build many great companies, they also often benefited from selling a company at an inflated price which came down later.

I personally believe focus of the promotor is important, ie.,how many start ups he is invested in is very crucial. Also his vested risk in the total risk has a lot to say to me.