How To Adopt An Investor Mindset And Start Investing
Becoming a seed startup investor was one of the most rewarding things I’ve ever done. Pretty much since I started my business career I wanted to be able to give back to the startup scene in this way so as soon as I had a little bit of cash going spare, I decided to take the plunge.
By now, I have a dozen or so companies in my portfolio and I add to it regularly. Out of the lot two startups have defaulted and the rest are growing, more or less rapidly. What I would like to discuss here is how my mindset shifted once I started investing and what advice I have for budding investors.
Firstly, if you are aspiring to start investing, make sure that you have put aside the money you can afford to lose as chances are (statistically speaking 9/10) that you will indeed never see it again. Start off small, perhaps with a few hundred pounds of dollars invested into a crowdfunding campaign of a startup that appeals to you.
Do your research, find out as much as you can about the founding team, their work ethic, and whether they are aligned with your values. Ideally, as I like to do, get to know them over a period of time to understand how they work under pressure and face adversity. If you are going to invest in a seed or pre-seed stage startup where the idea hasn’t been fully executed, what matters the most is the quality of the founders.
Also, study the market these founders are working within. Ideally, you would already have knowledge of it (or experience of working with it) which can contribute to your unfair advantage over other investors. This concept is generally very useful when it comes to investing - always look for the type of opportunity where you have some sort of insider knowledge about which others don’t have and which helps you to make an investment decision.
While using your gut when it comes to investing is important, don't fall into the trap of personal preferences, i.e. what you are drawn to on the level of personal bias. To begin with, speak to a wide variety of fundraising founders to understand what you are looking for better (in terms of personality traits, type and stage of venture etc) and form your investment thesis. Never invest in a proposition you don’t understand.
Finally, invest in a smart way and de-risk your investment as much as realistically possible. In the UK this is easily done via SEIS (Seed Enterprise Investment Scheme) or EIS, which allows you to claim up to 30% (under EIS) or 50% (under SEIS) income tax relief on investments up to £1 million per tax year. This means that if you invested £10k in a company registered under the SEIS scheme, you can write £5k off your personal tax bill.
Another way to de-risk your investment is to invest alongside more experienced investors whose opinion and capability to pick winning startups you respect. I had the pleasure of putting in money into a round led by Lars Rasmussen, founder of Google Maps.
On an ending note, being a startup investor can be an adventure of a lifetime, as well as a way - albeit risky - to potentially deliver a great financial return. In a well-diversified portfolio the success of the few should more than make up for the failures of others. Plus, you will learn plenty and meet lots of inspiring founders. Also, with SEIS and EIS schemes de-risking UK investments there’s no time like the present to get into investing.
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