I’ve never written about investing before.
In fact, I’ve never really considered myself an investor until recently – despite the fact that I’ve participated in the financing of dozens of companies, and many of them have gone on to become very, very successful.
It has been a humbling experience.
In 2014, I decided to expand my capacity as an investor and advisor, and have joined OATV as a Special Partner.
This decision has spurred an evolution in my thinking about how to add the largest amount of value to a company and what investing means to me.
I’ve never seen my investments as a “portfolio” at all. A while back I laughed when an entrepreneur commented that I’ve got a ‘great portfolio of companies.’ I imagined this manilla envelope my Grandfather might have in the drawer of his desk– the latest analysis of his stock portfolio.
Portfolio? I see faces, personalities, lives and company missions. Not stock ticker symbols or entity names and financial statements.
Since the very beginning, even before the first check I wrote or advisory stock I accepted, I wondered about the power and place of intuition in investing (and business as a whole). It’s been starting to get more air over the past few years both in a positive and negative light.
So what is Intuition? My partner at Undercurrent Aaron Dignan says that intuition is the result of strong pattern recognition that comes from a mix of raw intellectual horsepower and some past experience or gathered information. The key here is past information. Because you got to see what happened and can implement that subconsciously into your prediction for the future. New information can be more confusing because you start to doubt yourself on what pattern you’re seeing — is this an old one we know, or a new one that is more novel?
I tend to agree with his definition, but I like to leave room for a little more mystery. Pattern Recognition x U, where U is still an unknown about ways the body and brain sense-mechanisms work we haven’t yet discovered.
Active and successful angel investor Kevin Rose has written about “Gut Investing” before.
The Wall Street Journal had an interview back in 2009 with David E. Adler, the author of Snap Judgement. The book and interview argues that following your gut feelings with financial decisions can have grave and catastrophic results.
In fact, the internet is littered with headlines like “Gut Instincts Can Hurt Your Portfolio” and “Some simple investor advice: Don’t follow your gut.”
When investing in the public markets this rings mostly true to me. What about the Blink conversation? The power of thinking without thinking?
Despite what some investors think; angel investing isn’t roulette. The odds may be (worse, actually), but the information and signals generated in a first meeting are powerful. It’s those moments that I yearn for as an investor. But sometimes we go overboard.
In my experience thus far, there’s a direct opposite-correlation between Information and Intuition.
That is, the more noise I get, the harder it is to hear my intuition. And the less noise I get, the easier it is to make a very clear decision. Noise comes in as too much information with very little signal.
Most interestingly, I think the companies I have analyzed the most, I made the wrong decision on. The companies I analyzed the least, I made the right decision on (to commit or pass). Maybe it’s because the companies that require the least amount of analysis are simply obvious winners. The team, timing and purpose align perfectly.
I’m not saying no analysis. That’s foolish and you may as well play roulette after all.
I am saying simply do what you can to create less noise and more signal. I care deeply about the founders, the mission of the company, the timing, and what my intuition says about the potential for a perfect storm.
That means one-on-one with the founder(s) and team (in person if possible), and listening to your first impulses. That means a couple reference checks, but not over-doing it. That means being respectful of an entrepreneur’s time to get back to work – which is after all their true purpose.
I think I’d like to learn to get to a faster no and a quicker yes.
At the very least, if you do turn out to be wrong, you’ve wasted less of everyone’s time.
I’m excited to deepen my own involvement in this thing called “investing” and I plan to bring my intuition along for the ride, front and center. I’ll continue my angel investing as Undercurrent Ventures and bring the OATV team in for larger investments if and when it makes sense. I’ll also be spending some time with their existing portfolio companies to add value to the best of my abilities.
*Update, as of 9/14 I’m no longer investing with OATV. A good experience and we remain friends and collaborators…*