Last, it’s also about how to kill the golden goose when the goose is no longer serving you.
I’ll dig into one specifically hard decision—deciding to say “no” to startup investing, which is easily the most lucrative activity in my life. Even if you don’t view yourself as an “investor”—which you are, whether you realize it or not—the process I used to get to “no” should be useful.
Caveat for any investing pros reading this:
I realize there are exceptions to every “rule” I use. Most of this post is as subjective as the fears I felt.
My rules might be simplistic, but they’ve provided a good ROI and the ability to sleep. Every time I’ve tried to get “sophisticated,” the universe has kicked me in the nuts.
Many startup investors use diametrically opposed approaches and do very well.
There are later-stage investments I’ve made (2 to 4x return deals) that run counter to some of what’s below (e.g., aiming for more than 10x), but those typically involve a discount to book value, due to distressed sellers or some atypical event.
Many concepts are simplified to avoid confusing a lay audience.
The Road to No
* * *
So, Why Did I Decide to Tap Out and Shift Gears?
Below are the key questions I asked to arrive at this cord-cutting conclusion. I revisit these questions often, usually every month. I hope they help you remove noise and internal conflict from your life.
Are You Doing What You’re Uniquely Capable of, What You Feel Placed Here on Earth to Do? Can You Be Replaced?
I remember a breakfast with Kamal Ravikant (the brother of Naval, page 546). Standing in a friend’s kitchen downing eggs, lox, and coffee, we spoke about our dreams, fears, obligations, and lives. Investing had become a big part of my net worth and my identity. Listing out the options I saw for my next big move, I asked him if I should raise a fund and become a full-time venture capitalist (VC), as I was already doing the work but trying to balance it with 5 to 10 other projects. He could sense my anxiety. It wasn’t a dream of mine; I simply felt I’d be stupid not to strike while the iron was hot.
He thought very carefully in silence and then said: “I’ve been at events where people come up to you crying because they’ve lost 100-plus pounds on the Slow-Carb Diet. You will never have that impact as a VC. If you don’t invest in a company, they’ll just find another VC. You’re totally replaceable.”
He paused again and ended with, “Please don’t stop writing.”
I’ve thought about that conversation every day since.
For some people, being a VC is their calling and they are the Michael Jordan–like MVPs of that world. They should cultivate that gift. But if I stop investing, no one will miss it. In 2015, that much was clear. There have never been more startup investors, and—right along with them—founders basing “fit” on highest valuation and previously unheard-of terms. There are exceptions, of course, but it’s crowded. If I exit through the side door, the startup party will roll on uninterrupted.
Now, I’m certainly not the best writer in the world. I have no delusions otherwise. People like John McPhee and Michael Lewis make me want to cry into my pillow.
BUT . . . if I stop writing, perhaps I’m squandering the biggest opportunity I have, created through much luck, to have a lasting impact on the greatest number of people. This feeling of urgency was multiplied 100-fold in the 2 months preceding the decision, as several close friends died in accidents no one saw coming. Life is short. Put another way: A long life is far from guaranteed. Nearly everyone dies before they’re ready.
I was tired of being interchangeable, no matter how lucrative the game. Even if I end up wrong about the writing, I’d curse myself if I didn’t give it a shot.
Are you squandering your unique abilities? Or the chance to find them in the first place?
How Often Are You Saying “Hell, Yeah!”?
Philosopher-programmer Derek Sivers (page 184) is one of my favorite people.
His incisive thinking has always impressed me, and his “hell, yeah!” or “no” philosophy has become one of my favorite rules of thumb. From his blog:
Those of you who often over-commit or feel too scattered may appreciate a new philosophy I’m trying: If I’m not saying “HELL YEAH!” about something, then I say no. Meaning: When deciding whether to commit to something, if I feel anything less than “Wow! That would be amazing! Absolutely! Hell yeah!”—then my answer is no. When you say no to most things, you leave room in your life to really throw yourself completely into that rare thing that makes you say, “HELL YEAH!” We’re all busy. We’ve all taken on too much. Saying yes to less is the way out.
To become “successful,” you have to say “yes” to a lot of experiments. To learn what you’re best at, or what you’re most passionate about, you have to throw a lot against the wall.
Once your life shifts from pitching outbound to defending against inbound, however, you have to ruthlessly say “no” as your default. Instead of throwing spears, you’re holding the shield.
From 2007 to 2009 and again from 2012 to 2013, I said yes to way too many “cool” things. Would I like to go to a conference in South America? Write a time-consuming guest article for a well-known magazine? Invest in a startup that five of my friends were in? “Sure, that sounds kinda cool,” I’d say, dropping it in the calendar. Later, I’d pay the price of massive distraction and overwhelm. My agenda became a list of everyone else’s agendas.
Saying yes to too much “cool” will bury you alive and render you a B-player, even if you have A-player skills. To develop your edge initially, you learn to set priorities; to maintain your edge, you need to defend against the priorities of others.
Once you reach a decent level of professional success, lack of opportunity won’t kill you. It’s drowning in “kinda cool” commitments that will sink the ship.
These days, I find myself saying “Hell, yes!” less and less with new startups. That’s my cue to exit stage left completely, especially when I can do work I love (e.g., writing) with ¹⁄₁₀ the energy expenditure.
I need to stop sowing the seeds of my own destruction.
How Much of Your Life Is Making Versus Managing? How Do You Feel About the Split?
One of my favorite time-management essays is “Maker’s Schedule, Manager’s Schedule” by Paul Graham of Y Combinator fame. Give it a read.
As investor Brad Feld and many others have observed, great creative work isn’t possible if you’re trying to piece together 30 minutes here and 45 minutes there. Large, uninterrupted blocks of time—3 to 5 hours minimum—create the space needed to find and connect the dots. And one block per week isn’t enough. There has to be enough slack in the system for multi-day, CPU-intensive synthesis. For me, this means at least 3 to 4 mornings per week where I am in “maker” mode until at least 1 p.m.
If I’m reactive, maker mode is impossible. Email and texts of “We’re overcommitted but might be able to squeeze you in for $25K. Closing tomorrow. Interested?” are creative kryptonite.
I miss writing, creating, and working on bigger projects. “Yes” to that means “no” to any games of whack-a-mole.
What Blessings in Excess Have Become a Curse? Where Do You Have Too Much of a Good Thing?
In excess, most things take on the characteristics of their opposite. Thus:
Pacifists become militants. Freedom fighters become tyrants. Blessings become curses. Help becomes hindrance. More becomes less.
To explore this concept more, read up on Aristotle’s golden mean.
In my first 1 to 2 years of angel investing, my basic criteria were simple (and complement those on page 250 in Real-World MBA):
Consumer-facing products or services
Products I could be a dedicated “power user” of, products that scratched a personal itc
h
Initial target demographic of 25- to 40-year-old tech-savvy males in big U.S. cities like S.F., NYC, Chicago, L.A., etc. (allowed me to accelerate growth/scaling with my audience)
Less than $10 million pre-money valuation
Demonstrated traction and consistent growth (not doctored with paid acquisition)
No “party rounds”—crowded financing rounds with no clear lead investor. Party rounds often lead to poor due diligence and few people with enough skin in the game to really care.
Checking these boxes allowed me to add a lot of value quickly, even as relatively cheap labor (i.e., I took a tiny stake in the company).
My ability to help spread via word of mouth, and I got what I wanted: great “deal flow.” Deals started flowing in en masse from other founders and investors.
Fast forward to 2015, and great deal flow was paralyzing the rest of my life. I was drowning in inbound.
Instead of making great things possible in my life, it was preventing great things from happening. I’m excited to go back to basics, and this requires cauterizing blessings that have become burdens.
Why Are You Investing, Anyway?
For me, the goal of “investing” has always been simple: to allocate resources (e.g., money, time, energy) to improve quality of life. This is a personal definition, as yours likely will be.
Some words are so overused as to have become meaningless. If you find yourself using nebulous terms like “success,” “happiness,” or “investing,” it pays to explicitly define them or stop using them. Answering “What would it look like if I had ___ ?” helps clarify things. Life favors the specific ask and punishes the vague wish.
So, here “investing” means to allocate resources (e.g., money, time, energy) to improve quality of life.
This applies to both the future and the present. I am willing to accept a mild and temporary 10% decrease in current quality of life for a high-probability 10x return, whether the ROI comes in the form of cash, time, energy, or otherwise. That could be a separate book, but conversely:
An investment that produces a massive financial ROI but makes me a complete nervous mess, or causes insomnia and temper tantrums for a long period of time, is NOT a good investment.
I don’t typically invest in public stocks for this reason, even when I know I’m leaving cash on the table. My stomach can’t take the ups and downs, but—like drivers rubbernecking to look at a wreck—I seem incapable of ignoring the charts. I will compulsively check Google News and Google Finance, despite knowing it’s self-sabotage. I become Benjamin Graham’s Mr. Market. As counterexamples, friends like Kevin Rose (page 340) and Chris Sacca (page 164) have different programming and are comfortable playing in that arena. They can be rational instead of reactive.
One could argue that I should work on my reactivity instead of avoiding stocks. I’d agree on tempering reactivity, but I’d disagree on fixing weaknesses as a primary investment (or life) strategy.
All of my biggest wins have come from leveraging strengths instead of fixing weaknesses. Investing is hard enough without having to change your core behaviors. Don’t push a boulder uphill just because you can.
Public market sharks will eat me alive in their world, but I’ll beat 99% of them in my little early-stage startup sandbox. I live in the middle of the informational switch box and know the operators.
From 2007 until recently, I paradoxically found startup investing very low-stress. Ditto with some options trading. Though high-risk, I do well with binary decisions. In other words, I do a ton of homework and commit to an investment that I cannot reverse. That “what’s done is done” aspect allows me to sleep well at night, as there is no buy-sell choice for the foreseeable future. I’m protected from my lesser, flip-flopping self. That has produced more than a few 10x to 100x ROI investments.
In the last two years, however, things have changed.
As fair-weather investors and founders have flooded the “hot” tech scene, it’s become a deluge of noise. Where there were once a handful of micro VCs, for instance, there are now hundreds. Private equity firms and hedge funds are betting earlier and earlier. It’s become a crowded playing field. Here’s what that meant for me personally:
I received 50 to 100 pitches per week. This created an inbox problem, but it gets worse, as . . .
Many of these are unsolicited “cold intros,” where other investors will email me and CC 2 to 4 founders with, “I’d love for you to meet A, B, and C” without asking if they can share my email address.
Those founders then “loop in” other people, and it cascades horribly from there. Before I know it, 20 to 50 people I don’t know are emailing me questions and requests. As a result, I’ve had to declare email bankruptcy twice in the last 6 months. It’s totally untenable.
Is there a tech bubble? That question is beyond my pay grade, and it’s also beside the point. Even if I were guaranteed there would be no implosion for 3 to 5 years, I’d still exit now. Largely due to communication overload, I’ve lost my love for the game. On top of that, the marginal minute now matters more to me than the marginal dollar (a lesson learned from Naval Ravikant).
But why not cut back 50%, or even 90%, and be more selective? Good question. That’s next . . .
Are You Fooling Yourself with a Plan for Moderation?
“The first principle is that you must not fool yourself, and you are the easiest person to fool.”
—Richard P. Feynman
Where in your life are you good at moderation? Where are you an all-or-nothing type? Where do you lack a shut-off switch? It pays to know thyself.
The Slow-Carb Diet from The 4-Hour Body succeeds where other diets fail for many reasons, but the biggest is this: It accepts default human behaviors versus trying to fix them. Rather than say “don’t cheat” or “you can no longer eat X,” we plan weekly “cheat days” (usually Saturdays) in advance. People on diets will cheat regardless, so we mitigate the damage by regularly scheduling it and limiting it to 24 hours.
Outside of cheat days, slow carbers keep “domino foods” out of their homes. What are domino foods? Foods that could be acceptable if humans had strict portion control, but that are disallowed because practically none of us do. Common domino foods include:
Chickpeas
Peanut butter
Salted cashews
Alcohol
Domino triggers aren’t limited to food. For some people, if they play 15 minutes of World of Warcraft, they’ll play 15 hours. It’s 0 or 15 hours.
For me, startups are a domino food.
In theory, “I’ll only do one deal a month” or “I’ll only do two deals a quarter” sounds great, but I’ve literally NEVER seen it work for myself or any of my angel investor friends. Zero. Sure, there are ways to winnow down the pitches. Yes, you can ask any VC who introduces a deal, “Is this one of the top 1 to 2 entrepreneurs you know?” and reject any “no”s. But what if you commit to two deals a quarter and see two great ones the first week? What then? If you invest in those two, will you be able to ignore every incoming pitch for the next 10 weeks? Not likely.
For me, it’s all-or-nothing. I can’t be half pregnant with startup investing. Whether choosing 2 or 20 startups per year, you have to filter them from the total incoming pool.
If I let even one startup through, another 50 seem to magically fill up my time (or at least my inbox). I don’t want to hire staff for vetting, so I’ve concluded I must ignore all new startup pitches and intros.
Know where you can moderate and where you can’t.
You Say “Health Is #1” . . . But Is It Really?
After contracting Lyme disease and operating at ~10% capacity for 9 months in 2014, I made health #1. Prior to Lyme, I’d worked out and eaten well, but when push came to shove, “health #1” was negotiable. Now, it’s literally #1. What does this mean?
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If I sleep poorly and have an early morning meeting, I’ll cancel the meeting last-minute if needed and catch up on sleep. If I’ve missed a workout and have a conference call coming up in 30 minutes? Same. Late-night birthday party with a close friend? Not unless I can sleep in the next morning. In practice, strictly making health #1 has real social and business ramifications. That’s a price I’ve realized I MUST be fine with paying, or I will lose weeks or months to sickness and fatigue.
Making health #1 50% of the time doesn’t work. It’s absolutely all-or-nothing. If it’s #1 50% of the time, you’ll compromise precisely when it’s most important not to.
The artificial urgency common to startups makes mental and physical health a rarity. I’m tired of unwarranted last-minute “hurry up and sign” emergencies and related fire drills. It’s a culture of cortisol.
Are You Over-Correlated?
[NOTE: Two investor friends found this section slow, as they’re immersed in similar subjects. Feel free to skip if it drags on, but I think there are a few important concepts for novices in here.]
“Correlated” means that investments tend to move up or down in value at the same time.
As legendary hedge fund manager Ray Dalio told Tony Robbins (page 210): “It’s almost certain that whatever you’re going to put your money in, there will come a day when you will lose 50% to 70%.” It pays to remember that if you lose 50%, you need a subsequent 100% return to get back to where you started. That math is tough.
So, how to de-risk your portfolio?
Many investors “rebalance” across asset classes to maintain certain ratios (e.g., X% in bonds, Y% in stocks, Z% in commodities, etc.). If one asset class jumps, they liquidate a part of it and buy more of lower performing classes. There are pros and cons to this, but it’s common practice.
From 2007 to 2009, during the Real-World MBA that taught me to angel invest (page 250), less than 15% of my liquid assets were in startups. But most startups are illiquid. I commonly can’t sell shares until 7 to 12 years after I invest, at least for my big winners to date. What does that mean? In 2015, startups comprised more than 80% of my assets. Yikes!
Tools of Titans Page 40
