Angel investing often comes down to the gut feeling of the person with the money, and the impression the founder left on said investor. Sure, the addressable market, the novelty of offering, etc. is vital, but early-stage investing comes down to personal and emotional connections with the founders of startups. That’s what convinces a seed investor to pull the trigger.
Most early-stage investments are in concepts, pre-revenue startups, and the like. So the people behind the company are indeed the most valuable asset it has. And that’s what/who investors make bets on.
In many instances, active venture capitalists will look for dynamic founders to invest in that they believe they can help grow.
With that in mind, I want to share a video featuring the late Kobe Bryant — an NBA great turned venture capitalist after retiring from basketball.
In the video (interview with Patrick Bet-David), Kobe explains his formula for investing in companies, which perfectly articulates the message above…
Kobe Bryant’s Four Keys to Investing in Startups
- Does he understand the business? This one sounds rudimentary; however, it isn’t as simple as you may think. Kobe was a student of his craft, and he was obsessive about the details. When he talks about understanding the business, he is referring to every little detail of the operation, the threats, where the industry is headed, and how that startup fits in.
- Is it a business he can personally help grow? Any great VC or angel investor wants to help the companies they invest in flourish. This can be done in many ways, including opening doors for the founders that only someone with a vast network can.
- What are the barriers to entry? The harder it is for others to enter the space which the startup operates in the better. IP, capital allocation, and regulations all play a role in increasing barriers. On the flip side, what confidence do you have as an investor that the founders will be able to break through any barriers that may be in their way?
- Do the company and its founders have an obsessive culture that’s sustainable? Did Kobe believe in the leaders of the startup? Meaning, does he think they have the grit and fortitude to stick with it during the uncertain times? Are they obsessive like he was? Have they created a culture of obsessiveness with their employees?
* The whole video is worth watching but go to the 7:35 mark for his startup investing formula.
High-level athletes often transition very smoothly to entrepreneurship and even the venture capital world. Kobe was no exception, and his four keys to investing are brilliant for any of you making bets on startups.
Stay hungry,
Aaron
PS - Entrepreneurship and startup investing is an adventure — one you shouldn’t do alone. Subscribe to my email below as I share many of my stories as an angel investor and entrepreneur. Only my best content will land in your inbox.
