I frequently invest in startups and early-stage ventures. High risk/reward companies which often dissolve, but sometimes provide potential life-changing returns. Venture investing is most certainly a battle of attrition and requires taking swings well out of your comfort zone. Essentially, the venture/startup space is an arena for calculated gambles - requiring a bet on people, concepts, and ideas before fundamentals.
When people are so paramount to success or failure, well, human error, misjudgments, poor timing, weak leadership, and other issues can wreak havoc on a company and its valuation. People take emerging companies to the brink of greatness or the depths of dissolution. I’ve personally invested in both scenarios several times.
Post Mortem of Failures - a Delicate Exercise
To improve as a venture investor, I often conduct a post mortem on the companies I invested in that failed or resulted in a significant loss of capital. It’s an educational, humbling, and sometimes agonizing process.
As an investor, the responsibility of my capital loss is squarely on me. Thus, I try to look for clues, hints, and potential red flags that came up during the decline in hopes I can spot them in the future, ideally before putting up my hard-earned capital.
Although I believe analyzing failures is an essential practice for entrepreneurs and investors, it has the potential to damage one’s psyche if overdone. I have personal experience with this, as failures have consumed my mindshare one too many times. Luckily, the remedy to over-analyzing failures is easy to swallow and quite enjoyable.
Remember to Focus On and Relive (Many Times) Your Victories Too
While it’s essential to my improvement, reliving losses needs to have limits, or I can spiral into a mindset of doubt. Analyzing failures should be a one and done process.
It’s critical to recognize that your brain is hardwired to focus on the negative. It’s called negativity bias. Human nature encourages us to focus (over-focus) on how things went wrong, so to avoid them in the future. It is a survival instinct dating back thousands of years that in today’s world is not as necessary as it once was when we needed to hunt our own meat.
Going overboard by replaying a loss in your head long after the fact, on more than one occasion, is toxic. I know this from personal experience. I’m obsessive with my work and highly analytical, which makes hindsight a powerful but potentially hazardous thing. I’m also (proudly) an eternal optimist, which in my view is a prerequisite for successful investing. However, over-focusing on the losses gradually chips away at my optimism, risk tolerance, and creativity. It stunts growth.
As important as learning from your losses by conducting a post mortem (only once) is reliving (many times over) your successes.
Celebrate your wins in style, so you never forget that feeling. Relive them with your loved ones. Analyze them. Pat yourself on the back for an excellent effort, and look for patterns in all your wins. I guarantee you will find a few markers that will be identifiable when looking at future opportunities.
While we learn a tremendous amount from our losses, it’s very healthy for entrepreneurs to relive the victories over and over.
Stay hungry,
Aaron
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