A venture capitalist (VC) “is an investor that provides capital to firms exhibiting high growth potential in exchange for an equity stake. This could be funding startup ventures or supporting small companies that wish to expand but do not have access to equities markets.”-Investopedia
A successful VC, or VC firm, is someone who has invested money into a startup company and has an overall net return across all his investments. The larger that return, the more glory and success flows to that VC’s reputation.
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Risk Tolerance/Diversity/One Basket
Investment decisions are also dependent on the risk tolerance and capital available to invest.
VC’s don’t put all their eggs in one basket. Depending on their experience, they look for clues, aspects about the business, and often at the founders to decide if they want to invest in a company
Each have their own knowledge and experience to draw from. Every investment doesn’t have to win in Silicon Valley, and successful VC’s have their fair share of failures.
The problem they face is no one can reliably look into the future and know for certain which companies will return 100x their investment.
A great strategy for reducing risk of loss in the VC game and increase potential gains is to invest in several startups that look like good investments.
After taking 50+ pitches from different startup companies, a few may pass a particular VC’s filtering process.
These companies who receive funding are believed by the VC to have a high potential for returning 5x-100x gains on their investment.
Let’s do some math. A VC firm listens to 100 pitches, 10 pass their filtering process. The average investment per company is $10,000, giving a grand total investment of $100,000.
Say 9 of these companies are total, but 1 company returns 15x on an investment, netting a gain of $50,000.
Even though most of their investments failed, one stellar company can mean the difference between a succesful VC and a failed VC.
A VC who has higher returns on their investments and a higher quantity of winners will reap the most success.
Luck plays some role, but VC firms also have experience, strategies and tactics they draw from for continued success.
There are VCs who passed on Uber, Twitter, or Facebook but invested in Instagram and Snapchat.
You can’t win em all. But making several investments in companies that show a high potential for return is a far better strategy than making 1 investment out of fear of any failure.
Risk will never be totally gone in the relationship between VCs and entrepreneurs.
So, why does this matter to you?
The idea to translate to your life from VC thinking, is to invest in many different areas of your life that have a high chance of a net gain. This gain could be in life enjoyment, increased creativity, more knowledge on a subject.
Solid investments to implement into your life.
More books! Books are great low cost investment, typically $5-15, that provide huge returns.
If you buy 10 books you are interested in, it is almost guaranteed that you will gain more than $50 worth of value.
In my opinion, books are grossly undervalued. Some books you read may turn out to be trash.
The crazy thing about books is if that “trashy” book has one valuable and applicable line in it that you find useful, your investment is at least recouped.
You may counter that if you read a bunch of horrible books, then you’ve not only lost time reading the book but also lost money on it.
But the chance of that happening when you can rely on countless reviews, referrals from friends and your own brain, I doubt that seldom happens. Search for books in areas that interest you, and you will reap the rewards.
Soured Towards Reading
School soured me for most of my life in regards to reading. I grew up liking math, eventually science, and grew a disdain for English classes.
I did fine in the classes, but Sparknotes was a great friend over actually reading books. It saved time, was more efficient and I would be asked to read a new book in a few weeks anyways.
I couldn’t understand the point of reading. It was boring, there were more interesting things to do, like play outside, and who likes being forced to read a book?
Only in my last year and a half of college did I realize reading could add immense value to my life for cheap.
My favorite way to pick up new books is through referrals from friends, family, other books, or podcasts. Typically if someone you trust or find has valuable ideas, they will be a reliable source for new books to read.
What if you’ve tried and tried to get into reading books or e-books but it’s just not for you?
Try audiobooks or podcasts. Audiobooks on average may have a higher cost than buying an e-book but their convenience is unrivaled.
The price difference is because a lot of additional production value (on top of writing the book) is put into creating an audiobook. They are still a fantastic return for their price, especially for the shear volume you can passively consume.
You do need to provide some attention to audio content. I listen to audiobooks when I walk, drive, do dishes or any other virtually mindless task.
Personally, I find that fiction typically requires more of my attention than a non-fiction book. This translates to a slower speed or less distracted mind.
Audiobooks have recently impinged on my previous reading habits, and account for 95% of my what I’m reading month-to-month.
A heads up, online people say they “read” a book when they actually listened to it. It’s two characters shorter, and still gets the point across.
Podcasts & Documentaries
Another option is to listen to podcasts. There are plenty of podcasts I would recommend: Tim Ferris, Sam Harris, Star Talk, Hardcore History, Very Bad Wizards.
Basically there are countless podcasts on every subject you could want to know about and they are typically free.
I would start here if you are apprehensive to spend money before knowing whether you like listening to audio content or not. Podcast Addict, blnak, blank, are all phone apps that can be used to download free podcast channels.
Watch documentaries. There are a lot of great documentaries on Netflix, HBO, and Hulu. If you don’t like reading or listening to just audio, consume some documentaries.
You’re probably already paying for access to them, so why not learn about some new topics.
Besides knowledge, how else can you invest in yourself for cheap?
Gym Membership. The cost is low compared to the cost of health care. Exercise is one of the best investments for your physical health long-term.
We all know this, but exercise can also be great for your mental health which will cascade solid benefits in other areas of your life too.
You don’t need to go to the gym. It’s free to walk outside or climb most mountains. A habit of movement should be a constant across your whole lifetime if you care about you and your well-being.
A great tool to go to the gym is using the 5 second-rule or find a gym buddy to keep you accountable. Use any tool that works for you.
Relationships! Adventures! & Experiences!
As noted in “Social Experiences Are Key To Personal Well-Being”, you should be social.
Cost & Value
In the end, it all comes down to value over cost. If the value you gain from an expense is greater than the cost, it’s likely worth your investment.
The next article in this series will dive deeper into how you can capitalize on a fundamental understanding of cost, value, expenses, and investments.
Doing this across multiples avenues in your life: knowledge, social, health, etc. can vastly keep you in the green, keeping life satisfaction up and continually increasing over time.
Diversity of investments which you think could be good/beneficial limits your risk while increasing the likelihood, similar to the way Venture Capitalists make investments.
Do this for yourself and reap your own dividends from a day-one Facebook-style investment. One incredible investment in your self could drastically change your lifestyle over the next few years. You’re worth it!