Introduction. Investing instead of Managing

July 5, 2008 by admin | Filed under Angel Investing.





paraglidingI wear many hats. When I get bored of one hat, I simply take it off and wear a different one. Sometimes I wear no hats at all, and that means I got burned out, which is when I just disconnect from the world and become quiet for some time.

Often I find myself wearing one of the two hats: entrepreneur hat and investor hat.

I run my own business, but there are too many things I’m interested in and I can’t possibly work on too many projects at the same time and actually accomplish anything. I could hire people to work for me, but I don’t like management. I want to work on exciting projects, not manage people who do those projects. Some of us quit their employers to start their own company, because they hated being a slave to their company and not being able to work on things they really want to. And then they end up having their own company, but because now they need to manage people they don’t really get to enjoy their own company either. There must be a better way.

I outsource some of the work to contractors that works out quite well, since I don’t need to manage those people. The secret is finding an outsourcing company that will do the management for you and just deliver the results. But that only works for simple tasks that can be explained in a step-by-step spec. Anything that requires “thinking” is often not very suitable for outsourcing. I sometimes find independent people in the outsourcing industry, but it’s quite quite rare.

Some time ago I found a solution to my big dilemma. I now find startup companies that want to work on similar projects to mine. I then invest in those companies with cash and mentoring time. Startup companies love getting me on board because typically they don’t have extra cash to spend and I don’t charge them anything for my services, but accept stock options in lieu of cash. Because I have so much experience in a variety of industries I often can advise on a wide range of subjects. However I often need to be careful not to get too deep into the low-level details, because this is precisely what I wanted to avoid in first place — low-level details are very time consuming, and if I go there I can help with the big picture. So I need to remember that others can figure many of those things out without my help.

The kind of investments I do is called ‘angel investments‘. Basically this is the riskiest of the investments because typically it involves investments in companies that have very little or nothing accomplished at the time of the investment. They need money to hire people and buy equipment so that they could build the thing that dream of. As this is the riskiest type of investment, the returns tend to be the highest as well.

However the way I do it, this is the actually the safest kind of investment, because I’m directly involved with those companies. This is very close to having hired all those companies to work for me. So just like having my own employees if I’m good at helping the companies, I invest into, do the right choices — I increase the chances of success. Compare that to stock market investing, where most of it is a pure gambling – you have zero control at whether the company performs better or worse. Moreover often stocks perform badly regardless of how the company performs.

In the course of research I watch many startup pitches, talk to other investors and some interesting observations are made. I will try to share those observations in this blog and also talk about interesting events happening when I wear the entrepreneur hat.

Enjoy.


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