I’ve been running a start up fantasy investment tracker since 2018 with Jessie Summons, when we both started mentoring at Startmate. We get to review 300+ promising start ups twice a year, and eventually mentor the top ~12. It’s an inside view on hundreds of amazing early stage companies, and we follow along and help them grow.
When I started mentoring, I wasn’t sure if I actually knew how to be a good early stage investor. I also wanted to improve as an investor. So I decided to eat my own dog food, and apply two important tenents of executing: what gets measured gets managed, and the best way to learn is to do. So Jessie and I started our own Fantasy Start-up Investment League.
The Rules
We allocated $100K to fantasy invest across each ~12 start up portfolio, twice a year. We would then track our results based on their last valuations.
The goal was to maximise our theoretical returns.
How My Portfolio is Tracking
I haven’t calculated my IRR per year, but just eyeballing it I’m doing ok.
The things I’ve Learned about Early Stage Investing
- The start ups I had the most conviction in at the time, and allocated the most investment, were not the winners. In retrospect, I allocated the most to the early stage companies with the best early traction. I had smaller side bets on either: founders, or novel ideas with little traction. These turned out better.
- All of the 10x+ outsized returns came from smaller, riskier bets.
- There is luck involved in picking winners. I need a portfolio, I’m unsure the right size.
- I should add an anti-portfolio to my tracking, I missed a handful of rockets ships due to two reasons:
1) I didn’t understand the space, so wasn’t comfortable risking my fake money outside of my circle of competence.
2) I didn’t gel with the founders, so wasn’t sure they’d make it.
So, I need to get better at two things:
Get more comfortable doing deep research into spaces I don’t have operational experience in.
Secondly, be more open minded about founders who don’t act like I would. My default pattern matching on founders is to my own operational experience and temperament, which meant I missed some very good start ups. Sometimes a brash founder who sets off a “too much b*llshit” red flag can actually execute and rally people to their cause. Sometimes a founder who undersells their ambition in a pitch actually has a burning drive to crush the market for the next two decades, and just doesn’t convey it properly.
To generalise from what I’ve seen, the only similar trait all successful founders have is extreme perseverance. What makes a successful early stage investor? Seems to be a combination of deal flow, bets placed and luck, but let’s check back in in a few years.
