Gut investing 

I’ve always admired deep-thinking tech investors. The ones that construct a big overarching thesis to frame their investment philosophy. “Software is eating the world,” “the bottom up economy,” and “investing in thunder lizards” are a few of my favorites.

Just before heading out on stage at a tech conference, TechCrunch Founder Michael Arrington asked me, “How do you pick your companies?” I responded, “I don’t know, I trust my gut” — he seemed unsatisfied and told me, “You’ve got to come up with something better than that.”

It’s been a couple years since that conversation and I’m slowly starting to piece together what it means to “gut invest” for me. I’d like to share a couple examples.

Going with your gut or trusting your gut simply means running with an internal emotion or reaction to events and data. I then take this emotion and apply it to a timeline — seeing if the feeling comes back amplified.

When I first discovered Twitter, my gut took me to the following model — users tail or follow people they know. This threw the more popular bidirectional friendship model out the door. My gut noticed a few things: 1) This is fun. Building an audience and increase your followers had a very game like feel to it. 2) This is easier than starting a blog. The fear associated with long posts is nonexistent, and 3) What if celebrities adopt this? I took those gut insights and applied them to time. E.g. What does this look like and how big will it be 1, 5, 10 years from now. These feelings led me to my investment in Twitter 5 years ago.

Earlier this year my gut led me to invest in Tesla Motors. But not for the reasons you might think. My friend David Prager is the proud owner of a new Model-S. The second he got the car he did the rounds letting us all drive it (thanks Prager!). What struck with me most was not the car, but the sound it made. When he dropped me off, he stepped on the peddle and was whisked up a large San Francisco hill. All I heard was the electric swish/hum of acceleration. For me, it sounded like so many sci-fi movies I had seen growing up. It sounded like the future. A few days later I remember hearing a large city bus trying to climb the same hill, the diesel engine rattling and struggling almost as if it out of shape, fighting for its next breath. Taking these feelings, some data, and applying that to time led me to my investment in Tesla.

It’s important to note that I’m also a believer in data and using that data to inform your decisions. Especially in later rounds of financing. But in the early stage, at the seed of an idea, for me, I go with my feelings, my gut, around the product and it’s features — and how that might fit within the market over time.

Of course, my gut isn’t infallible, it’s certainly been wrong — but it is the intangible, emotional data that I lean on when looking for the next big thing.