“If you want these crazy ideas and these crazy stages, this crazy music, and this crazy way of thinking, there’s a chance it might come from a crazy person.”
Kanye West
Crazy people with crazy ideas
Remember, investing in startups can have huge, uncapped, life-changing ROI1. I can’t think of many other investments that can have that kind of outcome but also lets you hang out with and learn from some of the smartest people on earth.
Everyone knows the best founders are smart, but they can (should?) also be crazy. If you’re angel investing because you like the idea of making 100x return on your money2 then you have to ask yourself if you’re also willing to back someone who is doing something 100x more crazy than the vast majority of startup founders.
Who’s crazy in a good way? Who’s crazy in a bad way?
Making money by angel investing is really difficult because, as with many things, there’s a natural tendency to be drawn to the things we’re familiar with. We like companies we can understand and we like founders we can help. We also like deals that, when we tell our smartest friends about them, make those friends a bit envious.
We tend not to invest in things where the immediate response of a smart friend is, “What. The. Fuck… did you invest in that for?!”.
But maybe that’s the response you should be going for. If it’s not a crazy investment then you’re not going to get a crazy ROI.
Investing in things that your smart friends think are crazy is another risk you can add to the many you’ll face when investing in startups. But are stakes really that high? The failures will fail a long time before the successful ones get you that big ROI so yes, you might look daft in front of your friends by backing a crazy idea that didn’t work out, but after all’s said and done the most an investor can lose is 1x their money3.
Who knows what you know?
When you look at a deal, ask yourself, “Who knows what I know? Who thinks how I think?” If something is widely known then that’s not a good sign; there’s no edge for you and it’s not crazy enough.
Ask yourself, does this investment opportunity seem a little crazy? For example:
In a world of tech startups would you invest in a cabin business that makes you lock away your phone4?
Would you invest in a company that came up with a new addressing standard when everyone already has an address and knows their postcode?
What about investing in a company whose founder looked at all the plastic in the household cleaning aisle and started a company to sell all those products but without plastic?
How about investing in a company that only sells curtains and blinds? Or one that only sells pyjamas5?
Would you invest in three students to start a startup while they were still studying?
The ideas, as well as the founders and maybe you, have to be a bit crazy to achieve a crazy-big return.
Make sure you seek out that kind of crazy.
Next time: Ideas are one thing, but for me the (crazy) founders must also be Star Founders. Next week I’ll share why most investors do not back Star Founders.
Important: None of these posts are investment advice. If you are thinking about investing you should seek the advice of a suitably qualified independent advisor.
#CapitalAtRisk
See this graphic for some inspiration.
OK, now they also sell slippers and eye masks, but when I invested in was only PJs.