The WTFs of an Investor: #5 Sometimes we miss out

In 2013/2014 Inventures asked me to write a series on our experience as a Seed stage fund, about stuff that makes us wonder, but not in a good way. This series originally titled “WTFs of a Business Angel” hasn’t lost its truth it seems, so we decided to revisit the content, update and adapt it where necessary and publish it here on our blog (also because sadly is gone from the Web). Have fun!

When we started Speedinvest in 2011, we were a startup ourselves. A very well funded startup, but still, we were a team of people who had some experience in building companies and no experience in building a Venture fund. We’re still learning an awful lot, because you can profit tons from other people’s experience, but there is no way around doing things yourself, making mistakes, trying again and again, learning from what you’ve seen so far.

That is the spirit that we like to keep, a positive and pro-founder type of attitude, because the truth is: we love what we’re doing. It’s fun and exciting to meet visionary people, who have drive and enthusiasm to change whatever tiny bit of their world, step by step. However, there are those rare events where we sit across the table in our office and have a facepalm moment. When one of us gets an email from a startup or reads a piece of news about our industry that just makes you go “WTF?”. For your reading pleasure, but also to offer you the opportunity to learn, we open up our treasure chest of awkward moments and give you our top WTFs, of course with all due respect to those contributing to them.

WTF #5 Sometimes we miss out

Of all the WTF moments we experience, the ones that annoy us the most are actually those in which we are the cause for a facepalm ourselves. So, yes, this does happen. It is especially the case when we pass up on a startup that we should not have missed out on. I will not go into detail, like Bessemer Ventures recently did with their anti-portfolio. This is also because it hasn’t happened too often yet, as we are a young fund. But I’d like to show you some examples.

We had been talking to one startup for a long time. It had come out of our network, there was social proof and a nice product idea but we were not entirely convinced. We discussed it back and forth and weighed in on the arguments. When we finally decided not to invest, we called up the founders only to hear in that very call that they had entered into an agreement to sell the company – for ten times the valuation we had been discussing. Good for them, bad for us. It was only two months into our existence – a lucky moment like this could have given us a nice start.

Soon after that, we were talking to a rather seasoned founder. He had come up with a big idea – the idea was actually so big, it was a little frightening. I discussed it with some experts in that field and everyone told me not to touch it. Strange industry, overregulated, similar concepts already existed. We passed. After a lengthy discussion, everyone in our partner group was confident.

Two months later, one of the experts I had talked to called me asking whether we had ended up investing. He said he had been following them and totally liked what they were doing. We talked to the founder again, hearing that after only two months they were making 40.000 euros of revenue per month. Strong growth, clearly visible traction. The valuation they got at the next financing round was already double of what we had discussed back then.

Yes, sometimes we make very bad decisions. We are subject to all kinds of biases. Sometimes, the discussions that we have internally lead us to misjudgment. We try to set up checks and balances wherever possible to avoid this but it doesn’t work all the time. And we have learned to be careful with trusting experts. So, we have started asking real clients of those companies. We try to make two to three business development calls providing the companies that we like with real business opportunities and to give us a more realistic view of the market.

Experts tend to have an overconfidence bias and often can’t judge new ideas because they lack the reference frame or the openness. Clients know what they need because they are either willing to spend money or not. But still, sometimes we look at each other and say ”F&#$, we missed out”.

PS: We have our own Anti-Portfolio Channel on our internal Slack, to remind us to stay humble.

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