Be your own fund manager if you want to make money.
By the time Baidu, the “Google of China” went public, venture capital firm Draper Fisher's 28% stake was worth over $1 billion dollars by the end of the trading day. Not a bad return considering their likely sub-$50 million investment just years ago! In a world full of strikeouts, it just takes one home run to win a ball game.
The Financial Samurai reader is savvy enough to know that strong work ethnic and good morals are key pieces of the success puzzle. Sometimes you just need to be in the right place at the right time.
Be Your Own Fund Manager
When Venture Capital firms fund startups, they are looking to take equity stakes in companies in a robust industry, lead by visionaries who can execute towards enormous profit potential.
The majority of investments go bust, and the successes often take years and tons of selfless involvement before returns are seen. Eventually, the exit strategy is for their investment to get acquired or IPO.
We have the opportunity to be our very own individual venture capitalists everyday. Many of us may take for granted the people we meet, but not you. After all, all it takes is one billionaire to give you one million dollars before you're rich right? Receiving an opportunity is what it's all about.
You're reading this post essentially because like me, you want to be financially independent sooner, rather than later. The ability to be financially independent by 40 is the reason why we work so hard now. If the deadline was 20 years longer, where's the fun and challenge in that?
As A Fund Manager, Treat Everybody Well
Starting today, whether you are employed or unemployed, treat every person you meet as if they were a potential investment. Some may be obvious no-brainers such as the CEO of a firm you'd like to work for, and some may seem uninvestable because you feel you'll never run into them again and they have nothing apparent to offer. No matter.
Treat everyone as if they were the most important person in the world simply because you never know.
FIVE THINGS TO CONSIDER AS YOUR OWN VC/FUND MANAGER
1) Business Cycle: Are they early in their careers, or late in their careers with significant influence? Remember, even the most powerful person started with little. Never look down on someone younger and less experienced.
2) Industry: What is their industry focus and does this industry appeal to me?
3) Investment: How much time should I spend with this person and how much in resources? Will I have continuous opportunities to meet this person and build a long term viable relationship with?
4) Return: What is the expected return on this person? Does this person have the power to hire me, refer me to the right people, or simply hand me that $1 million dollar check? Obviously the higher the return the better, but even if the return is a simply smile and a hello every time you walk into your office, that needs to be good enough.
5) Involvement: How much do I need to prod and poke before I start bugging the heck out of her? Will she need guidance from me on what I want, or will she just know?
Fund Manager Continues To Grind
After you've thought of these five things, quickly shelve them in the very back of your mind. Is it good karma to give because you want more good karma? Probably, but not so much if you were to just give freely.
I think it's very important to expect nothing business related in any relationship you build. The best relationships are built with NO INTENTION e.g. you met as college sweethearts when both of you had very little money for example.
Whereas professional VC's lose millions of dollars everyday backing the wrong horse, the only thing you'll lose when you aren't fully engaged with someone are opportunities. If you don't have time for someone, that someone won't have time for you.
It may sound cold to treat everybody you meet as an “investment”, but this is just a metaphor for the reality of business. From the very basics, your parents are investments because you wish to have their love and support. If everybody loved and supported you, don't you think you'd be happier and more successful in life?
A successful individual venture capitalist, earns a healthy return, be it a new lead, job offer, or friendship.
As a personal VC, you also benefit knowing that even if you've invested in a dud, you've helped someone out and have an acquaintance who may one day be able to return the favor. Check in on these relationships at least every 6 months, because I guarantee you there will come a point where you will need all the help you can get.
Invest In Private Growth Companies
Consider diversifying into private growth companies. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment.
Check out the Innovation Fund, which invests in the following five sectors:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!
The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. You can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.
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