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Aside from queries looking for beginner entrepreneurial advice, I probably get more emails asking me to consider investing in start-ups than any other. I have a lot of evolving feelings about being an investor. By now I’ve probably looked at tens of thousands of deals, and yet it’s still a pretty new role for me. My investing career didn’t follow the most traditional path. Most successful investors probably start small, take a few missteps, and have some success here and there before finally getting into a position to hit the mother lode. I kind of did things backward.

What happened was I started recognizing that I had been right about a lot of things like email marketing, e-commerce, banner advertising, and Google AdWords. And then one day I read that YouTube, the video-sharing platform I had long been saying was going to be huge, had sold to Google for $2 billion. It occurred to me that maybe all this “right” could probably make me a lot more money than just selling a few extra bottles of Cabernet. So I promised myself that whatever I spotted as the next big thing—it could have been a chewing gum as easily as a new digital platform—I’d try to get involved with it. That thing was Twitter.

Twitter caught my attention in 2006–2007. While everyone else was debating the value of a platform that lets you tell the world you were eating pizza, I recognized it as a communication platform that would change the world. I became bullish on Twitter and consequently became friendly with early employees. Eventually an opportunity came in the form of one who decided to sell off his stock (talk about emotion causing you to make a bad decision) and after spending some time talking him out of selling all of it, I was able to buy some Twitter stock at an outrageously low valuation.

Once that happened I stepped back and took note of Tumblr. I thought it looked interesting, and when a high school student (who is now a VaynerMedia employee) named Louis Geneux told me that everyone he knew was on Tumblr, I knew it had gone mainstream. Eventually I became friends with Tumblr founder David Karp and former president John Maloney. They were looking for marketing ideas and by 2008 I had established myself as a personality in that space. That gave me the opportunity to invest in its “D” round at a ridiculously low level that turned around substantially for me when Yahoo bought Tumblr for a billion dollars.

During that same period, maybe even within a month, my two-year relationship with several Facebook employees put me in a position to invest at very low valuations there when a member of the Facebook family decided to sell shares.

So within an incredibly short amount of time I made three investments that turned out to be enormously profitable events for me. I started off so hot, maybe it was inevitable that when I finally stumbled it would be a face-plant of epic proportions. Get this: I was actually in the room with Travis Kalanick and Garrett Camp when the idea for Uber started taking shape. You know what else? Look at the second-to-last line of the acknowledgments in my book Crush It!


And still I passed on the angel round.


If I had gone in it would have probably changed my life immensely. It sure would have gotten me a lot closer to buying the New York Jets. I like to refer to this event as my “one almond moment,” after the #AskGaryVee episode where I promised Vayner Nation that if anyone could guess the number of almonds filling a big glass jar next to me on the table, I’d pay their way to New York and they could sit next to me during the filming of an episode.

There were 1,424 almonds in the jar.

@BoostLacrosse guessed 1,423.

Close but no cigar.

Luckily, Travis gave me another chance to invest later and I grabbed it. And I’m sure @BoostLacrosse won’t let the next big opportunity slip away, either. The almond jar always gets refilled, and when it does, you try again.

I learned from my mistake and was lucky enough to go on to become part of a small group of “super angels,” men and women with personal brand awareness, like Kevin Rose, Chris Sacca, and Jason Calacanis, looking for opportunities to invest. I later made some nice investments in companies like Wildfire and Birchbox, and eventually in late 2013 I started a venture fund with Stephen Ross, Matt Higgins, and my brother called VaynerRSE, a $20 million seed fund that invests in early-stage Internet media companies. By the time you’re reading this I’ll have another one called Vayner Capital, which is a later-stage venture fund.

I’ve been watching and learning, and I think we’re living in interesting times. I see a lot of young companies going for the investments, and then instead of building up their business they spend all their time working toward the next round of funding. There seems to be a disturbing lack of patience and scrappiness out there in investment land, to the point I’ve changed the way I consider businesses. In fact, I’d go so far as to advise a lot of businesses to reconsider going for the VC money. It’s useful, to be sure, but I think it can make people lazy. The company whose founders have made great things happen on a shoestring and spent every dime and drop of sweat on building the best product they can before reaching out for VC dollars—that’s the company I’ve got my eye on.

imageWhat should I focus on with the companies that I invest in?

Entrepreneurs often struggle with making the transition to investor. We’re so used to running the show, and all of a sudden we have to step back and watch other people execute. It’s not easy. In the beginning I didn’t even realize jockeys could completely screw up an investment; I figured the horses they were riding were such magnificent beasts the jockeys were almost just there for the ride. Boy, was I wrong.

When considering whether to make any investment, make sure that the idea looks phenomenal on paper and that it is in good hands.

imageYou’ve said that sometimes you invest in horses (companies) and sometimes in the jockeys (founders). What do you look for in each?

If I don’t believe in the upside in your market, I’m not going to believe in your start-up.

That said, when looking at a horse, I’m looking for companies that are built on concepts or ideas that are only about two to three years away from hitting mass consciousness. In 2006 and 2007 that was social media. Today I’m looking less at social networks and apps and more at things like smart tech. For example, who is going to win with the smart toothbrush that stops when you have fully brushed your teeth? Or smart pants? Who is going to win in a sector like e-sports? I also think there is a lot of potential in consumer packaged goods as companies try to make healthier versions of everything we already have. Mobile commerce is also interesting to me. Virtual reality. I’m looking at trends. So when I’m looking at horses, I’m following my own intuition, which has rarely served me wrong, to help me see what is gaining traction and will soon be mainstream.

At this point in my career I am spending more and more time vetting the CEO and team, especially if I’m considering an early-stage investment. Jockeys come in all shapes and sizes, even more so than horses. Entrepreneurs often struggle with making the transition to investor because we’re so used to running the show, and all of a sudden we have to step back and watch other people execute. It’s not easy. When I first started investing, I overvalued anyone who was techy. Oh, you can develop? Cool! I also kept looking for people who looked like me. Are you a good operator? Are you hungry? Are you competitive? Then I started seeing all the ways businesspeople can be successful—with operational strength, motivational strength, financial strength—and I realized I didn’t have to look for my clone. I started spending more time getting to understand the jockeys’ strengths. I want to know they are self-aware enough to team up with people who fill out their weaknesses. I also want to know if they’ve got the stomach for business. When things aren’t working or times get hard do they know what to do to pivot the business? Can they be good wartime generals and peacetime generals? The last seven years have been boom years for founders. But it’s easy to be a general when there is no war being fought. Wartime generals have to deal with a crumbling economy, money drying up, a massive competitor. If my horse’s jockeys don’t have that, I’m going to think twice before investing.

imageWhat’s your stance on investing in competitive companies?

When I was an investor in Gowalla and there was a chance to invest in Foursquare, I didn’t. The cost of competing with each other is much lower than it used to be, but investing in a direct competitor just seems like a jerk move. Period. As I see it, the bigger problem is what happens when companies pivot. I’m investing in companies that aren’t competitive, but as an entrepreneur I can see how they could each make a move that would bring them into the same orbit. And then what would I do?

The only thing anyone can do is approach investments with openness, honesty, good intent, and the understanding that the scenario I just described above is possible. In fact the only reason I avoid it, and I suggest you do, too, is that if you make it a habit, you will hurt your reputation and no one will want to deal with you. Earn a reputation as someone who is trusted and transparent, and every opportunity will find you. So to put the issue to bed, I am very down on the practice.

imageYou talk a lot about upcoming companies and predicting their success. Where and how do you find these companies?

There are three things I do every day that you should do, too:

1.Read Jason Hirschhorn’s newsletter Redef. Hirschhorn is one of the great curators of our time.

2.Start following Techmeme, an aggregator, and Re/code, a blog. Also create a Nuzzel account. I skim mine every morning.

3.And here’s my best hack: I go to the iTunes app store every morning, click on the apps tab, and look at the top three paid apps to get a sense for when things are bubbling up. I watched a lot of the big platforms like Yik Yak and Snapchat grow organically through this channel before Techmeme and Re/code even wrote about them.

imageWhat usually prompts you to walk away from great opportunities?

My intuition. It allows me to walk away from bad opportunities that may look good on paper. I’m not an analytical thinker, and it’s not often that the data tells me an investment is going to work. I taste and observe, and if I don’t feel it’s a good investment, I don’t do it. I think many more people who read this have to find a good balance between their number sense and their gut. It’s a science and an art, and anyone who tells you otherwise has a vested interest or just doesn’t get it.

imageHow do you balance risk and reward?

I always value reward over risk. When I invested in Meerkat it was obvious that Periscope was going to launch within the week, and it had the advantage of being backed on Twitter’s infrastructure. In fact, Twitter shut a lot of Meerkat’s virality down within Twitter before I made the investment. Instead of looking at what was wrong I looked at what would happen if they could make the right moves, and the upside was tremendous. I didn’t worry because the upside was so great. Remember Facebook’s attempt to slow down Snapchat with Poke? Blockbuster was going to go after Netflix. Wal-Mart was going to crush Amazon. The leader doesn’t always win when they are playing the other guy’s game.

imageDoes instability with China and the macroeconomic environment affect how you see the world?

When I first started getting involved in investments in the mid-2000s, companies were valued at $2–3 million, even if they had pretty strong seasoned entrepreneurs. Currently it’s not unusual for kids fresh out of school to get an $8–12 million valuation. That is aggressive inflation and it only happens during good times.

I have no way to know where China’s market will be by the time you are reading this, but instability within any of the world’s top four economies, let alone a top one or two like China, is absolutely going to affect the way I think about investing. If the stock market collapses, and the Facebooks and Googles are now worth half the price, that usually leaves all the other companies that were using those companies as a barometer overpriced in the current rounds they are trying to achieve. The effects of instability will definitely trickle down, all the way down to angel investments.

imageHow beneficial do you think patents are in being able to set a start-up apart from the competition?

I’ve been viscerally against playing the whole patent game, but I’d be naïve not to recognize that there is value in it. A lot of companies have sold their IPs and their patents over the last half decade for sizable change. However, as an investor it’s not something I look for. In fact, often during pitches, if someone says they have a patent, my next question is usually, “Patent or patent pending?” The answer is overwhelmingly “Patent pending.” Patent pending doesn’t mean anything except some paperwork has been filed. Most people use it more as a sizzle, a tactic to sell me on the company, than something meaningful. I tend to be interested in more consumer-based products than extremely technical ones, so a patent is not nearly as valuable to me.

imageWhy don’t you invest in space, biotech, or life sciences?

Because I failed science class from fourth grade through my senior year of high school. I think it’s super-important to invest in areas in which you have intuitive strength or where your interests match your knowledge. And that is just not the case for the sciences and me. I would be shooting blind in those sectors. For that reason I will always stay away from them.

imageHow does geography affect your investment decisions? Is where founders or their businesses are located important to you?

I consider it a bit, but I don’t value it as much as some of my Silicon Valley contemporaries who have totally bought in to the Silicon Valley brand. I’m a big believer that great businesses can be started anywhere. Facebook was started in Boston. Pinterest was started in Pennsylvania. Snapchat was started in Los Angeles. Why would a company need to be in Silicon Valley? I’m pretty passionate about the incredible stuff happening in middle America. And Berlin. And Asia.

Location would only be a variable if I saw that a company needed heavy infrastructure. Then I’d have to consider the fact that they’d eventually have to move to San Francisco because that is where a lot of developers live. I have to consider geography when I look at U.S. companies trying to get into Europe, or vice versa, mostly because they each have an astounding lack of understanding for the foreign market they’re trying to penetrate.

For the most part, however, the horse and jockey is way more important than where the race is taking place.

imageWill you ever play in syndicate platforms like CircleUp or AngelList in the future?

I have an AngelList account. I respect that platform and it’s a great place. But I tend to lean toward doing far fewer deals that are far more meaningful. Though I don’t see it as a growing trend for me, I would encourage anyone who is reading this to check out those platforms. AngelList has a lot of cool stuff going on.

imageWhat should companies expect from their investors at each stage of investment?

Expectations are dangerous. Every start-up and investor relationship is different. Some investors are extremely hands-on, some are hands-off, and I’ve heard founders time and time again complain about both.

Ideally, founders and VCs should have a conversation about their expectations up front. That’s what I did as I started extending myself with VaynerRSE even as VaynerMedia continued its hypergrowth. My conversation with a lot of our investments was pretty consistent. I would say I could be the backbone, but my team was going to be way more hands-on than me. Ninety-five percent of people were fine with that. A small amount weren’t, and that was okay, too. My reputation and remaining a man of my word was more valuable to me than any deal. I passed on an investment that is now doing extremely well because I didn’t feel I was going to be able to deliver on the multiple hours a month that would be required for me to make the investment. It’s admittedly hard to watch it do so well, but I’m at peace with my decision because I knew I wasn’t going to be able to live up to the company’s ask. What’s important is that everyone lay out his or her variables and not overpromise.

imageShould founders always be the ones that end up running their company when and if they reach a billion-dollar valuation?

Absolutely not. As a matter of fact, I would argue that few founders should be running their companies at that size. It’s been very impressive from afar to watch Ben Silverman and Mark Zuckerberg run their companies from start-up to that billion-dollar valuation. It obviously can be done, but they are the outliers.

The skill sets required to take a company from zero to ten million, let alone zero to a billion, are very different from the skill sets needed to run a company once it has actually achieved that mega-dollar valuation. The founder of one of my most successful deals no longer runs the company, because he just wasn’t capable of operating it at its new, bigger scale and size. It really exploded when we put a more seasoned CEO in place. The company literally would have been out of business under the founder’s watch, and now it’s on its way to becoming a substantially large business with millions of dollars of value. I’m not even sure if I should run a company that big. I could probably run a $500 million company but once you get into the billions territory, you start getting into different kinds of dynamics. You have to know what you’re good at.

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