26 Lessons Learned from Investing in 26 Startups

After yesterday’s post Investing in 100 Startups, several people asked me about the lessons learned from the 26 startup investments I’ve already made. Generally, startup investing is much harder and less glamorous than it sounds, but I really enjoy it — entrepreneurs have such great energy and enthusiasm.

Here are 26 lessons learned from investing in 26 startups:

  1. Entrepreneurs are always overly optimistic
  2. If anything seems fishy or out of the ordinary, immediately pass
  3. Any signs that the entrepreneur isn’t self-starting and resourceful, immediately pass
  4. Everything takes twice as long and costs twice as much
  5. Look for a pattern where the entrepreneur had already started a prior business, failed, and is at it again
  6. Lean startups are better than heavy startups
  7. Expect regular investor updates
  8. More traction reduces risk
  9. Lack of liquidity is one the biggest challenges
  10. Exits are few and far between
  11. Plan for 7-10 years before seeing a return on investment
  12. Exit value is more important than entry value (e.g. a small piece of a big pie is usually better than a big piece of a small pie)
  13. Reserve twice as much as the original investment for follow-on investments (e.g. exercising the pro-rata rights)
  14. Personality fit is more important than entrepreneurs realize
  15. $300k is the ideal amount for a seed round
  16. Build a portfolio for diversification
  17. Investor jargon is more prevalent than expected
  18. Know that winning a pitch competition isn’t the same thing as a successful startup
  19. Fewer seed-funded startups as a percentage raise a Series A round
  20. Developing rapport well in advance of investing is important
  21. Evaluate the Investment Readiness Level
  22. Seed capital is different from venture capital
  23. Bet on the horse, course, or jockey
  24. Understand the difference between friendly customers and unaffiliated customers
  25. Milestones met pre-investment help improve confidence
  26. Investing is an incredibly hard way to make money

Even after investing in 26 startups I still feel I have a ton more to learn. Every investment is different and every entrepreneur is different. When I eventually make investment number 100, I’m sure I’ll feel the same way.

What else? What are some more lessons learned from investing in startups?

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