written by: Camilla Marcus, Co-Founder of TechTable and Partner of Pound for Pound Consulting
The start of a new year is often when we take stock of our lives, think about new opportunities we can pursue that will enrich our day-to-day, and look for ways we can give back. Investing is an incredibly rewarding experience, and a smart way to accomplish both of those goals. By investing, not only do you get to help entrepreneurs realize their dreams (and maybe change the world!), but you’ll often see worthwhile returns yourself.
Yet I constantly hear reasons why people don’t invest. I get it - investing can seem daunting. But getting started is often the hardest part. As a female investor, I especially want to encourage other women to leverage whatever success they have to pay it forward and support female-led startups, so here are six tips for how to make your first steps as an investor less intimidating.
START WITH WHO YOU KNOW
For the first few investments you make, it can be helpful to invest in a friend’s company or alongside another friend with experience. If you’re investing in the venture of a friend, ideally you already know their work ethic and if they are a fit for the idea, so you can have faith they will put your hard-earned money to good use and (hopefully!) yield a solid return. Additionally, investing alongside people you know - a business savvy friend or a colleague in your network whom you trust and respect - is a helpful way to learn the ropes and can often lead to more opportunities in the future.
ONLY INVEST WHAT YOU CAN STAND TO LOSE
This sounds self-explanatory, but it’s still worth saying (and reminding yourself over and over): “Don’t bet the house.” As a general rule, your total portfolio shouldn’t be more than 10% of your income or net worth, so don’t invest what you need, such as rent.
Sometimes even the best sounding deals don’t go anywhere, and you may never see a return on some investments, especially in the early or seed stages. Before signing on the dotted line, ask yourself, “If I lost this, would I be okay?”
DON'T SELL YOURSELF SHORT
A common misconception is that because you might not have a large amount of capital to work with, you can’t or shouldn’t invest. “I don’t have a lot of money” isn’t a good reason not to invest at all. You may not have unlimited funds, but you likely have a unique skill set or valuable network. Perhaps you’re a marketing savant or a talented writer or work for an exciting company, and you can be a strategic asset to the venture in other ways, even if you can’t cut a big check. You won’t know until you show interest and ask the founder - nothing ventured, nothing gained. Another option is to create an informal syndicate with other friends interested in investing, pooling together what you each have to spend in order to satisfy the minimum investment requirement.
KNOW WHAT YOU DON'T KNOW
In the beginning, it’s easier to learn to swim in familiar waters, so invest in products, companies, or industries that you’re passionate about and have at least some level of expertise in. No matter how appealing or attractive an opportunity appears, it’s important to be able to have a pulse on that specific market and the competitive landscape so you can properly evaluate the business with context. I personally prefer to be a more hands-on, strategic partner rather than a passive capital provider, so I find it most valuable to invest in products that I would use or in businesses where my specific background and experience can be useful to the founders. There are a lot of resources out there for beginners, such as Joanne Wilson’s blog Gotham Gal and Charlie O’Donnell’s #newtovc, which hosts monthly classes and workshops for people new to the investing community. And if there’s any part of the process that you don’t understand, it’s important to be thoughtful and humble about asking for help.
HONESTY IS THE BEST POLICY
Along the same lines, you have to be truthful with yourself about what kind of investor you are and want to be. Are you willing to invest long term? Do you need cash flow right away? What is the maximum check size you’re willing to contribute? Do you have any other special requirements or restrictions? Deciding what your investor profile is will help attract the right kind of opportunities, guide you through the evaluation process, and help you filter through deals more efficiently.
PASS IS NOT A FOUR-LETTER WORD
Be realistic about what opportunities are a good fit and be confident to know that not every company or investment is right for you. Sometimes people who’ve never invested before begin to feel obligated to complete a transaction during due diligence because they feel they’ve put too much time and energy into the investment already. Even if you’ve taken a few meetings with an entrepreneur and you’ve seen their term sheet, it’s okay to pass at any point before signing final documents as long as you do it politely and while maintaining an earnest and thoughtful reputation (this world is small, after all).
BONUS! HAVE FUN WITH IT
Finally, investing should be something you enjoy and have a passion for. It’s okay if you find out it’s not a great fit for you, but if you’re going to be investing your hard-earned (and post-tax) money, you should definitely embrace the adventure. Remember to live by the golden rule: don’t invest just to invest.
Camilla Marcus is the co-founder of TechTable, a hospitality technology thought leadership platform, an active angel investor, and a partner of Pound for Pound Consulting. She brings a broad base of experience across business development, hospitality ideation, culinary operations, and real estate. She received a JD/MBA from New York University, an AA from the International Culinary Center, and a BS from The Wharton School. She is also a mentor in residence for TechStars New York and a board member for Wellness in the Schools in New York City.