Nothing about the venture capital industry is easy. Between the long hours, the pervasive risks, and the feeling of not knowing whether a certain venture will yield a return, life as the head of a VC firm is often a combination of calculations and stress. At times when I’m overloaded, I find it helpful to pause and reflect on the reasons that I chose to become an investor – and to think critically about the common principles behind every one of my ventures.
I encourage all aspiring investors to do the same. Without having a clearly defined set of principles, it’s easy to get lost as a venture capitalist. When you’re approached with hundreds of potential investments each year, how do you decide which to fund and which to discard? How do you know whether a venture will fit well within your portfolio or act as a headache-inducing outlier? Sure, statistics, data charts, and graphs answer a great many of these sorts of questions, but there’s no substitute for a concise set of values when faced with these decisions.
Here is the essence of the investment philosophy that underlines the success I’ve had as founder and CEO of Spectrum Business Ventures.
I always invest in people.
I pursue investment opportunities that enrich consumers’ lives and change the world for the better. Before engaging in a venture, I find it helpful to think about the fundamentals: What do people really need or want in life? And how does the product or firm in question help them attain it?
Through this strategy, I’ve financed ventures that develop groundbreaking cancer treatments and revolutionize sinus-care procedures. I’ve even helped companies that launch satellites into orbit and contribute to NASA missions.
I invested in critical warehouse space in the vicinity of major airports to facilitate same-day online purchases deliveries. And I’ve always sought to create unparalleled entertainment experiences, which I believe is just as essential to the human condition. I have introduced innovative models to retail and hospitality, investing in cutting-edge restaurants like Tocaya, Bounce, and Catch LA that diverge from conventional restaurant wisdom in favor of pioneering new experiences.
But when I say I invest in people, I don’t just invest in the consumer – I also seek to invest in the people developing the product. In examining investment opportunities, I never consider failure a disqualifier – instead, I see it as a prerequisite. While I engage innovators with proven track records of success, I believe that true innovation is a process and that the best strategic partners are those who have experienced—and learned from—past failures.
I invest in the products, services, and opportunities that change the course of consumption.
I’ve always been an avid observer of business trends, and I closely watch the behavior of Gen Z and Millennials as indicators for future markets. I use their preferences to craft long-term investment strategies that pursue the products and experiences that will dominate the market in the coming decades.
This principle has played a significant role in many of my investments. Tocaya is perhaps one of the best examples of this. Serving fast-casual food with a plethora of vegan and low-calorie options, Tocaya plays directly into the preferences of the health-conscious younger generations.
This strategy also spurred my investments in esports. After watching my teenage sons become fascinated with online gaming, I began to wonder whether there’d be a viable market for this new fixation. After doing some research, I invested in an esports franchise and eventually helped build out the esports market as a whole. When I first invested in esports, this nascent industry was often ridiculed by pundits. Now, esports has its own section on ESPN’s website.
I’m focused on the consumer of the future – and I’m often willing to accept short-run losses to seize a foothold in the industries that will define the economy of the 2030s, 2040s, and 2050s.
I take risks in pursuit of bold ideas
My firm, Spectrum Business Ventures, stands by its long-standing motto, “We see the world differently”. When evaluating investment opportunities, I encourage my team to look past conventional wisdom. Some of my most successful investments have come from this approach.
One key way to do this is to look for the peripheral investment opportunities that a major new industry may create. Take gift certificates, for example, which created a boom as they transitioned from paper to plastic. Rather than invest in the gift card industry itself, I invested in a company that provided myriad services to the businesses that wished to issue gift cards. I found a market ripe for innovation and financial-return within a wider market.
My decision to purchase warehouse space follows similar logic. Online shopping now reigns supreme, but rather than found my own online venue and try to compete with the likes of Amazon, I decided to look to the periphery. No online supplier like Amazon (and especially smaller players) could get by without warehouse space, allowing my firm to take advantage of a market within a market.
My investment philosophies are by no means universal. These principles have guided me through nearly two decades in the venture capital industry and into many of my most profitable investments, but the whole point of having an investment philosophy is to have guidelines that work for you.
I encourage aspiring investors to reflect on the principles they hope that their portfolio will mirror. To do this, you’ll need to consider a few questions:
In what kind of industries do you wish to invest? What products or services do you think people need? How do you wish to seek out new opportunities? How do you hope to choose between those opportunities once you find them?
Formulating answers to these questions is integral to one’s development as a venture capitalist.