Startup Investing, Is it For You?


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An eternal optimist, Liu-Yue built two social enterprises to help make the world a better place. Liu-Yue co-founded Oxstones Investment Club a searchable content platform and business tools for knowledge sharing and financial education. also provides investors with direct access to U.S. commercial real estate opportunities and other alternative investments. In addition, Liu-Yue also co-founded Cute Brands a cause-oriented character brand management and brand licensing company that creates social awareness on global issues and societal challenges through character creations. Prior to his entrepreneurial endeavors, Liu-Yue worked as an Executive Associate at M&T Bank in the Structured Real Estate Finance Group where he worked with senior management on multiple bank-wide risk management projects. He also had a dual role as a commercial banker advising UHNWIs and family offices on investments, credit, and banking needs while focused on residential CRE, infrastructure development, and affordable housing projects. Prior to M&T, he held a number of positions in Latin American equities and bonds investment groups at SBC Warburg Dillon Read (Swiss Bank), OFFITBANK (the wealth management division of Wachovia Bank), and in small cap equities at Steinberg Priest Capital Management (family office). Liu-Yue has an MBA specializing in investment management and strategy from Georgetown University and a Bachelor of Science in Finance and Marketing from Stern School of Business at NYU. He also completed graduate studies in international management at the University of Oxford, Trinity College.

By Jeff Carter,

Legendary venture capitalist Bill Gurley gave a great interview to the Wall Street Journal on startup investing.  He made lots of great points.  One that I found particularly interesting was this:

And I happen to believe that innovation happens more continuously, even though there are financial cycles, so you can’t afford not to be out on the field. But I do think you want to look out for what is the long-term viability of something. I’d much prefer to do a Series A [funding deal] right now than I would later-stage because of this type of risk.

Innovation does happen continuously.  That’s why as a VC or angel investor, you have to constantly shark for deal flow.  However, deal prices are creeping up because more cash is starting to go to startups and platforms like Angellist and Seed Invest are making it easier to raise capital.  The Federal Reserve policy of free money is also having an effect.

Investing early is the way to go.  It’s how you can turn a small pile of money into a larger pile of money.  The risk/reward is better.  But, the risk is also amped up.  Ironically, most Midwestern investors are averse to Series A.

One suggestion I would have for coastal VC’s is to put physical boots on the ground in the Midwest and South.  There is a fair amount of activity there.  Like actual battle, an air war only gets you so far.  You will have to work a bit to get to it-and you will have to actively help build the business.    These developing areas are not like Silicon Valley where businesses you like knock on your door every day.  The opportunities that are emerging in the Midwest are compelling.

I am seeing more people starting to turn to startup investing.  There are a few reasons.  First, they have seen others do well.  There is a lot of hype about entrepreneurship and a lot of coverage of the companies that are getting bought at lofty valuations.  When What’s App was sold for $19B, it opened a lot of eyes.

Additionally, people are not inherently stupid.  They intuitively understand that there are limits to how high the stock market will go, and that interest rates can’t be stuck on 0 forever.  When things normalize, there is going to be a lot of fall out.  There is no “new normal”.  That fall out is going to hurt the stock market big time-and if your money is in a good startup company you might be able to beat the odds.  Gurley says,

Excessive amounts of capital lead to a lower average fitness because fitness, from a business standpoint, has to be cash-flow profitability or the ability to generate cash flow. That’s the essence of equity value. And so I think we get further and further away from that in the headiest of times.

We are in heady times.  It’s not like 1999, but there is a similar feeling in my gut.

People also give themselves credit for being smarter than they really are.  They think that they can pick the next billion dollar company.  However, as Jerry Neumann elucidated earlier this year, you can’t.

Angel investing is not at all like stock market investing.  You can’t invest at a pre-money valuation of $3M and sell when the next round comes around at $10M.  Once you put money in, there is no out door.  It’s a roach motel when things go south, and it’s sea shells and balloons when it goes well.  It takes a long time to figure out the rudimentary pieces of what a good investment looks like.  Even then, most of the time they fail.

To be a great investor is a lot of hard work.  It’s a full time job.  You need to find deals.  You need to do a lot of diligence.  Diligence on the people, on the market, on competitors, on potential, on all the avenues that the company could run down.  In the early stages, you develop relationships with the team.  To be a great investor, you better like people.

During investment, there is structuring the deal, getting the terms right, getting valuation right, deepening relationships with the team, and flipping paperwork back and forth.  This is the herding cats part of the process.

Post investment, there is even more work.  It’s not just cutting a check and sitting on a board and watching.  It’s using your network to create connections-and building your network to create connections.  It’s finding more people and funds to invest in later rounds.  It’s finding potential customers.  The post investment work is harder than the pre investment work.

Many people bitch about the management fees that funds charge, but if it’s a good fund they earn them.  If you are a good fund manager, you aren’t in it for the fees anyway.  It’s the back end of the exit where the money is made.


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