We missed out on investing in great startups. Here’s what we learned

1. Not all misses are created equally

 

Every investor has passed on investing in great startups. Some passed on the most iconic unicorns such as Sequoia, who passed on Facebook.  Bessemer even dedicated an entire page on their website to their “anti-portfolio”: a definite must-read on all the successful companies that they passed on. Fred Wilson from Union Square Ventures famously wrote on his blog how & why he passed on Airbnb (he also invested in Twitter and Coinbase in the Seed round, so I think he’s fine :-) )

And yet the important takeaway for all investors is not to languish on what could have been, but to learn from it. I’ll get to that shortly.

To begin with, how should investors define a “miss”? For pre-seed and seed stage investors that are largely domain agnostic like UpWest, the vast majority of early stage investments are in play.

Granted, there are cases where the startup domain is truly out of focus or the investment amount is dramatically out of scope, but for the most part, you are bound to have a long list of misses.

 

For me, a miss is when we really liked the team and had the opportunity but didn’t offer to invest. And, as importantly, it is a miss that we can learn from and correct the mistake in the future.    

 

An important nuance in defining a miss has been around our connection with the founders.  For us, we go all in when we invest.  We put our entire weight behind the startup and try to help them as much as we can around building & scaling their business, hiring exceptional talent, identifying follow-on financing, etc. 

 

There were definitely cases where we passed on companies where we did not connect with the team, and they went on to become outstanding companies.  Is that considered a miss?  What is our learning from this – to invest when we lack the connection in the team?  I don’t think that founders would want us to back them unless we have that connection that we think is critical to invest in very early stage startups.

 

Sometimes investors and founders are not meant to work with one another, even though both may be great, and that’s really ok. You know, just like real life when choosing your significant other :-)   I prefer to keep an open mind all while trusting our founder-centric investment strategy..    

 

2. Learning from your mistakes is the key

 

Instead of having our misses define us, we try to let them guide us in becoming better investors. Over the years, this has enabled us to focus more on the founders’ vision for the future of the industry they are targeting, better identify the right people that can help us in our due diligence process, and try to better distinguish between the essence and the “noise” when we dig in.

 

Specifically, we try to better identify the 1-2 key questions we need to answer ourselves in order to get us on board, while being comfortable with the (many) risks that still exist in the company.  These questions can be around the go-to-market strategy, type of customers, etc.  Regardless of what it is, we focus on these questions to help us make better decisions and ideally not make the same mistakes (while acknowledging we will make new ones.. ;-) 

 

3. It is also important to learn from your successes

 

While we learn much more from our mistakes than our successes, it’s important to look back to see what has worked for us in the past, and how those principles can be retained going forward.

 

At UpWest, we were fortunate the first and only pre-seed check at SentinelOne, which last year went on to become the largest ever Cybersecurity IPO. Similarly, we were the first check in HoneyBook, Cycognito, Stampli, Imubit, and dozens of other standout companies. In each case, we try to recall what made us make the investment, and try to have that part of our own DNA going forward.

 

Even though times have changed, where the size of the initial checks have increased, as have the number of seed investors competing for opportunity, remaining true to who we are is still important in being a good investor. Yes, investors have to adopt, but we mustn't forget what got us to where we are or we risk missing out on an even greater number of companies we previously invested in.

 

4. Founders: if you were passed upon, then you’re in good company 

 

In the days where we had in-person events (are they ever coming back???), I used to deliver a presentation for fundraising around fundraising best practices. My first slide included the following: “LinkedIn – 25; Skype – 40; Google – 55”. About half the time someone from the crowd correctly guessed what it meant: the number of rejections these iconic companies received before being funded.

So, if you’ve been rejected many times, do try to adjust and learn from those experiences, but also know that you’re in really good company ;-)

 

 

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Gil Ben-Artzi is a founding partner at UpWest, a Silicon Valley-based seed fund. Some of the startups UpWest invested in includes SentinalOne and HoneyBook.