To The Moon

“All failed companies are the same: they failed to escape competition’” – Peter Thiel

I’m officially going on a diet. It’s finally Friday and I decided to dress more casually this morning in khakis instead of my typical work uniform of dark blue suit and white shirt that I wear every day.  The only problem was I couldn’t button up the waistline over the thick layer of fat on my stomach that had accumulated over the past week.

In the past 7 days, I’ve been to China twice, had over 20 different company/investor meetings, hosted 3 major social events (with over 50 people attending) and averaged about 4 hours of sleep a night.  Oh, and I’ve also been eating and drinking like a convicted felon in his last hours before going to prison (25th hour) which is precisely why I couldn’t fit into my pants this morning.

It’s been a crazy week. But a very fruitful one too. As I mentioned last week, my business partner Cody Shirk and I hosted a large group of his Explorer Partnership members, over 40 global investors (from 8 different countries), here in Hong Kong and China. For many of them, it was their first time in Asia and they were blown away by what they saw. Although many had heard about all the grand things China is doing right now (One Belt One Road initiative, A share inclusion into the MSCI, RMB inclusion into the IMF SDR basket etc, etc) it’s one thing to read about it in the news…it’s another thing to actually see it with your own eyes.

We toured Hong Kong, Macau, and Shenzhen. We met with top investors, startup founders, accelerators, strategists and government officials.  We visited the Tencent headquarters and the famous electronics market. But most importantly, we got a true insider’s view of what really is going on out here in Asia and where the hidden investment opportunities exist today.

One of my favorite events of the trip was being a judge at a pitch competition called The Beer Pitch which was held at the Bee Plus co-working space in Shenzhen. This place was like WeWork on steroids.  It had over 40 beers on tap, 4 levels of offices, meeting rooms and hang out spaces and it even a sleeping area with bunk beds if you needed a power nap.  I was truly impressed.. and I’ve seen some amazing co-working spaces in my day, but this one definitely tops it all.  You can check it out here. (and see photos of me trying to chug beer).

Brian, Cody and I judging startup pitches at The Beer Pitch, Beeplus Shenzhen

I’ve always been intrigued with early-stage investing. It requires a slightly different skill set than public market investing but fundamentally, the investment process is the same. Not only do I enjoy hearing about exciting new companies that are trying to change the world, but I also like to hone my overall investing acumen and refine my evaluation process.

For most investors (myself included) the process of analyzing an investment is a constant tug of war between making money and not losing money.  Allow me to explain.

All investments start off the same way, with a brilliant money-making idea. When you hear about an idea be it through a pitch competition (like the one we attended above), a stock picking newsletter or a casual conversation with a friend at the bar, the first stage of every investment process begins with an idea.

After the seed gets planted, you begin the analysis process in your head. Each person is different but generally, people fall into one of two camps at this point. The first camp are what I call moonshot dreamers.  They believe every new idea is going to the moon and make them super wealthy and would much rather jump in to have “skin in the game” than miss out on the next Facebook.

In the second camp are the “value” investors who have never experienced FOMO in their entire lives.  They would much rather not lose money than participate in the next up and coming unicorn funding round and on the extreme en,d these are the types of people that end up old and miserly with nothing to show for.

Now back to the investment process.  It is during this analysis process where the astute investors (regardless of what camp they are in) develop a process to assess the opportunity in a systematic way, one that takes the emotions out of it and one that is based on numbers, data and an objective assessment of risk/reward.  Investors love fads and human beings will always get emotional and overreact which is why we must develop these processes carefully and systematically and not rely purely on “gut feel” alone. (Every idea sounded awesome after a few beers on pitch night…) This is where the tug of war play out and this is also where it helps to have friends, partners and advisors to use as a sounding board and talk out an idea.

This is also where most people get it “wrong” in early stage investing. By virtue of the fact that you are looking at very immature companies, human beings are naturally biased to spend more time thinking about what could go right (the next unicorn?) versus what could go wrong (99% of startups).  I learned this painful lesson many years ago as a young cocky wannabe angel investor and sadly many continue to do so be it in early stage investing, crypto/ICOs or even publicly traded markets such as equities.

There are only a few things that we as investors can control and one of those things is protecting our downside. Just remember, regardless of what shiney objects you find out there, never allow yourself to be at risk of losing a lot of money at any given time because quite frankly you don’t have to make money all the time — you just need to make sure that when you do win, you win big and when you lose, you lose small.