There are sometimes blinking neon signs above people’s heads that say “Winner.” For the rest of the world there are lots of questions and doubts. When it comes to making investments in startup companies, LEV takes a simple but not easy approach.
We only invest in startups where it is very clear that we have found “The Guy.” (just to be clear, we are very, very open to funding women founder/CEO’s if they meet or exceed our same standards… the term ‘guy’ is simply a reduction of the masculine pronoun in much the same way that the english language uses ‘he’ just to mean a person.)
So what does “The Guy” possess that others don’t?
First off, it’s a pretty obvious distinction that most people recognize from a great distance. In fact, many founders do a great job of faking it because it is so critical. They title themselves “founder” or “CEO” and many are also very, very active in their young companies. They test product-market fit and may even employ people to build a product and secure early sales. They answer emails fast and make phone calls to follow up toward milestones. However, these things do not make them “The Guy” in our definition.
The big distinction?
“The Guy” is all in. He or she has already quit their day job. They’re obsessed. They have put more than 30% and in some cases more than 100% of their net worth into their new company. They are iconoclastic (challenging status quo) and insanely resourceful. When other people ask them how they do it, they often shrug and/or stumble to answer because the true answer often make them appear insane… and they know it’s not smart to appear insane.
There is a very fine line between being a startup founder and actually being crazy. LEV founder, Daryl Starr likes to say “you have to have just the right amount of crazy.”
Why does this matter?
Investors expect you to put your own money where your mouth is before they put their money where your mouth is. You have to bet on yourself first… and in a big way. Then, you have to deliver. You have to eat, sleep and breathe the business because the investor knows they are not going to… and most of the high net worth partners at LEV have been through this valley before themselves and are passively investing because they know this is such a valuable aspect of what LEV seeks out.
However, just because you rack up credit card debt does not mean that is the right kind of crazy. Depending on how or why, it might mean that you are just crazy. Did this action advance your cause? Add more intrinsic value to your company? Or was it just plain stupid? The guy knows how to answer these questions.
Finally, “the guy” has to be extremely resourceful and a ridiculously fast learner. In startup companies (just like in big corporations) there are limited resources. The difference in startup land is the threat of going broke in a couple of months is much, much higher. The market’s tolerance for mistakes is not developed. Your protective moat does not exist. You do not have a castle even to protect. You are literally selling fruit at a pop-up portable stand when you start… from scraps you’ve scrounged together. When a crowd of new people come into the street you have to adapt. When they leave town, you have to adapt. Knowing how to change to be at the right place at the right time is partially luck, but it’s also improved by hustle. We love this aspect and want to help but it is almost entirely dependent on “the guy.”
There are lots of small businesses that start part time and develop customers, products and profit… many of these even grow to sustain generations of families for years. We buy these after they are mature and a fair price can be calculated. However, when it comes to investing in startups, we invest in “the guy.”
There is a lot more that rounds out the guy, too. He/she needs to have deep domain knowledge in the industry they are serving. As a result, they probably have logged 10,000 hours there. They need to have sales and technical chops. They need to have followers, even disciples. They need to have time, both now and 3-5 years into the future.
If this sounds like investors are expecting too much then please DO NOT write to us. If you think you are the exception to this then please DO NOT contact us. If you are a little embarrassed by the crazy things you have done to secure a meeting, develop a prototype or close a sale, and you want to start a private conversation about how we might help you pull off the unfathomable and change the world, then drop us a note.
We are more concerned with “The Guy” status than polish.