I’ve Invested In Over 10 Startups. Here’s How I Know A Company Is Something I Want To Be A Part Of
For many, investing is a financial engineering game—weigh the risks and rewards, study the metrics, and identify opportunities to profit. But after several years of investing in companies, for me, my intent as an investor goes far beyond cashing out. To me, a smart investment is a purposeful investment.
I’m an “activist” investor in that I want to make a real, positive difference through my work. I’ve built my own successful company in the health and wellness space—a modern water filtration startup called Hydros—and I want to leverage my insight about the industry to help other companies realize similar success. Founders and board chairs see me as a fellow health and wellness entrepreneur, someone who understands their struggles and truly cares about the industry.
I’m often fortunate enough to get on boards for a low investment amount because of my passion for and connections in the health and wellness industry. My value to the companies I invest in is more about serving as a strategic partner than capital, most of the time.
In my experience, smart investment opportunities check these boxes:
The right timing.
My investment team and I want to get on board early, when businesses are looking to scale up and reach the next level. When the product is already out in the market and the company has proven they can make sales, it tells us they’re on the right track. And that’s when our partnership is most valuable.
But we don’t want to be the first investor. There’s simply too much risk involved.
Our team, which has executed many deals in the health and wellness space, conducts sophisticated projections and analyses that aren’t often available to early-stage startups. This is mutually beneficial: it helps us gain a better understanding of the situations we enter and provides invaluable data and guidance for the companies we advise. It’s a tremendous perk considering how much this type of service costs through a consultant.
The right leadership.
Most importantly, we look for humble founders who have a strong vision, but are also flexible and willing to delegate. There’s certainly merit in staying true to your mission, but as a founder, you also need to be open to outside perspectives and skill sets—especially from people who know more than you. No founder knows everything about how to run a business.
When looking for smart investment opportunities, one of the first questions we ask is: Does the founder possess the humility to understand what he or she doesn’t know and hire accordingly? Some founders don’t. They view anyone with a differing opinion as a threat to their grand vision.
Other founders assume that just because they were successful once that they have some sort of perma-shield of success. They expect everything they touch to turn to gold. These founders are difficult to advise and are at risk of losing their scrappiness and humility. They have a tendency to become lazy and bloated and end up spending too much investor cash on things they shouldn’t.
Founders entering new spaces need to understand that each industry is unique. Health and wellness is an incredibly complex space. A founder who successfully sold their software company entering this industry is going to experience a steep learning curve.
Above all, founders need to understand when to stick to their vision and when to be flexible. If they don’t, we won’t invest—no matter how great the product or how much money they’ve made already. That type of business, handicapped by misguided leadership, is just too risky. One wrong turn could sink the ship at any point.
A product and/or purpose we’re passionate about.
We aim to leverage our passion and purpose through a strong relationship to help a founder create something truly exceptional.
For us, it’s never just a financial play—there are enough of those available through other avenues. Through my involvement in the space and the relationships I’ve built, I’ve been inundated with opportunities to invest. So in order for an investment opportunity to be worth our time, it has to offer more than just the potential for profit. Our team likes to feel engaged and involved strategically. That’s when we’re at our best.
We’ve certainly entered engagements we regret, but we’ve also found some truly wonderful investment opportunities.
One of our most successful investments was with a Halal frozen food brand. We met the founder at an interfaith philanthropy event at the Obama White House in 2011 and immediately hit it off. We invested in his company during the seed round, and today they’re an industry leader. He also wound up as an advisor at Hydros and connected us with a number of other key experts.
This engagement showed promise right off the bat. How? The relationship came together naturally and showed mutually beneficial potential.
Our most disastrous investment was doomed, on the other hand, by a strained relationship with an uncooperative founder. Despite access to many top advisors in the space—our team included—he simply would not listen to the experts around him.
He wouldn’t hire professional operators. He was spending capital in all the wrong places. His financial projections were all off, and he wouldn’t fix them even after we pointed out the errors.
Ultimately, he was kicked out of his own company, lost all his equity, and our investments were turned into “all-stock,” meaning we only cash out if the acquiring company gets bought. The worst part? The product was truly exceptional. It had “billion-dollar exit” written all over it.
But it was a massive failure on the human side.
This is exactly why we look for the right combination of people and product. If we don’t feel good about a company from a holistic standpoint, we don’t invest. For us, it’s not just about making money. Our goal is to make not only wise, but meaningful investments of capital and expertise in companies, people, and products we truly believe in.