Starting out in 2013 writing venture checks, I was inexperienced but had a strong beginning:
- First, co-leading the seed round for Pipedrive, which was later acquired for $1.5B cash
- Second, leading the U.S. seed round for Algolia, now exceeding $200m in ARR and a potential IPO candidate
- Third, investing in Greenouse/Parklet, later acquired for $800m and achieving $200m in ARR
- Fourth, investing in Salesloft, later acquired for $2.5 Billion cash
- Fifth, investing in Logikcull, later acquired for $300m cash
It was a promising start. Since then, I’ve had successful investments but also some that didn’t turn out as expected.
During the 2021 Go Go Days, everything seemed positive with most companies experiencing up-rounds. However, 2024 revealed the reality of many situations.
Now, I acknowledge that I will face losses on some investments. It’s part of the process, but it’s clear why certain deals will result in the complete loss of my investment.
The top reasons an investment becomes a Zero:
#1. Any misrepresentation of financials, no matter how small
If financials are misrepresented even slightly, it often leads to a total loss of my investment. Accuracy in revenue and contracts is crucial as any discrepancies can have significant consequences.
#2. Founders hiding critical information during the round or diligence
If founders conceal important details like churn or team changes, it raises red flags and can result in further issues down the line.
#3. Failure to control the burn rate
While not always resulting in complete losses, investments where the burn rate is not managed properly tend to underperform. This issue is not exclusive to unicorns and can occur even with a few million raised.
#4. Relying on others’ involvement in the round
Investing based on the presence of prominent investors in a round can be risky. It’s essential to evaluate each deal independently to avoid potential losses.
#5. Investing in pseudo SaaS rather than actual SaaS
Avoiding investments in companies that mimic SaaS but lack scalability is crucial. Following the SaaS playbook is essential for long-term success.
While these losses may seem significant, the gains from successful investments will outweigh them. These avoidable losses serve as valuable learning experiences.
