Dear SaaStr: What are the most common mistakes people make while investing?

My top mistakes, in venture investing, at least:

  • Investing when I didn’t 100% believe in the CEO, or CTO. No matter how interesting the metrics, even the product is, don’t invest if you don’t 100% believe in the CEO. It’s not enough.  And if you truly, 100% believe in the CEO — lean in.  Even if you don’t totally get it.
  • Investing when the CEO is a bit full of s**t. CEOs should be true believers, and optimistic — but speak from truth and facts. When they make things up, even small or tiny things — don’t invest. When they hide something material — don’t invest.
  • Be careful about momentum investing. My worst investment had incredible traction but had other flags. But the momentum seemed unstoppable. It stopped.
  • Not buying every share you can upfront. Shares never get cheaper in the good ones. So buy every share in the first round you can. Or maybe don’t invest at all.
  • Just do the full pro-rata in the next round. The next round is more expensive, but you still often have money left to invest. Just do it in all your good ones.
  • Most great investments have a rough year. My first 5 investments all became unicorns. But all 5 also had a year they were unfundable, and 4 out of 5 had a really rough growth year. Don’t let it spook you.  A bit more here.
  • Only the best CEOs can handle the truth. The best CEOs can handle the truth, but the rest resent it when you point out their limited runway, that they are spending too much, that they hired the wrong VP. Speak up, but realize when it won’t make a difference.
  • Worrying too much about where the product is today.  It will be so much different in 24, 48, and 96 months.  At least — if the founders are great.
  • Investing if the software isn’t very good.  I’ve only made this mistake twice, but both times it turned out to be a mediocre investment.  Software isn’t amazing per se in the early days, not usually.  But there usually is something special about it.
  • You know in 20 minutes. At least, I do and many better investors than me do. The best investments just stand out so much, even at the seed stage, that you know 20 minutes into the first meeting. At least, you are leaning in pretty hard by then.

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