I met with a family office investor yesterday and we were talking about his family's interest in diversifying their investments into early stage companies.
They mostly participated in real estate transactions--an asset class where actual due diligence is conducted, deals take months, even years to close, and assets are sometimes held for decades. It's an asset class built on relationships. You become a steward of not just property, but of neighborhoods, homes, offices--the places where people conduct their lives. These are incredibly impactful relationships dependent on trust. You might work with the same group of investors, contractors, agents and management companies for decades.
A lot of these people have started getting into the angel investing world. The growth of co-working shed light on just how big an impact thousands of small startups can make on a market--and when these companies make it, they take down some significant space. Participating in the upside of a company that started out as three people and now has a full floor in your building seems attractive to many.
Something he said at the meeting struck me. He said that he might like to get into the business of investing, but if he's going to, he'd actually like to get into the business, and "just writing checks doesn't mean you're in the business."
Here's what it means to me to actually be "in the business" of investing:
It means building long term relationships and acting in such a way--professionally--that you care about maintaining your reputation.
It means establishing a track record of not only success, but of trust. This includes transparency around what deals you've worked on, and what your role was.
It means having a strategy that leverages advantages and resources you have, and doing your homework.
It means actively trying to learn and improve.
You might not have a year to close a transaction, but that doesn't mean you can't be smart and professional about how you go about your business.
Anyone can write a check--chasing the "hot" deal like a dog chases a car. Without a plan, without a network, without trust, without transparency, or a path to learning that doesn't mean you're an investor.
That makes you a gambler, or a hobbyist.
If you're a VC, you should do whatever you can to make your limited partners feel like investors. Aim for engagements that make them more than just check writers. You can do this through transparency, communication, opportunities to meet companies, like co-investing, talks, content and networking opportunities.
It's better for them and for you--because check writers come and go, but investors are much more likely to see things play out over the long term.