Getting into the hot deals before they're hot

Yesterday, I saw this tweet come across my screen...



This feels like a West Coast mentality, because deals seem to feel "hot" more often out there--I believe because of founder pedigree.  It's more often the case that founders are repeat entrepreneurs on the west coast.  Combine that with a larger number of seed and early stage funds chasing deals, things "look good" earlier, based on the team or maybe some quick traction around a small, tightly connected base of people, and seem to pick up fundraising momentum quicker.  

While I believe that personal branding is important for everyone, especially entrepreneurs and investors, I'm really bothered by the credence people put into a deal being "hot", especially given my own personal experience with "hotness".

Today, I can tell a nice little story about spotting hot deals, and, in fact, I raised my fund off of that narrative.  Only, I didn't spot a hot deal any more than anyone makes a viral video.  Videos don't start out viral.  You make them, and then the audience decides that it should be passed around a million times.

All along this narrative, there was really nothing special about my interest in any of these companies.  My brand didn't really have much to do with my ability to plant a noticeable flag on the company's behalf.  

If you've read Nick Bilton's Twitter book, you saw my quick cameo...

"Do you twitter?” he asked Fred in the e-mail. “You should check it out. . . . I didn’t get it at first, but now that there’s a group going to sxsw, I get it,” Charlie wrote. “I’d never text all the people I’m texting now . . . but it’s a really seamless way to text groups and individuals at the same time.” Fred wasn’t convinced, telling Charlie that such a service would never work and that other companies that had tried to make Twitter-like products had all failed.

Of course, Fred was open-minded enough to dive right in as he usually does and quickly changed his tune, but think about that.  This was *eight months* after the launch of the service and the guy who eventually led the deal still wasn't totally convinced.

Not exactly what you call a "hot deal".  

Two years later, Foursquare launched at that same conference and I sat on joining it for months and months after.  Dennis and Naveen had pitched just about every investor you could think of and came up with a whopping zero term sheets.  

Not hot at all.

I just didn't quite get it until I realized that it didn't have to be about a game and that it could be my way of interacting with my locality.  I wrote a post about this realization and it touched off a flurry of activity that led to their seed round.

The funny thing was, I was hardly the first to join it.  *Anyone* could have funded it from March '09 until that July--and yet, now there's story about me "finding Foursquare."

Feels like a Columbus discovering the New World story.  Tell that one to the Native Americans who were already here.

And now that I'm an investor out on my own, one of my best performing companies is an investment that the founder could hardly give the equity away for in the beginning.  When Raul Gutierrez was fundraising for Tinybop in the fall of 2012, he didn't actually finish the round--instead getting about three quarters of the way and then deciding to just get started working on the app.

Not hot--and it wasn't a deal that anyone pat me on the back for "getting into".  It wasn't my brand that got me access to that round.  It was just my willingness to write a check.  (Well, I guess I had to seem like a reasonable guy, but the company really, really needed the money.)

Of course, it's hard to be a "hot deal" before you've written any code, let alone launched, but the point remains--it was an investable deal for *anyone* for months and months.  

It didn't get hot until it launched nine months later.  Since then, they've been #1 on the app store in education in over 120 countries.  

Just a few months later, when I led the seed round of Canary, we closed the round just a couple of weeks before their record setting $2 million pre-sale on Indiegogo.  In fact, a local venture firm turned the company down just a week before the pre-sale.  In fact, several of them did.  The round itself took about five or six months in total.

A pre-launch hardware company?  There was a good chance that I was crazy.

Not hot at all.  

The point of this nice walk down memory lane of Monday morning quarterbacking?

Most of the best deals that an investor will get into won't look like much of anything at the time.  Just about anyone can get into these deals if they're early enough and show some conviction.  There was nothing special about my relationship to any of these companies and, in all four cases, I wasn't the first one to notice them.  I might be in a sweet spot of mild notability and earliness, but in every situation I can point to lots of people who came before, took bigger risks (like, ah-hem, the founders themselves!) and who created a much bigger impact.

The lesson for people who want to get into the asset class?

1. Show up early.

2. Make quick decisions.

3. Visibly go all in with your reputation and effort.  You don't even need money for this.  My story as a "picker" really starts with two deals I didn't even invest in.  I wasn't even at a VC fund at the time.  

You'll often be spectacularly wrong, but those failures will still earn the respect of the founders you back--and that's all you have as an investor.  

Then, just hope that when all is said and done, your wins allow you to survive another day.  

And the next big thing?  I'm completely biased, but follow Makrplace for some big news this week.  :)