Lowercase Capital founding partner Chris Sacca has developed an eye for spotting startups that will grow into global behemoths.
He’s been an early-stage investor in billion-dollar companies like Twitter, Uber, Instagram, Stripe, Lookout, and Automattic (maker of WordPress).
Sacca tells “The 4-Hour Workweek” author Tim Ferriss in the latest episode of Ferriss’ podcast that he’s happy to share his investing approach with those interested because it can help those who have experience and talent, but it’s meaningless to those who don’t.
“I can lay that playbook on you, and if you’re not good at this, you can’t fake it,” he says.
After nearly two decades in Silicon Valley, Sacca has learned that the only way to make billions of dollars in the venture capital world is to truly care about and believe in your investments.
Here are the four key elements of his investment philosophy, which he says he developed from experience as well as the counsel of veteran investors like Josh Kopelman of First Round, Tony Conrad of True Ventures, and Hans Swildens of Industry Ventures.
1. Invest only if you can add value to the company.
When Sacca and his Lowercase Capital partner Matt Mazzeo decide to invest their money into a company, they are also committing themselves to be advisers to its founders. Sacca says that if he’s going to make this commitment, he doesn’t need to think that he’ll be able to see a startup through to its IPO but, he explains, “I need to know that I can have a material impact to make something more likely to succeed.”
2. Invest in a company that’s already great.
Anyone with a regular job has to work on projects that are assigned to them, whether they want to or not. Sacca says rookie investors are often so used to this mindset that they leave themselves too open to deals.
“When you get into investing, your default stance should be ‘No,’ because most deals suck,” he says. “Most deals won’t make money. Most companies will fail. And the temptation always is you see your first deal and you’re like, ‘OK, I know I can be helpful to these guys, I know I can make this s—-y thing better.’ And so your first few deals are always your worst.”
Invest in a business that’s already been proven to work and can become even better.
3. “Give yourself a chance to get rich.”
It’s the nature of business that most new companies will fail, even the best will require a lot of work to build, and only a minute percentage will turn into a “unicorn” like Twitter or Uber. Sacca learned that it’s important to build a portfolio that allows for chances to make money from the unicorns and moderate successes by not spreading yourself thin, entering at a price that’s low enough, and making investments with a longterm perspective.
Sacca says that before he realised this, he once “sold a company to Amazon where I saw 3x on a $US50,000 investment in a fund. By the time the fund got paid back… I had been busting my arse with that company for a couple years, and like I barely had enough money left to buy that [founder] dinner to celebrate the deal.”
4. Be proud of the deal.
Sacca says he’s unwilling to compromise on his integrity when he makes a deal, and it’s worked out for him.
“There’s stuff that I’ve passed on that I just don’t regret it at all,” he says.
Some examples may include advertising businesses that place deceptive ads on misspelled domains, subscription services that are intentionally difficult to cancel, products built on unsubstantiated claims, and social networks that utilise anonymous content.
“It seemed like a good way to make money,” Sacca says, “but I don’t have to explain to my kids that that’s how I’ve made money.”
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