Investing in Startups: 5 Years, 5 Lessons

Building Startups by Ajay Yadav

The ‘No-BS’ BS Newsletter

💰️ Investing in Startups: 5 Years, 5 Lessons

Hello and welcome back!👋

My 18+ years in the startup ecosystem as a founder have taught me everything I know. I whole-heartedly believe in building startups, and the most risk I take in my life is by only investing in startups.

Pretty on-brand for a founder, eh? ;)

Most people would consider this decision a big gamble, and I don’t ask you to follow my footsteps.

I only want to share all I’ve learned about startups in my journey of 5 years as a startup investor:

#1: Market Size Matters

📌 The market’s magnitude is critical.

A product catering to a niche market might dominate that space, yet the overall impact potential remains constrained by the market’s size. 

That is why I really look at how big the addressable market is and how many people can end up using something. Even if you capture a small portion of this, it still can have a big outcome, because the market is huge.

#2: Betting on the Future

Future technologies. AI. 

Storytime: I invested in cryptocurrency very early on, back in 2013-14 when it was barely starting out.

It was a gamble I took, because I believe in the potential tech holds. Like right now, I believe the world would use AI in more ways than I can imagine.

So apart from building Simplified (we just crossed 10 million users by the way!), I make sure to look out for companies building tech for tomorrow, even if I don’t invest in them.

CES 2024 held recently had some very interesting things in store, for example. The future world looks exciting :)

#3: People Make or Break the Deal

The resilience and ingenuity of founders often predict the trajectory of a startup more accurately than any financial model could.👨🏻‍💼

This philosophy has guided my most successful investments — even if one or two companies fail, if you back the right people you will find one company that will succeed. 

Because these people will find a way to solve problems, build something really amazing and make it successful.📈 

#4: Profitability is Imperative

Have you seen WeCrashed on AppleTV?

If yes, you know what I’m talking about. 

Most companies run out of business because they never become profitable.

📌 Profitability is not a distant goal. 

Startups NEED to be obsessed with making money from day one because at the end of the day, if it is a for-profit business backed by investors, you HAVE to make money because that’s why they backed you.

I have learned to look for founders who don’t shy away from this mentality, who think about how their product adds value, and also makes money 💵 

#5: This is a Marathon, Not a Sprint

The very nature of startups is making mistakes and learning from them.

Just like humans.

Startup success depends on how fast you can make mistakes, iterate to recover, and move forward. You have to make as many mistakes as you can mistakes really fast, keep up the momentum while iterating and get to the other side of this equation.

Startups who do this are, in my opinion, the ones that make it.

Another side of this process is with the investor. Because investing in startups is a marathon, not a sprint.

While startups build velocity, investors should build patience.🔴 

It usually takes a LOT of time for a startup to “succeed”. So if you’re looking to invest to make a quick buck, I don’t think startup investing is for you.

Patience, perseverance, and a belief in the founders’ vision are the founding stones of successful startup investors.

Closing Thoughts

Investing is one of the fastest ways to learn about the present world.🌍️ 

It shifts your perspective from observing to introspecting.

When you're investing, you wear a different hat and ask very different questions. It makes you asses what is good and bad, trending and obsolete, futuristic and what isn't, what might or might not work.

So if you haven’t already, if you’re making money and can save some money aside, invest it.💹 

You’ll start seeing the world from a very different perspective, and your future self will thank you.

That’s it for today’s newsletter!

Keep reading, keep exploring, START INVESTING!

Keep subscribed, and spread the word around. I’ll see you in the next one :)