My Three Rules to Investing

I’ve made some stupid investments over the years that have resulted in hundreds of thousands of dollars in losses.

I purchased an undeveloped building lot at auction that ended up being 90% wetland. Perfect if you want to set up a slip n’ slide waterpark. Not so great if you want to build a home.   

I bought a gorgeous 3-acre lot overlooking the Puget Sound with slopes so steep it would require a civil engineering miracle to develop.  

I paid $300k for the domain HardDrives.com. I overpaid by roughly $296k.

I’ve invested in startups with business models so complicated you’d need a PhD in bullshit to fully comprehend them.

After many painful mistakes, I’ve established three rules through which I run any new investment opportunity. If someone brings me a deal and it doesn't pass all three rules, I won’t invest.

1. Always invest in someone you know and trust  

Many business/investment opportunities are put together and managed by a primary person or small team. It’s super important to trust that person or team before cutting them a check. Business is risky and many things can go wrong, including handing your money over to a crook. By investing in people you know and trust, you minimize that risk.

I would also consider investing with a person I may have met recently but with whom we share common friends/contacts who can vouch for that person. I’m very involved in e-commerce, business, and entrepreneurial organizations for just that reason. The network effect is powerful- use it to your advantage.

2. Always invest in someone who has a track record of success in the space you’re investing in

This rule eliminates 99% of startups. It doesn’t matter how successful a person or team has been in the past-  if they are starting something new and they have no experience in the space they are getting into, I won’t invest.

I don’t care if you’re creating the next Warby Parker of kitchen appliances or a billion-dollar app called “Pee Break” that lets you know when your friends are going to the bathroom. If you have no experience in the space, I’m not interested.

If a candle manufacturer with 15 years of experience manufacturing candles is spinning off a new candle line and raising money for it, I’d consider it. If they are trying to expand into the brick manufacturing business and know nothing about making bricks, I won’t invest.

3. Always invest in a business you fully understand

If the business can’t be explained to me like I’m a 5 year old, I’m out. I can't tell you how many times I’ve thumbed through pitch decks that are attempting to explain a new technology or business model that I just can’t comprehend.  

Investing in businesses you understand can give you an edge and minimize risk. For example, I have lots of experience selling products on Amazon and really understand that marketplace well. If someone came to me with a product they are selling on Amazon that’s already established but they need capital and advice in order to take their fledgling Amazon business to the next level, I can help.

I also know real estate. If someone brings me an opportunity to buy an apartment building in a neighborhood I’m familiar with, I know how to run the math and properly assess the opportunity and risk.


My Biggest Business Failures