What do you think of THIS company? They have a vision.

I have done some angel investing, with such mixed results that I have never concluded that I should be an “investor” either as an individual or part of managing a fund. Sometimes I remain mystified about what it really takes to do “investment” right. Hence my confidence in Give Forward (www.giveforward.com) and Firefly Energy, both gone now. It really does take an entire portfolio to make any sense of it — I get too involved, I think.

But I have a lot of startup company experience and have seen, followed and been a part of more companies than most people. That includes taking a company public, starting several from scratch (employee 1), selling or parking a few, moving on and watching others continue the journey, and unfortunately closing one or two of them down. So I get asked a lot — what do you think of this company? And there is one pattern in those questions that I want to point out.

I receive the pointer to a web site or the company presentation or overview. They usually contain the “business plan in miniature” and go over the business plan categories that the books and classes recommend. I can get a solid first impression of the company and what it does. Of course, some are written by idiots, some megalomaniacs, some with so many grammar errors I can’t focus. But several of the good ones have something in common.

The vision is correct, but the investment is way out there.

The presentation starts out breezy and important — the question is usually, “is this going to be a thing?” And the answer is definitely YES. And then they proceed to explain that this company will be the next YouTube or eBay because they thought of it. Examples that I actually received include:

  • A company targeting body or wearable cams for recording one’s every waking, and maybe non-waking, moment. The next evolution of Go Pro or Google Glass?
  • A platform for coordinating a complete, high-dollar digital ad and retention campaign. Think emails, Tweets, contests, sporting events, and Instagram.
  • A device and SAS platform for monitoring home energy use and/or controlling lights, appliances, etc.
  • An On-demand delivery capability for delivering prescriptions to office or home.
  • A platform to pay bloggers and big Twitter personalities to do brand support.
  • A device to GPS track your kid, including at places like Disney, in case they get lost. (this was some years ago)

And I can easily respond, “yes, this will be a thing”. This market will be real — in fact, I sometimes know of other, better backed examples in the market. And I often know of other companies with related products — many of them big enough to buy out this startup, should it succeed.

However, the overall question referred to me is “is this a good investment?” Aye, there is the rub.

Ask yourself what are the characteristics of a company that is likely to capture the largest portions of these emerging spaces?

  • Big companies like Google, Facebook or Microsoft who have huge R&D going towards the effort. Often these do not work or the big company buys the startup (see Oculus, Instagram), but it sets the bar very high.
  • Silicon valley companies who have access to $10M’s in investment to go after huge markets.
  • A company built around a genius engineering or marketing team with a proven track record. These companies almost always lead their business presentation with their proven success and/or working prototypes or “trial” communities instead of the “vision.”
  • A small team or individual with years of nursing along the idea before it became a thing. Think PlentyOfFish or Twitter or YouTube or Facebook.

When I receive the presentation, it never represents one of the above. The point is, by the time a presentation like this gets written, when the “thing” starts to become really obvious, the real window is already gone. There are entrenched players and hundreds of other people with middle-tier resumes pursuing the idea, which frankly, is pretty obvious. So my answer to the question always starts with, “yes, this is a thing or it is going to be a thing, but why would I believe that THIS company is the one to make it big in this category?” Rarely is it compelling.

And let me be the first to criticize my own theory — there are the “WhatsApp?” and “Echo Global Logistics“ and other companies to come along and redefine an obvious category or find that spark that takes off. But what is more common (also for those so-called overnight successes) is years of toil and redefining of a company and its idea before it hits critical mass.

The rest of them fail.

So, on a statistical basis, no. No, it is not a good investment.

But some people buy lottery tickets. And some people find that raises their spirits and hope for the future. And some people win. That won’t make me say your investment is a good prospect. Maybe better than the lottery, but not what I would call “good”.