Online equity crowdfunding is still young. And much attention has been paid to the startups and founders that are using this new funding method. However, equally as important in this ecosystem are the individual investors who are now able to support and invest in startups they believe in. With the goal of creating a stronger investor community and providing insights into the strategy of everyday investors, KingsCrowd is proud to introduce Investor Profiles! Much like our Founder Profiles, these are interviews with startup investors — from accredited to venture capitalist to non-accredited and everything in between. We hope you find these interviews informative and enjoyable.
The first investor we interviewed is Vilem Fruhbauer. He was born and raised in Czechoslovakia and came to the US 20 years ago. He currently works as a master plumber and proprietor at Supreme Plumber. He also has a part-time job as a small multi-family real estate investor focusing on renovations to hold and rent. In his free time, he likes to hike Connecticut state park trails and reads Yahoo Finance, Barons, Seeking Alpha, Motley Fool, and InvestorPlace. A couple of books he recommends are The Richest Man in Babylon and Rich Dad Poor Dad.
Note: The following interview was conducted via phone and email. It has been lightly edited for clarity and length.
How did you get into startup investing? How long have you been investing?
I started investing in startups around 2004. The first investments were into my three longtime friends’ ventures. The first was a mining company in Alaska. That investment was a break even gig — it resulted in an exit / sale that returned what I put in after many years of waiting. My second investment was into meat cattle. That was another break even gig, due to livestock doubling in weight while in our care, but commodity and livestock prices going two times lower than what the prices were when we purchased the cattle. The last was a SaaS company. Unfortunately, that one resulted in significant loss of time and money.
I was very inspired and intrigued by the show Shark Tank ever since it was first released and have watched most of the episodes. I significantly stepped up my angel investing game in 2019, 2020, and 2021 after joining both the Angels and Entrepreneurs Network and Startup Camp. I have learned from experienced angel investors a great wealth of knowledge, including how to think like them. One of the key triggers to focus more on startup investing recently was an influx of New Yorkers to Connecticut due to COVID-19 that caused real estate prices to skyrocket in my area. I was not able to find any investable properties for a very long time that would produce a positive monthly cash flow from the get go, and I do not like my money to sit in a savings account earning close to zero interest.
How many companies have you invested in so far?
As a non-accredited investor, I have made micro investments ranging from $25 to $1000 in a few hundred different startup companies so far. Majority of them were through StartEngine, Wefunder, Republic, MicroVentures and (last but not least) SeedInvest. My personal tagline is: “Fixing America one Ben Franklin at a time,” which is relevant to both the amount I charge to fix some of the most common simple plumbing issues as well as it being the most common amount that I invest into individual startups.
What is your strategy for building your portfolio?
My main strategy for building a startup portfolio is diversification, because I expect lots of losses, lots of break-even gigs, lots of small wins, and a handful of unicorn style home runs with 100-to-1000 times return. In my opinion, diversification is the most single important strategy for the following reasons:
1) Many unicorns and some of the best companies made it to the billion dollar valuation either without any investors at all or with only a few large investments from a very limited number of venture capitalists. Most of them were never available to non-accredited investors like myself via crowdfunding sites. Thus, I do not see a reason why I should put large amounts of my money into a single company from a pool of startup companies where the most desirable and promising startup gems are excluded from me.
2) Let’s say there are two types of investors. They all have $10,000 available to invest into startups. The first investor type invests $10,000 into just one company because they are convinced it is the next unicorn for sure. The second investor type invests their $10,000 into 100 different startups at a $100 a pop. All things equal, I personally expect the second investor to have a 100 times better chance of having a future unicorn present in their portfolios. I think the first investor has a 100 times higher chance for their $10,000 investment to be lost or only break even.
3) I got into angel investing to make a profit in the first place, but I also like to support good causes. I would say that 95% or more of my investments are in companies that are either good for the environment, improving people’s financial well-being, or improving people’s health. This micro investment and diversification strategy works well for me, because this way my small investments into hundreds of different startups will hopefully enable hundreds of small positive changes for the better to happen.
Is there any industry that you are keeping an eye on currently? Why?
I believe that the key to making large and inevitable profits is to invest alongside irreversible trends within industries that have large addressable and growing markets. Some of the industries I like to invest in are:
- Food and food production. The sub-trends within the food and food production industry that I like to invest in are:
- Shift from animal based foods to plant-based foods. Meat production is one of the largest known CO2 contributors, and meat production is many times more energy and water intensive than plant-based food production. Furthermore, a plant-based diet is undeniably better for people’s health and for the environment.
- Using drones to monitor and optimize farm crops.
- The use of robotics and restaurant automation to improve consistency and reduce labor costs
- Sustainable transportation and sustainable production of materials and energy. Availability of fossil fuels is limited, space for waste landfills is limited, and there are severe environmental impacts from the use of fossil fuels. The sub-trends I like to invest in are:
- Building materials from renewable resources.
- Hybridization and electrification of transportation vehicles.
- Utilizing ocean waves, solar, and wind to produce energy.
- Reducing the waste of energy and water.
- Health care and pharmaceuticals. Healthcare and pharmaceuticals represent the largest number of investments in my portfolio. I like to invest in startups that improve treatment results and reduce costs to the patients, because the most common reason for Americans to be in serious financial troubles are medical costs. The sub-trends I like to invest in are:
- Use of robotics or 3D printing for surgeries.
- Artificial intelligence and genetics technology to prevent illness, improve treatments, or develop new treatments.
- Non-opioid based pain management.
- Financial industry. There is a large number of financial unicorns and an incredibly large amount of money out there to be made. The financial startups I focus on are revolutionizing this industry. These include financial startups working on or with:
- Blockchain and tokenization.
- Software and artificial intelligence.
- Cannabis industry. Within the vice industries less and less of the younger generations consume alcohol and tobacco products, while cannabis consumption and its legalization is on the rise. Some uses of cannabis might even have some health benefits, while health benefits for alcohol or tobacco users are negative. I have invested only in a handful of startups in this industry, and it is one of the smallest number of investments in my portfolio. But I have high expectations to earn a massive ROI from some of these.
Is there any criteria that you always focus on when you’re picking a company to invest in?
There are several criteria that I use while evaluating startups. I am overall very disciplined in evaluating every single one of these criteria. At times I might be a little bit more lenient with some very small $25 investments, while being very diligent and unforgiving with startups asking for $500-to-$1000 minimum investments. The criteria I am looking for are:
- Large addressable market. Even a small market share from a very large market can result in a multibillion dollar valuation. In addition, I look at whether this market is trending and expanding faster than other industries. I also look to see if the industry is known for producing a large number of unicorns.
- The founders and the team quality is the biggest one. Do they have a history of previous successful exits that produced profits for investors? Do the founders know how to execute quickly? Are they respected industry authorities who know their business inside out? I have noticed that almost 50% of my investments are in what are considered “minority founders.” I believe this gives me an edge as an non-accredited investor, because these founders are often refused and overlooked by the most prominent VCs for very “shallow” reasons. But all I care about is what they have achieved so far, who they are now as a person and as an entrepreneur, and if they have the potential to build a billion-dollar company.
- Is the startup solving a problem, and is it solving it better and faster than its competitors? Even better, does the solution include any intellectual property that will limit the number of any viable competitors?
- Money in the bank and user traction. Does the startup have significant revenues or is it still a pre-revenue gig? Does the startup have a large customer acquisition costs, or does it have a large number of customers growing virally with no or minimum advertising and acquisition costs?
- Is the startup easily scalable without additional significant expenditures, and can it be scaled globally?
- Investment from renown accelerators, venture capitalists, or angels. I use this on occasion as a shortcut to my own in-depth due diligence, because I assume that if these prominent investors dropped $100,000 or $1 million of their own money on a particular startup, they have dotted the i’s and crossed the t’s. One has to be careful though. Sometimes these “sharks” invested in these companies while their valuations were $1 million or less, but now they are on crowdfunding sites with a $50 million valuation. So the big name investors already made a 50 times return, but they might not be willing to invest more of their own funds because the further growth potential might be limited.
- Valuation. Very often I see companies with unfinished products and no revenue on a crowdfunding site asking for investments that value their companies at tens of millions dollars. I have been in business for more than two decades, and I know firsthand that there is a very long way to make millions in business. Thus if someone’s company is making zero money, the value of their company to me personally is zero. However, I do consider — on a case-by-case basis — signed preorders and long waitlists accompanied with deposits as an income equivalent.
- Fundraised amount and pace of the raise. Has the round crossed $1-to-$2 million in a couple of hours, or does the amount linger around $25,000 for half a year? I think it’s best to stick with companies that raise money easily vs companies with fundraising challenges for whatever reason — founders that previously burned investors, bad business model, small TAM, bad deal terms, etc.
What do you think of crowdfunding and its future?
I believe that crowdfunding is the future of wealth building strategies for middle class people like myself and will be a growing part in our investment portfolios in years to come. I have seen that people who take calculated risks more often than not are significantly compensated in comparison to people who never take any risks and play it safe their whole lives. With increasing costs of everything and stagnant wages, the amount of investable capital people have available is shrinking, so more and more people will be looking for investment vehicles to maximize their returns and will be willing to take more risks. There is definitely a larger upside earning potential with investing in vetted startup companies than investing in many other asset classes.
What advice would you give to those who just got into crowd investing?
Do your due diligence to the best of your abilities. Diversify and start with small amounts in industries you are familiar with at first. Invest only what you can comfortably afford to lose or live without for many years. Always review the startup’s Form C filed with the SEC, because it’s the “fine print” where you can uncover the bad and the ugly about the company’s finances or other deal breakers. If you see any red flags during your due diligence, ask the founders cordially about it in the discussion section of their crowdfunding page. Sometimes the red flags turn into nothing, but if there is a valid concern, it gives a heads up to other investors to save their time and money. Join Angel groups where you can educate yourself, and network with other angels to improve your deal flow and ROI. Sign up for auto invest at Seedinvest. I like it very much because it gives me an opportunity to get into startups for $200 that would otherwise require a $1000 minimum investment. It also seems to me that their vetting process is more selective than many of the other crowdfunding sites, and I don’t think I have come across a startup that I would consider to have a “ridiculously high” valuation yet.
Can you tell us some notable companies that you have invested in?
Monogram, Knightscope, StartEngine, Wefunder, TerraCycle, Gage, Miso, Volcon, LiquidPiston, AlphaFlow, Guac, Aptera, Virtuix, GroundFloor, Gumroad, EnergyX, CurlMix, Legion M, Rentberry, Heroic, Backstage Capital, and KingsCrowd too.
Do you have your portfolio published somewhere that we can link the article to? How about a LinkedIn profile?
My LinkedIn is available here: https://www.linkedin.com/in/vilemfruhbauer/
Many thanks to Vilem for his detailed and insightful answers!
About: Inez Sanjaya
Inez's background is in the startup ecosystem, which she is very passionate about. Inez has experience working in a startup, a Google-backed accelerator, and lastly in Plug and Play Tech Center. Prior to this, she was a part of VU Venture Partners doing deal sourcing and conducting due diligence. Inez graduated from the University of California Berkeley with an Economics degree.