As the Founder and CEO of KingsCrowd, I am often asked, “How do I decide what to invest in?” Though this is a loaded question with many good answers, I think a good place to start is to bring it back to the basics.
For all those Peter Lynch fans out there, the man I really learned to invest from, I will reiterate his words, “Invest in what you know.” That approach carries even more weight when it comes to investing in the startup asset class, because you can play a larger role in shaping that company’s success.
I know that trying to invest in startups can be intimidating and feel like a game of Chess. That feeling of every move could be your last, but investing in what you know can help to cut out the noise and focus your investment strategy.
With this in mind, I am going to walk you through the core of my own startup portfolio, which I have built over the past year or so, utilizing this exact method.
So what do I know???
As some of you may or may not know I have run a Fintech blog called SIC for the past 2 years, where I have connected with over 50 Fintech Founders & CEOs from seed stage to public companies within the alternative investing, lending, and banking realms.
From speaking with the Founders & CEOs of companies such as Republic and Netcapital in the equity crowdfunding space, to LendingClub and Groundfloor in the marketplace lending space, to Unison and Landed in the real estate space, I have come to understand the intricacies and challenges of building businesses in these markets.
I have also had an opportunity to get an inside look at how these companies function and build their businesses within challenging regulatory environments. I have also built a deep network of individuals I can call on that support Fintech startups from VCs, and PR agencies, to lawyers and journalist.
Needless to say, I have built an immense industry vertical knowledge in the Fintech ecosystem. This has proved valuable in forming my startup investment thesis and approach.
My investment approach…
Going back to my earlier point about investing in what you know, I decided that with all of this domain knowledge I had built through my blog, I could utilize it to create an informed investment thesis.
My thesis going in was as follows. Investing in a diversified portfolio of early stage stage Fintech startups building out new arenas of financial services or improving on old ones would provide outsized returns over the next 10 years.
With that I began to build out my investment portfolio around the four below companies.
What have I invested in???
StartEngine: After getting to know the founders of Netcapital, Redcrow, and Republic I was sold on equity crowdfunding as an opportunity to completely disrupt the $84 BILLION Venture Capital market with a better way to raise capital. Thus, when StartEngine launched their campaign to allow everyone to invest in the platform, I knew I had to be a part of it. As one of the top 5 equity crowdfunding portals by size, StartEngine provides a market leading opportunity to be invested in this space.
Groundfloor: Groundfloor provides individuals the ability to invest in short 6 to 12 month home flipping loans with as little as $10. This is a company I got to know through my blog almost 2 years ago, and have watched grow into a nationwide company that has provided me strong returns through their loan product. So when the company offered up a $3+ million equity stake, I knew I would partake. Listing the offering directly through their own platform, since they have become experts in Regulation A offerings, the team raised well over $3 million, and I am excited to partake in this fast growing alternative lender, that is the only company of its kind in the space.
Lendsnap: One area I have had an opportunity to get to know a good deal about through my blog is the mortgage space. Here is an industry that still lives in the 50’s with paperwork galore, long lead times, and lots of stakeholders, all of which move slowly. That is where Lendsnap comes into play, providing a tech solution to make document gathering and management for mortgage lenders simple and efficient. A much needed value-add in a multi-billion dollar whale of an industry that is desperately in need of automated processes.
Home61: If you’ve ever tried to rent or buy a home using a service like Zillow, you most likely know that once you get past the simple search interface, the process often involves lots of emails and voicemails from multiple agents vying for your lead. The process can often be choppy and burdensome. Home61 is turning that model on its back by providing a new kind of service, one where the agents work directly for Home61. This allows them to provide you with an agent that is customized to meet your needs, and they automate most of the scheduling and administrative tasks so that you get the full attention of one agent who ensures a high quality renting or purchasing experience.
How I’ve helped my investment…
As you can see, each one of these companies is right within my wheelhouse, and what that has allowed me to do is immediately help my investments. For instance, last year when I invested in Lendsnap, I not only published a piece with the founder on my blog, but I also got the CEO an appearance on Cheddar (a digital “CNBC-like” streaming channel).
I’ve also featured Home61 and Groundfloor on my blog and have helped these companies with intros to potential VCs and PR agencies along the way too. Needless to say, by making an investment in these companies I saw myself not only as a source of capital but also as a value-add partner in the company. In that way, I could help to promote the growth of my own investments.
What’s your area of expertise???
As you can see by having a domain expertise in my investments, I not only felt more confident about the decisions I was making, but I was also able to help promote the well being of my investment. That is the power of investing in the early days of a company and why I encourage you to find startups that align with your knowledge or hobbies.
If you’re a doctor, invest in healthcare startups with promise, if you’re a te acher, invest in ed-tech startups, if you’re a hobbyist gamer, invest in gaming companies that excite you. There is something for everyone, and we can all bring something to the table if we go into our investments asking ourselves, “How can I help?”
So for those who don’t know where to start when it comes to investing in the startup community, I highly encourage a process of investing in what you know…
Wall Street has Morningstar, S&P, and Bloomberg
The equity crowdfunding market has KingsCrowd.
About: Chris Lustrino
A Boston College Eagle for life, on a mission to democratize startup investing for all people at KingsCrowd, with a passion for Fintech, investing, social impact, doing well and doing good, and an avid runner, cyclist and writer.