Real Wealth Arc: How networking makes investors lucky
Real Wealth is a newsletter and blog series exploring real wealth and unconventional paths to get there.
You see people on Twitter with lists of successful private investments.
Early in Zoom. Early in Bitcoin. Early. Opportunities seem to come to them.
How did they get so lucky? How can you?
I met Dan Scheinman earlier in his career when he was at Cisco. He’s a lawyer by schooling and a deep thinker. His network became his wealth.
“When you have the opportunity to invest in great people, do it regardless of the initial market.” - Dan Scheinman
The founders of Dan’s two biggest home run investments, Zoom and Arista, both worked with Dan at Cisco.
Zoom’s founder was a key software engineer at Cisco working on Webex. The founder of Arista, Jayshree Ullal, was a brilliant executive at Cisco. It wasn’t just working at Cisco that gave Dan the edge.
In 2006, 30,000 people worked at Cisco, and very few of them saw what Dan saw.
Dan knew how to recognize talent in people and invested in them. Is it really that easy? Never. And…you can make it easier...or harder…
Dan’s Real Wealth Arc started with his ability to recognize smart people in his network. Dan is a great networker which makes it easier.
My dad is also super smart, but isn’t a networker, making it harder.
When I was young, one of my dad’s brokers gave him the opportunity to be an Angel investor in a DRAM (memory chip) company. My dad thought Asian manufacturers would destroy the US-based memory companies and didn’t invest. He was both right and wrong.
That DRAM company was Intel.
While my dad was right that DRAM would be dominated by Asian Manufacturers, he was wrong on the investment. My dad didn’t know how passionate Intel management was about being innovative. Intel recognized that DRAM was becoming a more hostile market, so they abandoned it and pivoted to microprocessors.
Angel investing is about knowing the team so well you can predict how they will respond to threats and opportunities.
Intel pivoted to microprocessors and partnered with another small startup at the time, Microsoft. The rest is history.
Some days, I Imagine I have a time machine… I talk my dad into making an Angel investment in Intel, we ride the Silicon Valley wave, I’m living in a Yacht, docked outside one of my 7 mansions, my jet awaits… Then I wake up! I’ve missed plenty of opportunities too…
Was my dad just unlucky? Who could have seen this coming?
Those who knew the personalities had the edge. The brilliant founders of Intel were deep thinkers who left Fairchild Semiconductor, the original semiconductor company, so they could innovate. That Angel round my dad passed on marked the beginning of the Venture Capital industry in Silicon Valley, powered by this group of brilliant rebels.
My dad was a Stanford grad, tech investor, and top corporate lawyer. He was missing a system for networking with future founders.
My dad missed knowing the players and understanding how they think.
How can you be different?
Today, you have access to incredible people online, especially on Twitter.
Learn from them. Get to know them. Later, you can invest with them.
Networking is your #1 “get lucky” ticket.
Want to get luckier still?
In addition to facilitating networking at scale, the internet increases your investment’s chance of success. Let’s compare Intel’s start with companies today.
Andy Grove, Intel CEO, coined the famous phrase “Only the paranoid survive.”
Back in the “old days” when Intel was being formed, you couldn’t start a company for under $50,000. Pivoting away from DRAM nearly bankrupted Intel before it got going. Semiconductor businesses were boom and bust, as were software companies who sold 50-70% of their product on the last day of the quarter.
Then along came the cloud, subscriptions, and social media.
We moved from paranoid (Intel) to move fast and break things (Facebook).
When smart people can start with an idea on Twitter, iterate fast, and make millions (with product-market fit), speed is the name of the game, not paranoia!
Your ability to network for wealth grows exponentially in this new world.
Businesses can grow orders of magnitude faster with less capital, which means more opportunities for investors. With Twitter and the cloud, every business has access to fast feedback loops. We have massive computing power via the cloud, software on a monthly subscription, and talent only a click away.
Your luck increases exponentially when you know the right people. But how?
Finding a great investment means knowing which teams will be smart about pivoting vs digging in when they hit a rut in business. These are great managers.
First, be able to recognize great managers.
This is an art as much as a science. VCs typically look for serial founders who have taken companies public before. These investments, even in the Angel phase, are expensive, and hard to get a seat at the table.
I’ve had luck building a network of smart people who refer more smart people to me.
I love getting to know people and technologies. Over time you can too, and you’ll develop opinions on which technology or future trend you see emerging.
Observe people over time.
How do they make decisions? Do other people you respect also respect them? How do they treat customers, investors, and enemies? Private Angel investing is so early that often ALL you have is trust in the person’s character, decision-making ability, and vision.
I’ve worked 25 years as an institutional investor, some weeks talking with 40-50 CEOs and CFOs.
I’ve seen them in the trenches and seen what decisions they make when things get tough. Even more important, I’ve seen how they act when things go well.
Even if you are not a professional investor, you can find smart people, watch their interviews, follow their careers, and track their decisions over time.
One day you’ll find the people you believe in, working on a technology or trend you are passionate about. Just like that.
Second, be able to “add value” so they want you as an investor.
Let’s visualize the “future you” already adding value. You have multiple successful exits from your angel investments. Your Twitter profile looks like Dan’s above.
How did you get there?
You have the trifecta:
· You know smart people who are starting interesting companies
· Your own skills and knowledge can help them succeed
· You know other people who can help them succeed
How?
You built your trifecta:
· You educated yourself on both business and investing, early and often
· You remained curious and pushed yourself to learn and meet other learners
· You thought of your career as a networking opportunity, not a list of jobs
You rode the Real Wealth Arc. Dan did. My dad didn’t. Did I?
My first angel investment was after I turned 54. It happened because of my network.
An investment banking friend connected me with Brett Shockley, the CEO of Journey. He had a question my friend felt I was best suited to answer.
I was late to the party and more lucky than smart.
I could have been leveraging my network for years, but I didn’t. I only became an angel investor after I introduced Journey to another company, and my friend asked “If you love the team and technology so much, why aren’t we investing?”
My problem was identity.
I thought of myself as a career public markets investor, not as a career networker who happened to work in investing. I hope by sharing this, I help you see yourself and your opportunities differently than I did mine. Your identity is simply how you choose to see yourself.
It’s not too late.
There are on-ramps everywhere!
How can you learn skills through strategically picking jobs or career paths?
How can you leverage online communities and courses to learn and meet great people?
How can you network smarter to jump on your own real wealth arc?
Start today!
Want to dive deeper into your Real Wealth Arc to see where you can jump on?
Look out for Part 2 as I explore your paths to prosperity.