Every high growth entrepreneur must have a diverse portfolio of businesses and investments. I live by the principle that you should never put all of your eggs in a single basket, especially in a competitive market.
The one factor I have added to my portfolio over the past five years is seed and micro investing into established founders. It's a long term investment strategy with layers of upside potential if you position your investment the right way. Besides, I believe that every successfully founder should invest in other upcoming founders and opportunities, rather than solely providing mentoring and advice.
I have invested in a few public relations firms, clothing companies, retail stores and real estate, in addition to operating my consulting firm and other ventures. Best of all, it allows me to have a minority ownership stake in businesses that have always sparked my interest, without the full responsibility of running the day to day operations.
With all of the data around the lack of investors funding diverse founders, starting your own micro-fund is a great way to get in the investing game. You can start with seed rounds that fit your comfort level, while owning a minority share in a business that has growth potential.
You do not need to be a billion-dollar venture capitalist to invest in other founders and companies. Since you have built your own successful business, you understand the cash-flow inconsistencies that startups face. Here are five reasons why you need to start investing on a micro-level to diversify your portfolio.
1. Revenue sharing.
Early stage investing gives you the most flexibility and revenue sharing potential. Conduct your due diligence with your attorney and certified financial planner to ensure you are investing in a business with long term cash flow projections.
2. Advisory board membership.
This is probably the best perk in the process-- having a voice in the company that will direct your investment. Invest in companies that will give you a seat on the board, so you could become a trusted advisor to the founders.
In addition, board membership can add tremendous value to your business, and access to valuable networks. I have grown my professional network significantly as a result of having an advisory seat in various companies. You can also connect with other investors who are seeking to pool their resources to fund other projects as well.
3. Long term strategy.
Don't let the eight minute segments on Shark Tank fool you. You may not see a tangible ROI for a few years. If you invest in a founder or company, your investment will need time to mature.
Here is a word of advice-- never invest if you can't afford to wait. Early stage investing will give you the room to negotiate based on growth and performance, so be patient and take a long term approach. On average, I have seen returns on my top performing companies within 10 years, which may seem long, but the rewards have been worth the wait.
4. Getting ahead of the market.
My real estate mentor once told me that when the market is hot in a specific area, it's already too saturated to invest. The same is true for early stage micro-level investing-- avoid overcrowded trends.
You want to get ahead of the market by investing very early, similar to an IPO. By the time the company begins gaining traction, you will miss the upside of the opportunity. Invest in tested ideas that you can grow with, rather than catch up to.
5. Fresh perspectives on overlooked opportunities.
I invested in a women's clothing company that has a unique story and footprint about how each garment is designed and the materials used. The founder pitched the idea to hundreds of investors, who said clothing is too competitive and would never work.
However, after reviewing the offering, and because I understand Latin and Caribbean culture, I saw the investment from a different perspective. The concept has a renewed popularity and customer base because most of the micro-investors share a similar cultural background, and well versed with reaching the target market.
You have the opportunity to invest in ideas that may not be attractive to one-dimensional investors. Create unique experiences and opportunities for unique founders.