Those are my feet you're looking at...
They haven’t moved much this weekend:
In and out of the pool. A stroll through town to the classy restaurant in the converted farmhouse. A little tapping when I went to hear some live music.
And yet, over the course of two days, I walked through several early-stage investment opportunities from Norway, Spain, the UK and Israel.
The Biggest Little Town in America
I’m writing this from Woodstock, New York, up in the Catskill Mountains.
You’ve probably heard of the music festival that took place near here back in the 60s. Nowadays it’s just a cool little town that has some of the best restaurants, music, and hiking trails within a couple hours of New York City.
During the week, I live in the city, on the Upper West Side. But for the last five years, ever since a technology company I’d started was acquired by a big media company, I’ve spent weekends in Woodstock.
My house up here is a great place to relax. Built into the side of a mountain, it’s sunny and peaceful. It’s tucked away at the end of a long gravel driveway, so there’s not much to disturb you — just the hummingbirds that helicopter into the wildflowers, or the family of deer that graze by the meadow.
But it’s also a great place to think. And the first summer I came up here I did a lot of thinking about investing — especially about investing in start-ups.
You see, after starting, building and selling an early-stage technology company, I was excited to invest in other entrepreneurs. It felt good to give back to the start-up community, and armed with first-hand knowledge of the challenges that face an early-stage company, I thought I had an advantage as an investor.
The Local Rule
But before I started investing, I had to decide on the criteria I’d use to evaluate investment opportunities. As I did research on well-known and successful investors, I learned that one of their common rules was a simple one: invest locally. Many professional investors say they wouldn’t put money into a company if they have to travel more than an hour or two to have lunch or dinner with the team.
The local rule made sense to me (I believe strongly in betting on the team, and it’s challenging to get to know the team if you can’t meet with them frequently), so I made it one of my criteria.
In the Trenches
Soon I started looking at potential investments, and I stuck to the local rule: the companies needed be headquartered in or around New York City.
And although I had specific ideas about what I was interested in — for example, companies that were tech-enabled, capital-efficient, and could leverage the power of social media — there was no shortage of companies that fit my criteria. Whether a company was in media or commerce, apps or consumer products, if it was in NYC and fit one of my investment theses, it could still be on my list.
My impression was that there were an endless stream of diverse opportunities — all available locally.
The United Nations of Start-ups
But this weekend up in Woodstock, as I traveled online through international crowdfunding platforms, my beliefs about geographical investing started to expand.
Digging into various investment opportunities, I noticed that I kept being drawn into a specific part of the company profiles: the background of the founders.
On an Israeli platform called OurCrowd, for example, I saw a company focused on “business intelligence.” Essentially, they work for some of the largest global conglomerates and hedge funds, obtaining hard-to-reach information.
The company looked promising — but when I saw where the founders came from, my interest quickly grew. I read that the founders had worked together at Mossad, Israel’s Intelligence Agency. And the company had been put together with the help of one of Mossad’s former Director Generals.
The fact is, these entrepreneurs have a worldview that’s vastly different from mine — and vastly different from most of the entrepreneurs I’m meeting in NYC. They live in a region of the world that’s a hotbed of terrorist activities — and for better or worse, they’ve gained real-world experience doing highly-focused operative research.
As it turns out, this experience has valuable private-sector applications.
The Real World: Israel
The real-world experience of the founders colors their worldview. It colors how they think about what’s important and what’s truly valuable. They’re aware of different problems than I am — and many great companies get started because someone recognizes a big problem, and creates a solution for it.
Being able to invest in an entrepreneur who is so different is incredibly exciting. It helps me understand the world better. And as an investor, it helps me diversify.
To wrap things up today, let me leave you with a few thoughts:
In the public markets, I invest a portion of my portfolio in companies that derive revenue from non-US markets. This type of diversification is one of the golden rules of investing, and you probably practice it already.
Think about doing the same thing with your private-company investing.
To get your feet wet, consider taking a look at the site I mentioned above, www.ourcrowd.com. They can accept investments from US citizens.
The equity crowdfunding market is changing rapidly, with new platforms that feature investment opportunities being launched frequently. Some will feature high-quality deals; others might not.
Furthermore, the rules and regulations that govern crowdfunding may be different in international markets.
Keep your eyes open. Not all platforms are created equal!
Rock It Old-School
Despite all the optimism we feel for the new world of equity crowdfunding, it’s hard to argue with some of the common-sense rules that have guided the investment decisions of professional investors over the years.
The fact is, there’s a reason why some investment rules have stood the test of time: they’re good rules!
Invest locally strikes us as a reasonable and valuable rule — whether local for you means within an hour drive or within the confines of your country.
So invest locally for a good chunk of your early-stage portfolio.
To diversify, start by investing a smaller percentage of your portfolio in non-local opportunities — and gradually expand your investing to include international opportunities.