But just in case you’re not familiar with Mark, here are a few relevant facts:
- He made most of his $3 billion fortune by starting and selling technology companies, including selling Broadcast.com to Yahoo! for $5.6 billion.
- He’s diversified his investments by getting into professional sports (he owns the Dallas Mavericks), as well as many small businesses.
- But mainly, he focuses on what he knows best: early-stage technology.
In 2008, for example, he invested with some other “angels” in a start-up called SlideShare. In 2012, SlideShare was acquired by LinkedIn (NYSE: LNKD) for $119 million, netting Cuban an estimated gain of 59.5 times his original investment.
But Mark’s success as an investor doesn’t come from “following the crowd.”
In fact, as we learned during our research for The Angel Initiative, Cuban rejects many of the traditional investing strategies that others lean on.
Today, we’ll share three of Mark’s most unconventional tips for angel investing success.
Unconventional Tip #1 – Walk Away
At a recent conference, Mark vented about one of the biggest problems with Silicon Valley investors nowadays:
They have a morbid fear of missing out on “the next big thing.”
Because of this fear, they lose their discipline and pay any price to get into a “hot” deal.
According to Cuban, what they’re failing to recognize is that few of these hot deals will actually be successful – and even if the investment is successful, the high price they paid for their stock will limit their returns.
If the price is too high, says Cuban, you need to walk away – even if it means occasionally missing a good deal.
To illustrate his point, and to prove that he “talks the talk, and walks the walk,” Mark shared a story about missing out on a huge homerun: Uber.
If you’re a longtime Crowdability reader, you know that our friend and business partner, Howard Lindzon, turned a small investment in the company into millions – for every $5,000 he put in, he got back $2 million.
Despite the fact that it was a competitive deal to get access to, Mark could have gotten in – but he walked away because it was too “rich” for him.
Does he wish he’d gotten a “400 bagger” like Howard?
Sure he does.
But Cuban knows that if he stays disciplined, he’ll ultimately make a lot more money than he loses.
Unconventional Tip #2 – Homeruns Don’t Win Games
When we first started our research project in 2013, we found that many of the investors we spoke to would brag about a big ”homerun” they’d had...
They loved telling us how they got in early on a company like Uber, Twitter or Facebook.
But as we dug deeper, we often found that these investors only had one story to tell; they only had one win.
To us, that didn’t sound like an investor with a proven “system” for finding good investments…. it sounded like someone who got lucky.
So we shifted our efforts to find investors who had smaller wins… but more of them.
Mark Cuban is one of those investors.
He’s not focused on long-shot companies that might get a huge exit.
Instead, he invests in companies that can become successful businesses.
In fact, he was recently quoted in The Wall Street Journal about this topic:
“I want to know not what your exit’s going to be, I want to know why you are going to be a successful company in case you can’t get an exit.”
Unconventional Tip #3 – Moneyball for Investing
Many investors think they just “know” which early-stage companies will become successful.
But as we discovered during our research, the statistics tells a different story:
Simply put, even the most successful early-stage investors are wrong more often than they’re right.
That’s why, as we discussed last week, diversification needs to be the cornerstone of your early-stage investment process.
And Mark agrees.
He currently has 125 active early-stage investments.
So even if he never invests in a Facebook or Uber, this level of diversification means he can earn market-beating returns.
Mark’s Most Important Tip...
I hope you enjoyed learning about the strategies Mark uses to build his early-stage portfolio.
Thanks to Equity Crowdfunding – where regular investors like you can invest in start-up deals over the web – now you can use these same strategies.
But there’s one other strategy Mark relies on to earn big returns in the private market.
In fact, as we came to learn, it’s one of the few strategies that nearly every successful early-stage investor uses.
If you can master this one strategy, you could be extremely successful in this new market.
I’ll share the details with you next week as we continue our month-long series on The Angel Initiative.