John Ason has invested in over 80 early stage companies across a 20 year career, often as the lead angel and chalking up impressive exits such as xlibris.com, diapers.com and centrak.com. This longevity is remarkable not only considering that angel investing is a notoriously high-risk field, but also that New York City’s tech scene is much younger than Silicon Valley and itself is only a few decades old. I spoke with John about what mental models he brings to investing, how to make an investment decision in one minute and why we need more women entrepreneurs.
What is your investing philosophy?
The great British political philosopher, Isaiah Berlin, expanded upon a Greek poet who said “The fox knows many things, but the hedgehog knows one big thing” to distinguish between two ways of seeing the world. “Foxes” have an outlook that is divergent, even contradictory, while “hedgehogs” relate everything to a single organizing truth.
An early stage angel investor needs to think like a fox as the process of creating new markets or disrupting existing markets will necessarily conflict with one’s initial assumptions. Most other investors and VCs think like hedgehogs, they are totally data driven and cannot accept anything that deviates from their usual metrics.
At the same time, startups are likes foxes — they are searching and experimenting with many different ways to make money. My job is to help a fox-startup become a hedgehog company — be totally focused on a customer segment to generate revenue — so they can attract hedgehog money to grow to scale.
How do you assess companies?
Almost all my investments are pre-revenue and pre-customer so I find business plans and those large lengthy presentation decks a complete waste of time — they cloud rather than clarify. Instead, I ask for a single page executive summary. I see about 4,000 of these pitches annually and will typically take one minute to make a decision to either meet the founders or reject. After meeting with the founders, about half I will invest in.
What do you want to see in this one-page executive summary?
A few things:
– In the first sentence or two they should be able to clearly express their core competency. Surprisingly, around 30% of pitches I hear fail to do this, even when prompted. Too often they list product features — that will change and is least important.
– I want to have them describe the market opportunity and how big is it. I want their reasoning why they think so and their assumptions, not market statistics.
– Lastly, the aesthetics of the page is important. I don’t want to see a legal brief filled every inch with words. 2/3 of the page with text is fine, lots of white space and illustrations.
What about the people element?
I want founders to be able to impress me with some previous accomplishments. It can be in a completely different field, but this shows me that they can execute like a hedgehog when needed. Related to this they have to be able to make decisions quickly. Early stage companies rarely fail because they make bad decisions, but more often because they make no decisions. Having little to no data can cause people to freeze up, so they must be able to overcome this cognitive bias.
Having a fox outlook, I also want them to challenge me and my assumptions. Sometimes I will put out a ridiculous suggestion that I know is mistaken to see if they are willing to question me and push back.
What is a warning sign with new ventures?
When someone tells me they need 3–4 weeks before they want to meet and produce a one-page executive summary. To me that is a giveaway they are not moving quickly enough or focused enough.
We often hear about the lack of diversity in this field, what do you see?
I value diversity of thought rather than diversity in sex or race. I have invested in 14 women founded businesses — eight by foreign born and 6 by US born women. I have found the most diversity of thought in women entrepreneurs. I also mentor many women groups and angels as there is even less diversity in the angel and investor community. More female participation in both areas is the right thing to do and also good for businesses.
What is the most important thing you have learned?
Humility. In the first decade of my investing career I would focus on a big idea with mediocre people. The second decade I switched to great people with a decent idea — and my failure rate in the last decade has dramatically gone down.
People count more than ideas. I have even encouraged my companies to send their business plan to large competitors, which occasionally causes those competitors to cancel a similar project rather than compete. As it’s not the idea that scares them, but how fast the startup can move with great people.