I recently experienced my first brush with investment failure. Thankfully, it was a shadow failure. Over the last two years, I’ve created a shadow portfolio: a list of companies I had high confidence in where I wanted to invest, and those I spent time learning about but ultimately would have passed on. I include the company name, when I met them, and what traction or valuation they were hitting. Without investment capital, this enabled me to track and reflect on my decision-making.
There was this one company I loved.
They had a clever model of urban greening. Their technology helped property developers turn unused rooftops into climate workhorses with a mix of gardens and solar panels. The developers benefited from instant financial incentives, but the neighbourhood and the city reaped long-term benefits. Green rooftops help fight the urban heat island effect. They were looking at plugging gaps in fresh food access with their network of gardens. Seeing greenery is good for us. I loved seeing a business model address a range of key inputs to the vital neighbourhood.
These are actually details from a different startup that is going strong. I want to protect the identity of the recently defunct company. But their model was just as juicy.
I was swayed by their polished marketing and the charisma of the founder and team. Their confidence made me believe they were destined for success. However, my gut told me something was a little off.
They didn’t want smaller investors like me to participate (I was looking at a small “real” investment before placing them in the shadow portfolio). Following a meeting, the team didn’t even respond to my email when I told them the amount I was looking at. I tried to use the product and the online platform was closed. They cited sky-high demand, but I wasn’t sure. The terms they used for the raise didn’t seem fair as different investors were being given different incentives.
The experience of assessing this investment led me to reflect.
I empathised with them. I’ve been that busy founder, exhausted by fundraising. Maybe I shouldn’t have spent so much time talking to people like me when I was building Access Afya, my Kenyan primary care business!
I envied them, confidently creating a buzz. You’re either with us or not, but we’re moving on, fast.
I fell for the FOMO. My desire to get in on this deal overrode the tingly feeling in my stomach. That tingly feeling was saying, softly: “What if they treat other investors and clients this way? Might there be consequences?” “Do I know enough about this product and why the site was down?” “What’s the line between confidence and arrogance? FOMO can be architected, and it’s not the same as real business success.”
Entrepreneurs should be relentlessly focused on product and revenue, and fundraising can be hugely distracting. But angel investing is often about people and relationships, and that inherently takes time to build. I’m still not quite sure what the right balance is.
In hindsight, I’m grateful I wasn’t acting with real money here. But what did I learn from this experience?
First, I learned to listen to my gut. To not write off an instinct or a feeling as inferior to cognitive reasoning. I hope with experience that the soft voice I was hearing will play a big role in my internal dialogue.
Second, I realized personal values don’t always equate to industry insight. I’m looking for businesses that map to my worldview. Businesses that build towards healthier and more sustainable environments. Businesses that should exist. It’s why I got into investing in the first place. However, the market might not be ready for the trends I care about. For my investments to thrive, I need to focus not just on the idea and impact but also on the ecosystems in which they operate.
Finally, investing is inherently risky. I know. State the obvious. It’s truly a numbers game. Great ideas often fail. Timing, team dynamics, and macroeconomic trends: these all impact who makes it. The portfolio is important so as not to be derailed when something like this happens.
Would I have ended up investing if they had offered better terms to smaller investors? Perhaps. But as I reflect on this experience, I'm reminded to trust my instincts, to take my time, and to be explicit with myself on whether I’m investing in the vision, in the business, or both.
Thank you
and for making this reflection ready to share. And thanks to the entrepreneurs out there building things and sharing them with me ❤️
Gut instict is usually right. That is how we survived before "enlightment" clouded our vision.
Such a smart idea to create a shadow portfolio and follow your instincts and research. Great way to learn -- as you obviously did here. Well done! 👏👏