Gary Vaynerchuk’s guide to investing

Gary Vaynerchuk invested in Snapchat, Facebook and Twitter. He is a serial entrepreneur and the CEO and co-founder of VaynerMedia, a full-service digital agency servicing Fortune 500 clients across the company’s four locations.

Image courtesy Gary Vaynerchuk

The following is an edited excerpt from #AskGaryVee: One Entrepreneur’s Take on Leadership, Social Media, and Self-Awareness by Gary Vaynerchuk. The article was provided by VaynerMedia. You can buy a copy here.

What should I focus on with the companies that I invest in?

Entrepreneurs often struggle with making the transition to investor. We’re so used to running the show, and all of a sudden we have to step back and watch other people execute. It’s not easy. In the beginning, I didn’t even realize jockeys could completely screw up an investment; I figured the horses they were riding were such magnificent beasts the jockeys were almost just there for the ride. Boy, was I wrong. When considering whether to make any investment, make sure that the idea looks phenomenal on paper and that it is in good hands.

You’ve said that sometimes you invest in horses (companies) and sometimes in the jockeys  (founders). What do you look for in each?

If I don’t believe in the upside in your market, I’m not going to believe in your startup.

That said, when looking at a horse, I’m looking for companies that are built on concepts or ideas that are only about two to three years away from hitting mass consciousness. In 2006 and 2007, that was social media. Today, I’m looking less at social networks and apps and more at things like smart tech. I also think there is a lot of potential in consumer packaged goods as companies try to make healthier versions of everything we already have.

At this point in my career, I am spending more and more time yelling at the CEO and team, especially if I’m considering an early-stage investment. Jockeys come in all shapes and sizes, even more so than horses.

Are you a good operator? Are you hungry? Are you competitive? Then I started seeing all the ways businesspeople can be successful – with operational strength, motivational strength, financial strength – and I realized I didn’t have to look for my clone. I started spending more time getting to understand the jockeys’ strengths. I want to know they are self-aware enough to team up with people who fill out their weaknesses. I also want to know if they’re got the stomach for business. When things aren’t working or when times get hard. Do they know what to do to pivot the business? Can they be good wartime generals and peacetime generals?

What’s your stance on investing in competitive companies?

As I see it, the bigger problem is what happens when companies pivot. I’m investing in companies that aren’t competitive, but as an entrepreneur, I can see how they could make a move that would bring them into the same orbit. And then what would I do?

The only thing anyone can do is approach investments with openness, honesty, good intent, and the understanding that the scenario I just described above is possible. The only reason I avoid it – and I suggest you do, too – is that if you make it a habit, you will hurt your reputation and no one will want to deal with you. Earn a reputation as someone who is trusted and transparent, and every opportunity will find you.

You talk a lot about upcoming companies and predicting their success. Where and how do you find these companies?