Thread by @dunkhippo33

There's this adage that's floated around for YEARS that you should try to find investors who have invested in companies similar to yours.

But, I think the advice, should be nearly OPPOSITE.

Read on >>

1) First some context. Years ago, when I was pitching my ad startup LaunchBit, I was advised that I should try to find investors who invested in ads.

So I researched all these VCs who had ad companies in their portfolio.

2) The common response from all of them was that they were not likely to invest in more ad companies. They were either over-indexed on ads. (i.e. had too many ad companies) Or they didn't want direct competition amongst their portfolio companies.

3) My initial reaction at the time was that it was a good excuse. And that may have been true for some investors.

But now that I am an investor, it's so spot on.

4) Say I have 3 companies who are in the same space, it is already hard enough to coordinate to make sure they are cool w/ each other and would not be direct competition -- even if not now but down the road.

Adding 1 more company to this scenario is tough.

5) So if you find yourself cold-emailing an investor saying, "I think you'd be a great fit because you are invested in Company A, B, and C", it might be worth exploring the opposite strategy:

Cold email investors who have 1 co in that space but not many.

6) Because even if an investor likes a space, the concern of portfolio competition and over-indexing is real.

It's like if you were coaching a basketball team and you already have 3 point guards. You may like having great pt guards, but you're not going to find a 4th now.

7) Unfortunately, that's just luck - you may be an awesome pt guard, but if Steph Curry is on the Warriors, it's going to be near impossible to play for the Warriors.

8) The wildcard is that sometimes portfolios can change. If let's say the 3 companies that are in a very similar space to you exit or shut down, then an investor can be interested in that space again.

9) Crypto is an example of this - a lot (not all) of the cos that formed in 2017, either took an exit or shut down during the fall of the crypto mkts.

So look to see if the companies in an investor's portfolio are active.

10) The other wildcard is if the fund is sector specific. E.g. education focused or crypto focused. Then all of these thoughts go out the window.

11) So in conclusion, as you're making your list of investors, if an investor has 1 portfolio co in a space, that could be neutral to promising, but having a lot probably works against you.