Thread by @dunkhippo33

Today’s thread is about investor strike zones. This is something that Warren Buffett has touted a lot and that really resonated with me.

What is an investor strike zone and why should you as an entrepreneur or as an investor care?

Read on >>

1) First what is an investor strike zone?

It’s essentially the scope of companies you’ll invest in.

-sector
-approx check size
-valuation range
-capital intensiveness
-business model
Etc

2) Warren Buffett is probably one of the most disciplined strike zone investors. He has changed his criteria a bit over the years but he is focused on looking for opportunities that fit and not spending time trying to swat at things outside the zone.

3) Investors pick their strike zone based on a variety of things - what they know, what they’ve made money in before, dealflow they attract, and fund size.

This last one is most impt, because you can learn & work on all the other things. But fund size is not always by choice.

4) Fund size is your strategy. Some firms have billions of dollars in a *single fund*. My fund is 100x+ smaller!

Let’s just pause there - 100x difference. Or even 1000x in some cases!

5) When I write a $25k check, there are only certain kinds of companies that will benefit.

A generally bootstrappable SaaS co fits.

Building a nuclear power plant clearly doesn’t. Asteroid mining doesn’t. E-commerce inventory doesn’t. HW prototypes don’t either. Etc

6) The equiv check per the fund for a large firm is $2.5m or even $25m.

I can afford to bet $25k relative to my fund in the same way a big fund can bet $2.5m.

So we cannot take on the same types of companies and business models.

Your fund size is your strategy.

7) One of the things that was hard for me to grasp when I was an entrepreneur is that if you don’t fit someone’s strike zone, it doesn’t mean that you’re a bad investment or that the investor even thinks you’re a bad investment.

8) I’ve written about that here:

https://twitter.com/dunkhippo33/status/1319350700770381824

9) An example of a poor-fit strike zone is say someone is pitching a new solar cell project that is pre-product to a VC who funds biomedical devices at series B.

We would all say this makes no sense. Clearly this is out of strike zone.

10) But “Tech VC” has become so broad that it’s hard for entrepreneurs to know what an investor’s strike zone is.

E-commerce and fintech and HW and crypto and medical devices get conflated all the time.

But they are not the same.

11) And 1 reason it’s unclear is when you read VC websites, their strike zones are either not listed or are quite nebulous.

We try to make ours as clear as possible but we are open to suggestions & know there is room for improvement:

hustlefund.vc/faq

12) Another reason why strike zones can be confusing is that many investors make exceptions.

I certainly remember the frustration of pitching my adtech startup and having the firm say they don’t do ads and then finding out they backed some other ad company.

13) And yes we, too, have backed in rare circumstance, companies outside of our strike zone.

For us, we see it as a way to slowly and minimally test whether we want to move or expand our strike zone.

Eg - geo is something we’ve decided to expand.

14) But again, it’s impt as a professional investor to not swat at things that are not the right pitch.

Building brand around that strike zone is impt. And honing in on learnings and network for that zone is helpful for future investments.

15) In contrast, this doesn’t apply to Angel investing. As an Angel investor, if you want to move more towards pro, then you’ll want to create a strike zone for the all the reasons above.

But if you just want to have fun and do whatever you want, then you don’t need one.

16) I’d say my own Angel investing doesn’t have a strike zone - it’s basically what Hustle Fund would not invest in - which means I’m swatting chaotically.

17) I’ve previously talked about how there are many great startups that won’t fit the strike zones of many VCs.

This is also why we need more investors - esp angels who are more flexible and don’t have strike zones.

https://twitter.com/dunkhippo33/status/1483001092447162369

18) In short, to reduce frustration in the startup ecosystem, I’d recommend investors lay out their strike zones and founders to read them if they want to pitch and best position themselves.