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3 Lessons Learned from My First Startup Investment

3 Lessons Learned from My First Startup Investment

In 2011, I made a major investment in a startup company for the first time ever. The company is called Help Scout—they make web-based help desk software that makes customer service a breeze for any business.

Ever since I invested, countless people have come to me with questions about startup investing. They think it’s simple—you find a great idea and throw money at it until there’s a huge IPO that makes you filthy rich. Right? Isn’t that how it works?

Nothing could be further from the truth. If you want to invest in a startup, here are the three key bits of information you need to know:

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1. You’re not actually investing in a startup.

You’re investing in people. When the time came for Help Scout to start seeking angel investors, the three guys behind it were so cool that they wouldn’t even ask me to invest. Why? Because I’d actually been investing in them since they were in college.

Prior to forming their own company, they had all worked with me as interns, and then as professionals when they branched out and created a web design firm. Over this period, I took an active interest in their growth as entrepreneurs and young men. By the time they were ready to launch the company, they thought I’d already done my part.

When I finally heard they were looking for investors, I asked to see the presentation they were showing to potential candidates out of curiosity. I read it and was sold. “Can I invest in this?” I asked them.

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“Robert,” they said, “this is very risky. There’s absolutely no guarantee you’ll see your money again.”

“Listen, I’m not investing in the business. In fact, I’m still not sure I even understand what you’re doing!” I explained. “But I believe in you guys. I always have. And I’ll believe in you forever.”

With that, they had another investor.

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2. The startup’s concept doesn’t have to make sense to you.

To this day, I do not fully understand Help Scout. I just don’t have a techy brain, and I’m aware that ideas in that field don’t always make sense to me. But I also never thought a hot dog on a stick would sell so well.

The point is to not get so wrapped up in an idea that you think is amazing, because amazing ideas don’t execute themselves. Even amazing ideas will fail unless you have a team of extraordinary individuals putting in 15-hour days week in and week out.

The first time I attended a TechStars event (which is the startup accelerator that gave Help Scout its start), just about every company that did their pitch wowed me. By the end of the day, I was ready to write checks to ALL of them.

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“What’d you think of this one, and what about that one! Weren’t those ideas amazing?” I said to some of the more experienced investors. I was stunned when, immediately, they dismissed them. “Those people will never be able to pull it off,” they said. Don’t focus on the extraordinary ideas. Focus on the extraordinary people, even when you don’t fully grasp what they’re pitching.

3. Don’t do it if you need the money.

This is one of the first things TechStars will tell potential investors. If you are investing your last $10,000, they do NOT want your money. If you are investing with the hope that you’re going to get a huge payday, go elsewhere.

I didn’t invest in Help Scout to make money. In my mind, that’s nothing but a bonus if it happens one day. I’m investing in the guys. When I wrote the check, the money, as far as I was concerned, became gone forever.

If you’re not comfortable with never receiving a dime in return, investing in a startup is not for you. Period.

If you’re interested in investing in a startup, the main thing to learn is to find the best group of innovators and hard workers that you possibly can. Look beyond the idea and assess the people who are going to be putting in the hours. Look for people who, more than anything, you want to see succeed beyond their wildest dreams. Don’t invest in the company. Invest in the hearts and minds of those behind it.

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Last Updated on March 4, 2019

How to Use Credit Cards While Staying Out of Debt

How to Use Credit Cards While Staying Out of Debt

Many people will suggest that the best thing to do with your credit cards during these tough economic times is to cut them up with a pair of scissors. Indeed, if you are already in huge debt, you probably should stop using them and begin a payback strategy immediately. However, if you are not currently in trouble with your credit cards, there are wise ways to use them.

I happen to really love my credit cards so I will share with you my approach to how I use mine without getting into deep financial trouble.

Ever since about 1983 when I got my first Visa card, I continue to charge as many of my purchases as possible on credit. Everything from gas, groceries and monthly payments for services like my cable and home security monitoring are charged on credit. Despite my heavy usage, I have maintained the joy of never paying any interest fees at all on any of my credit cards.

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Here are some tips on how best to use your credit cards without falling into the trap of paying those nasty double-digit interest fees.

Do Not Treat Credit Cards as Your Funding Sources

Too many people treat their credit cards as funding sources for major purchases. Do not do this if you want to stay out of trouble. I use my credit cards as convenient financial instruments so I do not have to carry around much cash. In fact, I hate carrying cash, especially coins. When you buy things on credit, the purchases are clean and you will not get annoying coins back as change.

I do not rely on my Visa, MasterCard or American Express to fund any of my purchases, large or small. This brings me to my golden rule when it comes to whether I will pull out any of my credit cards either at a retail or online store.

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I never purchase anything with my credit cards if I do not have the actual cash on hand in my bank account.

If I really cannot pay for the item or service with cash that I already have at the bank, then I simply will not make the purchase. Remember, my credit cards are not used as funding sources. They are just convenient alternatives to actual cash in my pocket.

Make Sure to Always Pay Off Balances in Full Each Month

The next very important part of my overall strategy is to make absolutely sure that I pay the balances in full each and every month no matter how large they are. This should never be a problem if the cash has been budgeted for my purchases and secured in the bank. I have always paid my full balances each month ever since my very first credit card and this is why I never pay interest charges.

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Using Credit Cards with Rewards

Most of my credit cards are of the “no annual fees” type, including one MasterCard on a separate account I keep at home as a spare in case I lose my wallet or incur any fraudulent charges. However, I do use a main Visa card which does have an annual fee because all purchases on that card reward me with airline frequent flyer points. For me, the annual fee is worth it since I do travel and I get enough points to redeem many free flights.

You have to decide for yourself if you will charge enough purchases on credit each year without paying interest charges to warrant a credit card that rewards you with airline points (or other rewards). In my case, the answer is “yes” but that might not be the case for you.

I occasionally use a MasterCard or American Express card on small purchases just to keep those accounts active. Also, I have been to the odd retailer that accepted only a certain type of credit card, so I find that having one from each major company is quite handy. Aside from my main Visa card which earns the airline points, the rest of my cards are of the “no annual fees” variety.

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So this is how I use my credit cards without getting into any financial trouble with them. This strategy is recommended only if you are not in debt, of course. In fact, it is worth keeping in mind once you’re out of debt so that you can keep your credit cards active and treat them responsibly.

What are your credit card usage strategies? Let me know in the comments — I’d love to hear what methods you use.

Featured photo credit: Artem Bali via unsplash.com

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