If you trade on inside information in the public markets, you go to prison. If you don't have inside info in the private markets, you're not doing your job.
Private tech startups release little or no information to the public. Everything is confidential between the founder and investors.
But some investors have more information than others. Let's see how that played out with a startup I'm investing in now…
Meeting Newco
I first saw Newco* at a demo day in New York about a year ago. It was a cool concept, but they didn't have much traction.
When I saw the company again that summer, I was still skeptical. They had some early customers, but the product hadn't really caught on.
Fast forward to last fall. I get an email from Mike*, the GP of a venture fund in Silicon Valley….
He told me he'd invested in Newco. He'd also been working with the founder, Aaron*, all summer.
"Aaron is amazing," he said. "He works incredibly hard and really understands his customers."
"Awesome!" I responded. "Keep me posted!"
"And Now, It's….Time!"
Last month, I saw Newco again at another demo day. Clearly, Aaron had been busy.
The company had 4x-ed its revenue in the last year. Aaron had launched a seed round, and it was filling up quick.
It was time to make a decision.
I met with Aaron and dug into the deck and deal memo, like other investors did. But for many of them, that may have been the only time they saw Newco.
I had watched Aaron build for the last year. People were also feeding me details on the company that most investors didn't have.
I had an informational advantage. And in a market that runs on inside information, that's a huge edge.
Impressed with Aaron's persistence and the company's rapid growth, I decided to invest.
Building an Informational Edge
Having this informational edge is very new to me. I started angel investing less than 3 years ago, and on Day 1, I didn't know anyone.
I'd worked in tech for many years, but I was deep inside large companies. Startups were foreign territory.
For the last 3 years, I've been building a network of founders and investors. We share deals, leads on key employees, and general market observations.
This network means that when I look at a deal, I know a lot more than I did 3 years ago. At the same time, someone who's been investing for 10 years has a lot more info than me.
If you're in the market long enough, meet people, and treat them decently, your network will grow. That network will give you information and access to great deals.
Wrap-Up
When I see a deal, I want to know more about that company than any other investor.
If I meet the founder once, I know a little. If I meet them many times, watch them work, and gather intel from my network, I know a lot more.
Still, most of my bets won't pan out. But I'll be giving myself the best possible shot.
How do you get an edge over competitors? Leave a comment and let us know!
*The company and people in this story are composites and do not exist. I do this to preserve privacy.
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