I didn’t intentionally invest alongside Mark Cuban – in fact, you could argue he invested alongside me.  Yet I learned a lot from him – even though he probably doesn’t know my name.

The Story

About six years ago I invested in a little service technology startup.  I do quite a bit of this type of investing – after my time on Wall Street, I moved towards far less anonymous and far more long-term investments.  When I worked with Ray Dalio we HAD to invest huge sums of money – which was necessarily liquid and highly impersonal.  I love that I can combine my investing with other things I enjoy, like mentoring young CEOs or, in the case of real estate, being able to visit cool places.

Back to this little startup.  It ended up being a great investment: we made ~ 10x our money in 6 years.  Here are a few things I learned about what makes Mark such a successful investor:

Lesson #1 - Cast a Wide Net

What surprised me the most, is that Mark even discovered the company at all.  To clarify – this company was TINY – like $200K of revenue per year.  The entire investor list was “friends and family” – except for him.

From what I understand, someone on Mark’s team had read an article in a local newspaper about the company, and fed the info to Mark.  I’m not privy to how he structures his business so that people are constantly feeding him opportunities, but if you want to pick a “1 in a thousand type investment”, you need to look at a thousand investments.  Lesson: have mechanisms to do so.

BTW, you don’t need a team to do this.  I often tell real estate investors to make offers on 100 properties and celebrate the 99 nos.  As Warren Buffet said the one time I heard him speak, “you want it to be so obvious it’s not like shooting fish in a barrel.  It’s like shooting fish in a barrel, but there’s no water in the barrel and the fish are dead”.

Lesson #2 – Be Prepared to Act Fast

By the time Mark had called we were right at the end of closing the round.  I mean the very end: paperwork signed, wires being sent in the next few days.  Mark negotiated his investment and agreed to invest in his very first phone call.  Not only that, but he also already had a company set up to handle the investment with officers, a bank account, and a tax IDs.  If he’d had to spend the 2-3 days it takes to get a new company set up, he would have missed the deal.  Set up your company now so that you can pounce quickly when opportunity strikes.

Lesson #3 – Ask for The Moon, But Don’t Lose The Deal

Apparently, Mark wanted a discount on the round.  The CEO refused to give him better terms, and Mark signed up anyway.  Early in my investing career, I would walk if I didn’t get a great deal.  I didn’t save the dime but I didn’t earn the dollar either.  I now know: there’s little harm in asking for a discount.  But never miss out on a great deal just because you can’t get everything you dreamed of.

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