'Shark Tank' guest investor Chris Sacca breaks down his investing philosophy
He's been an early-stage investor in billion-dollar companies like Twitter, Uber, Instagram, Stripe, Lookout, and Automattic (maker of WordPress).
This week he's making his "Shark Tank" debut, an experience he told Business Insider took him back to "all the reasons I got into this business in the first place," due to the wide variety of entrepreneurs he negotiated with and the "gamesmanship" of sparring with the Sharks.
Back in May, Sacca explained to "The 4-Hour Workweek" author and tech investor Tim Ferriss in an episode of Ferriss' podcast the elements of his investing approach, which didn't change despite the unique nature of "Shark Tank."
Here are the four key elements of his investment philosophy, which he said he developed from nearly 20 years of experience and the counsel of veteran investors like Josh Kopelman of First Round, Tony Conrad of True Ventures, and Hans Swildens of Industry Ventures.
1. Invest only if you can add value to the company.
When Sacca and his Lowercase Capital partner Matt Mazzeo decide to invest their money into a company, they are also committing themselves to be advisers to its founders. Sacca said that if he's going to make this commitment, he doesn't need to think that he'll be able to see a startup through to its IPO but, he explained, "I need to know that I can have a material impact to make something more likely to succeed."
2. Invest in a company that's already great.
Anyone with a regular job has to work on projects that are assigned to them, whether they want to or not. Sacca said rookie investors are often so used to this mindset that they leave themselves too open to deals.
"When you get into investing, your default stance should be 'No,' because most deals suck," he said. "Most deals won't make money. Most companies will fail. And the temptation always is you see your first deal and you're like, 'OK, I know I can be helpful to these guys, I know I can make this s----y thing better.' And so your first few deals are always your worst."
Invest in a business that's already been proven to work and can become even better.
3. 'Give yourself a chance to get rich.'
It's the nature of business that most new companies will fail, even the best will require a lot of work to build, and only a minute percentage will turn into a "unicorn" like Twitter or Uber. Sacca learned that it's important to build a portfolio that allows for chances to make money from the unicorns and moderate successes by not spreading yourself thin, entering at a price that's low enough, and making investments with a longterm perspective.
Sacca said that before he realized this, he once "sold a company to Amazon where I saw 3x on a $50,000 investment in a fund. By the time the fund got paid back ... I had been busting my ass with that company for a couple years, and like I barely had enough money left to buy that [founder] dinner to celebrate the deal."
4. Be proud of the deal.
Sacca said he's unwilling to compromise on his integrity when he makes a deal, and it's worked out for him.
"There's stuff that I've passed on that I just don't regret it at all," he said.
Some examples he mentioned are advertising businesses that place deceptive ads on misspelled domains, subscription services that are intentionally difficult to cancel, products built on unsubstantiated claims, and social networks that utilize anonymous content.
"It seemed like a good way to make money," Sacca said, "but I don't have to explain to my kids that that's how I've made money."
You can listen to Sacca and Ferriss's full, in-depth conversation on Ferriss's site or iTunes.