How I Invested in 900 Startups in 7 Years

Sajid Rahman

Long-Term Investor

Who are you and what’s your story?

My name is Sajid Rahman, I’m originally from Bangladesh but I currently live in Jakarta in Indonesia. I previously worked for a bank as part of their international manager program, this took me to different countries where I ran the business, my final stop was Jakarta and I’ve been here since.

After banking, I moved to healthcare and I now run a global health business, serving millions of people, providing them access to quality healthcare and health financing. We serve around six million people through our products. That’s the operator hat that I wear.

I am an avid follower of technology trends and have been investing in technology companies all over the world since 2014. While there is a bias towards Silicon Valley, I also do quite a few deals in Africa Latin America, and Asia.

There are two things happening across all these countries and continents. Firstly, we are seeing hundreds of millions of people using the internet for the first time because of the availability of networks and the low cost of smartphones. That opens up huge markets like India, Indonesia, Southeast Asia, Brazil, Mexico, and Nigeria.

Secondly, is the improving lifestyle across countries that creates a large market. And business models that have proven successful in the U.S. are now being implemented very successfully, with certain tricks across all these markets. There are plenty of examples in every vertical for such success stories.

What do you invest in?

My first investment was an accident, at the time I was working at a bank here in Indonesia, and a couple of young guys were setting up a Fintech company. It was a comparison site where you can compare and buy a product, for example, insurance, loans, or credit cards. They came to me looking for advice on navigating the regulatory framework of setting up a fintech company and connecting with the different banks, so I joined them as an advisor.

After 5-6 months, they were raising a round and I wrote a small check. There were others on the cap table that had been investing for a while, so they knew the tricks. That opened up the whole world of angel investments or seed-stage investments. They showed me the ropes ― how to invest, where to invest, how to find deals and stuff. That’s how I started.

That company was later acquired by a much larger player in a similar space. But from then on, it was like a rabbit hole, I’ve since invested in around 900 companies in the last 7 years.

Just to give you an idea of how the deal flows work for me, for my first bucket of investments, in most cases, I invested via other syndicates or along with other people. Whenever I was investing in the syndicate, I was not doing a lot of due diligence. I was mostly relying on the people who were leading the round. But when I was investing directly, I did the due diligence

Once I got more experience under my belt, I started writing bigger checks directly. That’s where I found deals through my network. So that became the second bucket of my investment portfolio. 

Finally, for my third bucket of investments, I started my own syndicate where I lead deals. It is relatively new, around seven months old now and we do almost 10-12 deals a month.

I also recently launched a rolling fund where I will be investing in deals that I cannot syndicate for various reasons. Maybe the founders are secretive and the deal is moving too fast and that’s where I invest from my rolling funds.

I started on a platform called AngelList, through word-of-mouth, I started attracting other investors, and very quickly, I’ve reached around 1200 investors in my syndicate.

Walk us through your process of identifying and executing investment opportunities?

I only focus on early-stage deals ― Seed to Series A, so my first check is whether the company belongs to that stage.

The second check is that I have a conversation with the founding team and try to understand whether they’re building a solution that is not very common and is unique in their approach. I.E. are they bringing something new to solve a problem?

I try to guess from our conversations how the founders are explaining the problem and how they’re approaching it. Also, during the conversation, I try to understand teamwork between the founders, if are two to three founders, it’s important to know how they’re interacting during the conversation as that is an indicator of how the team will succeed.

The third thing that I look at is traction. What are the early indicators? Because I do seed-stage deals, there are indicators. Of course, it may not be monetization, but there will be something. For example, retention data, cohort analysis, stuff like that gives me an idea of whether there is some product-market fit.

The fourth thing is the valuation compared to the traction. In my case, the question is always, “at the valuation I’m investing, will it go at least 50x or 100x from there or not?”.

In some cases, for example, if a company is doing a $2 million round, and other investors are coming in and writing a million-dollar check and we are doing $200-300K checks then in those cases I’ll try to talk with the lead investor to understand why they are so bullish about the company and what is driving their decision.

One of the things that I make very clear to my syndicate investors is that there are no liquidity chances in the next 3 to 7 years and so to be mentally prepared for the long haul. I don’t expect liquidity in the medium term. I always hope for liquidity in 7 to 10 years, so I’m ready to hold on for the longer term.

The portfolio that I invested in previously has been doing quite well. I have around 18 unicorns in my portfolio from the seed stage. In terms of liquidity, some of those I thought would be “home runs” have not been home runs as such, but they have given us adequate liquidity early on and got acquired in 3 years or 4 years.

One of the good things is because I’ve invested for 7 years now, I’m now starting to see exits, this year there will be almost 5 exits. I think as I hit the 7 year-plus horizons, I will start seeing more exits from now on. So the theory seems to be working.

Since you first started, what have you learned that has had the biggest impact on your success and the growth of your portfolio?

I have had a lot of learnings along the way, one of the things that have been said before, and I  believe in it, is unless someone is putting in money, you don’t learn. That’s the best way to learn how to develop investment skills or to improve investment skills.

One of the things that I’ve learned is the team’s absolute importance in making a company successful. I have seen companies that I gave up hope on because they were going through a very tough period, but the team was so strong that they came out and exited almost 7x the investment.

And I’ve seen companies that I was very bullish about and that have gone on to raise about $100 million go bankrupt, or turn out to be unsuccessful.

One of the first things to know about startup investments is, it’s tough to predict the outcome. You can have a reliable team, a robust market, and all the indicators of growth. But even then, some black swan event might occur which can null the business case of that particular company.

Last year was one example. Because of COVID-19, a lot of startups in the travel and entertainment space faced a lot of headwinds. And that’s why the whole portfolio approach is so important.

The second thing I learned the hard way is that I was not very diligent about the check size early on, so I got very bullish on a certain company and wrote a much larger check than I should have been. So discipline about writing a uniformed check size at an early stage is quite critical in terms of taking a portfolio return perspective. That’s something which, again, someone should learn early on.

The third thing is about companies which don’t look very promising. I went through my fair share of mistakes in that bucket where I looked at companies, I thought, “Oh this is never going to work” or “Who’s going to use it” and then obviously, they have become very big.

I think those are the things that one learns over time through their mistakes.

And for anyone who would be reading this interview—FOMO is real. As humans, I guess we can’t avoid it. At the same time, to create a decent startup portfolio and to earn a decent return, which in the case of early-stage, should be around 3x in a fund over 10 years or so, you need to be aware of it.

There are enough opportunities that don’t require every company to become a unicorn. I mean some companies are very capital efficient and can actually generate good returns, especially at this early stage where we are writing smaller checks.

Creating a portfolio level return of 3-5x is possible if someone is diligent, has a good deal flow, and has the patience to build a portfolio over time.

We are living in a time where technology companies are going to get more and more market share. The technology companies will continue to see more and more funding because they’re going to be real businesses, not like a hypothetical business but billions that will generate billionaires. We’re seeing all these large companies generating billions of dollars every quarter.

If someone is in the game long enough, I think that person can build a very good portfolio over time.

Also if you look at investing as a whole. While we may not agree on the valuation of many companies, there still a lot of money going into alternate assets, like startups. And if you look at the total investment size, it’s still so minuscule compared to the money invested in public markets or in other investments like land and stocks, especially in emerging markets like Asia, Africa, and Latin America.

Now if someone is an early mover in the space ― writing smaller checks in these companies ― these companies will see more and more money coming in from other sides.

One of the trends that have now been proven through a lot of data is that more wealth is created in the private market than in the public market because a lot of these companies are taking longer to go public.

So people who are investing in startups, even smaller checks in these emerging markets, are still very, very early movers, I still believe that there’s a lot of opportunity in this space for anyone who’s thinking of investing.

What books, platforms or resources have you found useful?

The good news is there are enough resources out there. For anyone who is thinking of starting their investment journey, there’s a lot of information. For podcasts, I listen to Invest Like the Best, which is one of my favorite podcasts. There’s also VC Twenty and Acquired.

Then, of course, there are a lot of blogs like a16z and Fred Wilson.

I’m a voracious reader and I listen to many, many podcasts. I think that helps a lot.

My favorite book is called Zero to One by Peter Thiel. It captures the essence of technology investments and how big these companies can become and how they’re disrupting industries. I think that’s very critical.

Finally, there’s a paid blog called “Stratechery” by Ben Thompson. It’s a very famous blog and I think most VCs follow that. There’s a monthly subscription but there’s a very deep dive into top technology trends.

What advice would you give to someone who’s just starting?

One thing I would suggest is to only invest the smallest amount you can afford. Don’t invest amounts that you are afraid to lose. Some people say 1%, others say 2%. My guess is don’t do anything more than 5% of your total investable assets.

Once you have that figured out and once you’re determined to do that, I think this becomes a very interesting space. It’s not only about the financial return but also the exposure one gets when investing. Some of these founders are very, very sharp and look at the world in a very different way. So that exposure is important and very helpful. It broadens your horizon as an investor.

For anyone trying to invest, first, decide how much you’re going to invest, and second, don’t invest everything in one go. Build a portfolio of 2-50 companies, over time. You don’t invest it all in one year because every startup and the whole business environment goes through cycles.

To use a cricket analogy, investing is all about hitting boundaries. There is a lot of data on that from AngelList and other groups. While it is important for risk management or and being aware of how much one can lose. It’s also important to ask yourself what can go right because the success of a portfolio usually depends on hitting that one big one rather than hitting two-three small ones and not being able to invest in that one big one.

What investment opportunities are you excited about at the moment?

I try to look at major trends and find a company that is building on trends where the idea risk is mostly taken care of and the execution risk is the one that I’m betting on.

In terms of the companies across the U.S. and other markets, in terms of vertical, I’ll be looking at Fintech space. I believe there’s still a lot of opportunities in Fintech across markets, I think we are still in the early days.

Second is not something I invest in regularly – Space. I invested in two companies in the space vertical. I think the space economy is at a very early stage. It’s not easy to get into those deals but there may be significant returns if one can get into the deal.

The third is cleantech, quite a few VCs are now investing in this. The public market is getting very focused on cleantech space. I saw a letter from Larry Fink, CEO of BlackRock and they’re also asking all the companies to focus on clean energy. I think cleantech is going to be big. So good deals in that space should generate significant returns over time.

Where can readers go to learn more about you?

People can reach out to me on social media or follow me on AngelList:

Thanks to
Sajid Rahman

 for doing this interview.

If you have any questions or comments, leave a reply below.

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