This post will be our the first in a series we are calling "Sharkology". A study of how some of the most well known Angel Investors approach investing. Today we look at Mark Cuban.
By now you all know who Mark Cuban is: billionaire, angel investor extraordinaire, shark from Shark Tank.
As one of the most successful and famous early-stage investors in the world, we always keep an eye on him and try to learn from his successes. Also, he is one wildly entertaining dude who really doesn’t care what other people think… and I like that!
Mark gives a ton of great advice to investors, but a lot of that is general investing advice, not something specific for startup investors.
Just for fun, let me give you a quick rundown of the quintessential general Cuban investing tips:
Pay off your debts before investing.
Don’t waste time with stocks, stocks are “probably the worst investment vehicle out there.”
Make risky investments, but do so with only around 10% of your money.
And his “number one rule of investing:” when you don’t know what to do, do nothing.
That’s all great advice, but what if you are ready to go one step further? If you’re like me, what you really want is to learn the rules Cuban himself uses to invest in startups- what I’m calling the ‘Cuban Code’.
I dug deep on Mark Cuban to unearth his greatest startup investing tips and habits for you guys, and here they are.
Let’s dive in.
If after this you’re still hungry for more angel advice, check out my personal investing strategy in the 5X Formula workshop—click here to learn more.
Mark Cuban’s Mission Statement
The core tenet of Cuban’s investment philosophy, as stated on his personal AngeLlist account, is to invest in startups that are “compelling, differentiated and run by motivated entrepreneurs."
In a world where investing advice is usually riddled with cliches and too-good-to-be-true promises, such a subtle and straight-to-the-point message might just underwhelm you.
But in that one line, those three simple terms, we find the clearest glimpse into Mark Cuban’s angel investing methodology. Here’s what he means.
Compelling: A compelling startup is one that instantly grabs your attention. For Mark, it’s about those simple ideas that automatically present their value to you.
For example, on an episode of Shark Tank, Mark was instantly compelled by a brand called Eterneva. Eterneva takes cremated ashes or hair from humans or pets and turns them into real diamonds. Mark quickly connected this idea to his own taste, saying he would have loved to turn his childrens’ hair into jewelry to give to his wife.
He also made a sizable investment in BeatBox Beverage that we have featured on StartupWire. You can watch that interview where the founders: Brad, Aimy & Justin talk about their experience with Mark as an Angel Investor.
These are the results you should be looking for when studying a startup.
When you just get it right away, or you can imagine friends and family, or yourself, using the product, you have found something compelling.
Differentiated: For the next part, you can take the long list of startup buzzwords you've been compiling over the years and toss them out. Cuban doesn't look for "revolutionary," "groundbreaking," or even "innovative" startups. He looks for differentiated startups.
This tasteful term lets us know what piques Mark’s interest. If a startup is doing something better than its competition, that’s enough. It doesn’t need to create a new market, “disrupt” a market, or anything like that. If a company does what other companies are doing, but better, it is differentiated.
Motivated Entrepreneurs: Finally, when Mark says “motivated entrepreneurs,'' I think deep down he’s looking for founders like himself.
When Mark founded his first company, MicroSolutions, he had nothing—no clients, no investors, just him and a truckload of grit. To make his first few sales he convinced his customers to pay in advance for software he didn't even have yet. He promised them that if things didn't work out, he would wash their car, walk their dog, basically do anything it takes to gain their trust and close the deal.
This creativity and sincerity won people over. He built MicroSolutions into a company that sold for $6 million. He went from broke to multimillionaire.
That’s a motivated entrepreneur.
The Knowledge Advantage
I think the crown jewel of Cuban’s investing philosophy is the idea of knowledge advantage.
Some of you may be familiar with this term, also known as information advantage, but I think the way Cuban uses it and how it ties in with his story is amazing.
At the start of his career, Cuban worked in sales. He spent hours studying his company’s systems and software to sell more products and get ahead. No matter how late he got home, he would crack open a book and study computers before going to sleep.
This steady self-investment process did more than earn him quick cash, it unveiled his love for computers and technology and set him up for his entire investing career. Even when he was fired from that job, a life-changing event, his knowledge of computers and sales remained. No one could take that away from him.
That is knowledge advantage—knowing enough about an industry to be able to capitalize on it, as an entrepreneur or investor.
I imagine that to this day Mark keeps his nose buried in stacks of info on artificial intelligence, blockchain, NFT’s and any other burgeoning industries that he wants to gain a knowledge advantage in.
Without a doubt, as an investor you want to see this same grit and drive in a founder you are considering investing in, but it’s also important to understand that these same principles hold true for your investing success. So, I want to challenge you to start investing in yourself and gain as much knowledge you can to gain that ‘strategic advantage’. Put in the work, develop your eye, and you will find that you will be investing with confidence.
You’ve Got to Believe!
Entrepreneurs need to believe in their businesses, and as an investor Mark needs to believe in them.
Cuban talks about those who held onto Bitcoin back in the day when the price fell. A small dip caused many investors to bail out, while Bitcoin owners who truly believed in the asset held on. Years later, the believers watched their investments skyrocket, while those who jumped ship were kicking themselves.
Publicly-traded stocks can be fickle. You can buy shares in any company that looks undervalued and sell them when their value comes up. And if the price goes down too much, you can sell and cut your losses. In this case, belief matters little.
With startups, these short-term tactics don’t work. Every startup investment is a long-term investment. Because you can’t bail out if things go awry, You need to pick companies that you believe are real winners, ones you envision being proud of ten years down the road. In other words, the ones you believe in.
It’s great to have ‘mavericks’ (see what I did there) like Cuban to learn from and realize that there are a number of ways to approach investing in the private capital markets. But the lesson we should all take away from Cuban is to make sure we: constantly grow in our knowledge and make sure we believe in the startups we invest in, but more importantly believe in ourselves to make the right calls.
What do you think? Do you agree with the Cuban Code?