My Money or My Time. (Just not Both).

Although I stopped being a full-time entrepreneur years ago, I still have plenty of great ideas for new businesses.   I just no longer have the appetite to start one.

Starting a company requires a marriage-like commitment – for better or worse, richer or poorer, sickness and health – a commitment that over the course of my career I’ve made to six startups.   That’s enough.

That said, I still can’t stop thinking like an entrepreneur.  I still see every problem as a hole that needs to be filled.  And while the urge to “get in the game” is no longer the sharp ache that it used to be, it hasn’t gone away entirely either.  It’s now more like the habitual temptation of an old addiction, the way that smokers still yearn for a cigarette even years after quitting.

So a few years ago I became a mentor and an angel investor, and it’s turned out to be the best of both worlds; I get the challenge and excitement of helping to start a company, but without requiring the 60-70 hour weeks that doing it myself would entail.

It turns out to be a good deal for the entrepreneurs as well, as they get two of the things that are most valuable to them at this point: My money and my advice.

It’s a good program, but to make it all work, I’ve made myself a rule which I’ve stuck to religiously – If I find a company I like, I’ll give them my money or my time – but never both.

Since many people find this a curious rule, I thought it might be worth a few minutes to point out why there are a number of good reasons for keeping my time and my money in different buckets:

• I have limited amounts of both.  Simple math says that were I to give both money and time to a single company, I by definition decrease the number of companies I can involve myself with.

• There’s little upside to doing both.  Between my money and my time, by far the more precious of the two is the time.  For the companies I mentor, I’m almost always the single biggest outside time investor.  This is clearly a big bet for me and I take it very seriously.  For that, I receive a significant equity position so I’m already in a position to do well if the company does well.  Since for most startups the two most likely scenarios are runaway success or abject failure – with little in between – adding investor equity to my mentor’s share does not meaningfully alter the economics for me.  In the event that the company does spectacularly well, having angel stock in addition to my mentor’s grant won’t materially change my return.  And if the company craters, well than I’ve thrown good money after bad.

• I’m economically aligned with the founders.  Or not.  As a mentor, I receive common stock, meaning that I’m economically aligned with the rest of the team.  If they do well, I do well.  As an angel investor I receive preferred stock, which aligns me with the other investors.  Again . . . if they do well, I do well.  Mixing the two could muddy my motivations – and the perception of my impartiality – at least in those situations where the interests of common and preferred investors diverge.

• It makes priorities clear.  Most entrepreneurs want both money and time.  But by forcing them to make a clear choice between the two, I find out which they value most.  Especially if they chose time, it tends to ensure that they are going to take our ongoing relationship – and my time — seriously.

That said, I have heard a few criticisms of my approach that probably contain some shreds of validity.  (Just shreds, mind you).

• That by not investing . . . it demonstrates a lack of enthusiasm for the company.   Well, Maybe it looks that way, but since that critique is usually directed at the companies I’m mentoring and not investing in, I can only say that my time investment is a much stronger endorsement of a company than a financial commitment would be.

• That by not advising . . .I’m missing an opportunity to increase the likelihood of my own investment paying off.  This one is probably true as well, but it’s the unavoidable consequence of being a zealous guardian of my time.  In any case, my investments are not significant enough that my efforts would materially affect my return.  I do know one investor, however, that takes the opposite approach.  He now aims for investments of at least $200,000 a pop, saying that anything less puts insufficient “skin in the game” to warrant him allocating his (considerable) expertise and invaluable time.

Despite all this talk about optimizing returns and the value of my time, I think the real reason for my Chinese wall is a much more personal one; I just like the effect it has on the relationship I develop with my founders.   As I’ve written before, mentoring has turned out to be a deeply personal and gratifying experience for me; easily the highlight of my post Netflix career.   The emotional return on investment I get from these relationships transcends any possible financial reward.  I guess I would just hate to sully it all with money.

One of my CEOs recently wrote that although he initially wanted me to invest, he now realizes that “I would probably be less candid about my doubts and feelings with you if you had given us money”.

I loved hearing that.  I don’t doubt that’s its true.  And I wouldn’t risk squandering that trust for a million dollars.