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Gary Vaynerchuk on What Investors Get Wrong

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In January, we looked at different ways to fund a start up. We talked to people on all sides of this subject, from investors, to governmental agencies, to founders who funded in unique ways.

For those who are interested in Angel investment or a VC round, there is a lot of contradictory information. Some founders say Angels and VCs simply are unreachable. Other founders have broken through with seemingly no contacts.

Recently, I talked with Gary Vaynerchuk of WineLibrary and Vaynermedia about his experiences building his businesses, and also investing in some of the best known tech companies.

Karen: When you started taking over WineLibrary, you looked at it as a start up, even through it was an established family business. What made you take the business in a different direction?

Gary: When I was a senior in high school I started thinking about it, and I asked my dad to come up with discount codes. We started doing direct mail. I wanted to be on the offensive.

When we launched the WineLibrary website in 1996, I didn't even own a computer yet. I just understood that there was an opportunity here to market in a different way.

Karen: While you were building WineLibrary, you were often an early adopter of technology. Why did you go into social networks which were still new?

Gary: In 1996, we went dot com, which was super early for a local liquor store. In 1998, I'm doing e-mail marketing, which was super early, and we did it in a big way. In 1999, I'm doing Google AdWords, SEO/SEM. In 2003, I'm reaching out to bloggers, putting up banner ads or asking for advertorial placements. It all crescendos in 2005 when video hit, with Youtube, and I jumped all in. 2006, I started WineLibrary TV. To build WineLibrary TV, I started using Facebook, Tumblr, and Twitter in 2008.

Here's how I work: It's 2013, and most marketers are operating like it's 2009. I'm always trying to market like it's 2015, but not like it's 2020. A lot of my contemporaries who understand where the world is going, go too far out, and aren't practical. I have always prided myself on being visionary, with a heavy practicality.

Karen: You segued into actually hearing pitches and investing in companies early in their product development. Why become an investor?

Gary: It was a way to scale. The first thing I ever invested in was Twitter. Blaine Cook, former CTO was leaving the company and asked me if I wanted to buy his stock. After that, I invested in Tumblr. I really believed in Tumblr. I thought it was disrupting Wordpress. Around that same time, I bought Facebook stock from Zuck's parents. All of those investments got really hot, and they got bigger and bigger. In order to scale this, it just seemed like Angel Investment seemed right. I got involved with companies like Buddy Media and Wildfire. That really paid off for me. I had worked with both companies through Vaynermedia and I knew they would be successful, and they were two very good exits for me last year.

Karen: What have you learned from both sides of the spectrum (being a start-up business owner to investor)?

Gary: I really sucked at investing after those first three. It took me about a year to realise I was looking at it through the wrong lens. I looked at it as if I was running the businesses. Not everyone is a skilled operator. What I learned was to invest in the people, not necessarily the idea.

In my own business, what I've learned is that no matter the idea, if you don't have buy in from up, down, left, and right, when you're not in control, you can't get things executed. So, I'm spending a lot of time getting things executed right now. Before, I didn't rely so much on "being Gary V" to get ideas sold through, but that's happening more now.

Karen: What are your primary criteria for choosing to invest now?

Gary: For me, my gut is grounded in two things: One, the personality of the person, so that even if something happens, they'll make chicken salad out of chicken shit. Two: Are they building something I understand, and can bring value to. Marketing to brands, eCommerce, Wine, the food space. Those are the places I know inside and out, and I bring real value.

Karen: Has that changed from when you started?

Gary: Yes. It's 80% about the person now.

Karen: Can you tell me about a time where you learned the most about the perils of start up investing?

Gary: 2 or 3 years ago, I started looking at it more like gambling, and I started rolling the dice. I've become more disciplined. After those first 3 investments, I thought I was really smart, but in reality, I was getting in later in the game, not in the idea phase. I used to throw around an investment on a phone call. It just became reckless.

Karen: Which companies did you wish you had invested in?

Gary: I had a chance to be involved in Foursquare and I missed that chance. Pinterest: I was super close to investing with them. I regret not flying out to meet the team. On the flip side, I'm really glad about how aggressive I was with Path.

Karen: What do you think the impact of Kickstarter-like campaigns will have on traditional VCs?

Gary: As Kickstarter grows, it's ironic that valuations have gone down, not up. It has had less of an impact than people may think. I think the long term effect will be there, but it's going to take a full cycle. When normal people start losing their $5,000 often, they're going to stop. It's the same thing that happened with SuperAngel investment. I was part of that crew. In 2005/06, a bunch of us were successful and became angels, and we made a lot of bad decisions.

Karen: What's the biggest mistake VCs are making right now?

Gary: VCs have been slow to react to the fact that people who are 19-24 years old who are driving innovation are more interested in getting investments from people who look like me, and Chris Sacca, and Kevin Rose. It's created a scenario where VCs can't get in early enough to get a big upside. Sandhill Road is just not that cool anymore.

Karen: What's the biggest mistake Angels are making right now?

Gary: Angel investors are just careless. We all made money, and we've just been throwing it around. I don't think our filter process has been strong enough.

Karen: Any advice for companies pitching you or other VCs to increase the chances of success?

Gary: Show a clear understanding of how you're going to make money. Everybody thinks differently. What makes Fred Wilson excited makes Kevin Rose not excited. You need to understand the audience you're going to, and have a very different message for each.

You can see Gary Vaynerchuk next at South by Southwest Interactive