Learning From Mistakes, And People

1/We’re thrilled to share the news that @Riskalyze has been recapitalized by @HgCapital, one of the world’s leading software investors with $37B under management. This is a huge step forward for the Fearless Investing Movement. https://t.co/yOVEbmDDqP

— Aaron Klein (@AaronKlein) August 25, 2021

Aaron announced this today on Twitter so I guess it is okay to blog about it. I was an early investor in Riskalyze. As I was trying to build my street cred as a solo investor, I built a syndicate for Riskalyze and we invested. It paid off.

The whole story isn’t so simple. I met Aaron in NYC at Fred Wilson’s beer blast. It was Fred’s 10th anniversary party of his blog, and he invited some people who interacted with his blog. I met Andy Swan there, who became a Riskalyze board member. I met Donna Brewington White there, who became a talent agent for Riskalyze. I met Arnold Waldstein there who also invested. RIP Arnie, I know you are smiling.  Arnie and I didn’t agree on politics, but we agreed on Riskalyze and Aaron.

For some background, I took Professor Scott Meadow’s class at Chicago Booth on PE/VC. When he teaches that class, he tells a story about passing on Starbucks not once, but twice.  He passed because of valuation, and because he wasn’t getting preferred.  I always remembered the Starbucks story.  It didn’t hit home because of the lost opportunity.  It hit home because in investing, you have to be objective on each round. You have to lay the past away.  Often, I did this as an independent commodity trader.  It’s really hard to do.

When I earned my Chicago Booth MBA, I actually paid attention and internalized a lot of concepts.  I didn’t go through the motions.

Aaron offered me a chance to invest at the meet-up. I declined. Why? First, valuation. It was a bit aggressive for where the company was at the time. Some of that was due to California vs Chicago. Valuations were always a bit higher in California. Second, I was offered only common shares. As an experienced angel investor, I knew getting only common shares could leave you with the short end of the stick.

In this case, it was even worse.  I was going to be a “lone wolf”.  Lone Wolf angel investing is tough.  You never get info, and you always get crushed down.  You can always talk your way out of a company or into a company to confirm your logic.  It’s hard to go against yourself.

Aaron and I kept in contact.  We met exactly one year later in Chicago.  He offered me a second chance, but at double the initial valuation!  Riskalyze had made a lot of progress.  They had some decent recurring revenue.  I jumped at the chance and put together a syndicate that did the entire round of financing.  I took the syndicate out to people who I thought had a risk appetite and would invest.  I even offered the deal to HPA, except it didn’t fit the geographic parameters of HPA.  We received no board seats and received common shares.  We just wrote a check.

I was born at night, but not last night.  I learn from my mistakes.  I made a mistake not investing in the first round of Riskalyze.  I can hang my hat on the common, but valuation is a stupid reason to turn someone down.  There has to be a reason other than valuation only unless it’s really out of whack.  Riskalyze wasn’t out of whack, it was just aggressive.

A couple of years later, FTV Capital out of NYC invested.  Aaron was cranking.

Today the exit was announced.  It’s a great day for investors like me.  Always nice to see capital come home and ring the cash register.  It’s a great day for Riskalyze and their employees.  It’s a better day for the advisors that use Riskalyze because this recapitalization will propel the company to build amazing technology so they can service customers better.  If you are an advisor who isn’t on Riskalyze, you are missing out big time.

My advice to Hg Capital who is recapping the company is this.  They have a winner in Aaron and the team he has built.  As Chicago Booth Professor Steve Kaplan asks, “Is it jockeys or horses?”.  Aaron is a top-notch jockey, and he built a tremendous horse.  In the early stages, it’s the jockey.

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