My Biggest Investment Mistake - And What It Taught Me
In 2014 I put a third of my liquid net worth into a company because I liked the founder. Here is how I lost most of it, and the five rules I now refuse to break.
The Situation
In 2014 I was eight years into my career and had just received the largest bonus of my life. A friend introduced me to a founder building a fuel-distribution business in the Western Region. The numbers were extraordinary: 40% gross margins, contracts with two mining companies, and a pipeline that would double revenue in eighteen months. The founder was charismatic, articulate and clearly hard-working. Two people I respected had already invested.
The Decision
I invested roughly a third of my liquid net worth. I did read the financials, but I read them the way you read a document you have already decided to sign. I did not speak to the mining companies. I did not ask who audited the accounts. I did not ask what happened to the business if fuel prices moved against it, or if the founder got sick. I told myself that the two people I respected had done the diligence I was skipping.
What Happened
Within a year one of the two contracts was lost in a re-tender. The business had been financing fuel purchases with expensive short-term debt, and once volumes fell it could not service it. The founder was honest but overwhelmed, and the second contract went the same way. Eighteen months after I invested, I recovered about 15% of my money as part of a negotiated wind-down. The two people I respected had, it turned out, each assumed the other had done the work.
What I Learned
The mistake was not the company. The mistake was that I let social proof replace my own process. I now separate three questions that I had merged into one: Do I like this person? Do I understand this business? What has to be true for me to get my money back? Only the last two matter, and they require work that no amount of admiration for a founder can substitute for.
What I'd Do Differently
Cap any single private investment at a level you can lose without changing your life - for me it is now 5% of liquid assets. Speak to at least two customers directly. Ask how the business is financed, not just how it sells. Write down, before you invest, the three things that would make you wrong. And when a respected person says they are in, ask them exactly what they checked.
Key lessons
- 1.Social proof is not due diligence - ask exactly what the other investors verified.
- 2.Concentration risk: never put in more than you can lose without it changing your life.
- 3.Ask how a business is financed, not just how it sells.
- 4.Write down what would have to be true for you to be wrong, before you commit.
This content shares personal experience for educational purposes. It is not personalised financial, legal or medical advice. Experts are not necessarily licensed to advise on your specific situation; consult a qualified professional before acting.