My friends often ask me if it was hard making the change from being a value investor to becoming an early-stage startup investor.

I reply with a shrug and two words: “What change?”

They think I’m kidding. I am just a little, but not as much as you’d think.

At first glance, value stocks and companies just getting out of the gate have little in common.

Value stocks have track records. Their growth and profitability is subject to analysis.

Not so much with startups. What these pups offer is POTENTIAL.

“Potential” breakthrough technology, products or business models…

Potential isn’t a concept value investors use. Actually, it’s pretty much a dirty word.

As a value investor, track record trumps potential… ALWAYS.

I used to look for companies whose prices were skewed much lower than they should have been when compared to sales, profits, cash flow and net asset value (among other metrics).

When I do have metrics to analyze these days, it feels like old times. Granted, the numbers are different – lifetime value, churn rates, conversion rates (to upselling), customer acquisition cost.

But the feeling of arriving at insights through number-crunching is still exhilarating.

Early-stage investments typically highlight a few of these numbers, but not always. Often they’re pre-revenue and pre-final product. When they do have them, they don’t go back that far. Patterns are difficult to discern. Hard and fast conclusions very rare.

Old-Fashioned Value Investing vs. Newfangled Early Investing

I’ve had to develop a different skill set. With that said, I’ve also found myself leaning on my past experience as a value investor more than I anticipated. Much more.

Some of the reasons why: