Our 4-Step Process for Investing in Companies

I built this framework after losing millions of dollars.

Nov 16, 2025

A few years ago, I lost a million dollars on a deal that I thought was pretty solid.

It sucked.

As a professional investor and a former Goldman Sachs banker, I really thought I was a good investor. I had the track record to back it up with over 100 investments under my belt, including some ultra complex deal structures.

And while every seven figure loss hurts, this one crushed my confidence.

Here is what happened. I had invested in a company that I had thoroughly vetted for many months, only to find out that the CEO was keeping two sets of accounting books and had swindled the investors.

The guy just vanished into thin air.

I even hired a private investigator to find him. No luck.

Naturally, that is when I started seeing a therapist. She was like Wendy Rhoades from Billions and she set me straight. One of the things she helped me build was a new process for investing in companies.

I call it the 4 Goods

Good People
Good Intentions
Good Rationale
Good Contracts

Let me break it down for you.

1. Good People

You cannot do a good deal with a bad person. — Warren Buffett
Good people keep their word.

The problem is, you have no idea who is good and who is shady at first. That is why we created the Six Month Rule. Before we invest in anyone, we spend at least six months working with them.

We either help their business or become their customer. That shows us how they act when things are easy and when things are hard.

We also committed to running background checks, but we do it a little differently.

Here is what I tell the founder.
I would like you to feel confident about who you are going into business with, so I recommend you do a background check on us. At the same time, we will do a background check on you. Of course, we are happy to share all the reports.

This Mutual Discovery process has become the single most valuable diagnostic in the relationship.

And if they refuse, that probably tells you something.

2. Good Intentions

Good intentions show up in small actions.
The best filter for this is to watch how someone treats other people.

Here is what we do to test this.

We introduce them to someone who needs help.
If they take the time to help, follow up, and be a decent human being, it tells us something.
If they blow the person off or turn it into a pitch, that tells us something too.

We notice how someone responds when we ask a question and whether they only reply when they need something.

Over time, we have found that the strongest partnerships have one common thread which is responsiveness.

Consistent responders are easy to work with.
Consistent non responders can still work because they are predictable.
Inconsistent people are pure chaos. We do not invest in chaos.

We want people who are steady, helpful, and kind, even when they are busy. We stay away from people who are consistently inconsistent.

It is also a good rule outside of business.

3. Good Rationale

Good rationale just means the math makes sense.

One of my favorite things to do is to build a small spreadsheet together, breaking down the math of the deal.

It immediately shows collaboration, transparency, and how a working relationship might look. You would be shocked how many deals break down at this stage.

If a deal only makes sense in a giant file with many tabs, I ask them to consolidate their analysis into a simpler model.

The point is that it should be simple enough for anyone to explain in one minute.
Our rule is clear: No spreadsheet, no deal.
That way, both sides understand exactly how the money works.

4. Good Contracts

A good contract has two parts.

Agreements
Disagreements

Let me explain.

I like to start the process with an MOU (Memorandum of Understanding) or an LOI (Letter of Intent). Both are non-binding documents that list out the main deal points. These are the agreements.

I prefer doing this in a shared Google Doc so it becomes a working artifact. It also lets me see how the other side collaborates, which tells me a lot about how they will behave in business.

This is where most people think their job is done. They call the lawyers and hand it off.

That is a mistake.

I start a second document that outlines all the “what if” scenarios which are the things that could go wrong. These usually end up buried in legal boilerplate, but it is better to talk about them upfront.

This is what I call the disagreements.
In other words, what are we most likely to disagree about in the future… and let’s solve those disagreements now.

What if one partner wants to get bought out.
What if the CEO has an affair with an employee. (It happens more often than you think.)
What if a partner embezzles money.
What if there is an Act of God event.

Having two documents, one for agreements and one for disagreements, creates a strong foundation for the relationship and gives the lawyers a clear roadmap for the final contract.