Best-Selling Author and Investor Tim Ferriss on His Mentor, His New Investing Philosophy, and, Gulp, That New York Times Review

Tim Ferriss seems to lead a charmed life. The whip-smart 33-year-old has founded and sold a company, won a Chinese kick-boxing championship, nabbed a Guinness record for tango dancing, and is the best-selling author of The 4-Hour Workweek (2007) and now The 4-Hour Body: An Uncommon Guide to Rapid Fat Loss, Incredible Sex and Becoming Superhuman, which soared to the top of best-sellers’ lists last month and has stayed there.

Thanks to a chance encounter with investor Mike Maples when both were guests lecturers at Princeton —  Ferriss has a degree in East Asian studies from the university – he has also become a prolific angel investor in recent years and his portfolio of 23 startups looks strong. In addition to holdings in Twitter, ReputationDefender, and Posterous, two companies in which he invested have already been acquired. The first of those is the fitness social network DailyBurn, acquired last May by Interactive Corp. for an undisclosed amount after raising just $540,000 in seed financing. Ferriss had also backed About.me, a personal profile page service that raised just $425,000 and that AOL acquired in December for an undisclosed amount.

Yesterday, Ferriss talked with peHUB for a few minutes about how important investing has become to him, who he considers to be his mentor, and what he made of his latest review in the New York Times, which called his book “one of the craziest, most breathless” compendiums ever, as well as observed  that: “If a movie were to be made of Mr. Ferriss’s life, it would star Matthew McConaughey in little rectangular eyeglasses.” (Though very funny, it made Ferriss sound preposterous; it also won the critic, Dwight Garner, widespread kudos.)

Our conversation has been edited for length.

You’re a surprisingly active angel, given your other commitments. What investors typically loop you into deals, or vice versa?
 
Some of the people I like to invest with include Mike Maples, Kevin Rose, and Chris Sacca. I’d say there’s a list of a dozen or so people [with whom I tend to make investments]. I’ve known Mike since 2003, and when 4-Hour Workweek came out, we were already friends and we’d meet up for lunch and share similar stories, though mine would be about marketing campaigns and book launch details and his would relate to the investments he was making. After a while, my curiosity was so piqued that I asked if I could potentially co-invest with him on a few deals to see if I had the risk tolerance or the skill set to be of any value.

And how much do you typically invest?

Well, the first year or so, I was exclusively investing – typically not more than $50,000 [per deal]. Then I moved to a blended model of investing plus advising, which has an equity component. Then, about a year ago, I moved to pure advising, which doesn’t scale as easily as writing checks but forces you to assess fit more precisely.

Initially, you planned to invest in startups what you would have poured into business school at Stanford. Have you stuck to that plan or exceeded that budget at this point?

I’m almost 100 percent sure I didn’t exceed the budget for the first two years, because that was very literally how I decided to approach this —  as a cognitive exercise. After that, in the last 12 months, in the secondary market, I’ve been much more aggressive.

Interesting — using SecondMarket?

Not always. I do think it’s a fantastic company but I’m very channel agnostic.

The easiest way to make a good investment is to buy whatever asset you’re purchasing at a discount. And if a company is particularly frothy on SecondMarket and every employee who wants to sell a percentage of stock is following a collective bargaining approach to maintaining a certain price per share, it’s hard to find an outlier at a discounted price. So there are cases with other companies that are perhaps not as name brand as, let’s say Facebook, where you can identify where its founders or early employees want partial liquidity, and you do that by being very involved in Silicon Valley and knowing the various players and founders and various employees.

If you were a client of Goldman, would you have invested in Facebook at its new $50 billion valuation?

I’m not a client of Goldman, but I think there are many reasons why investing in Facebook, even at $50 billion, wouldn’t be a foolish thing to do. In the end, I think that the public markets respond to media just as much as any type of quantitative analysis based on profits and losses. And because of the network effect of Facebook, if someone can hold on for the lock-up holding period, I think it’ll be hard to lose on Facebook — assuming there’s not a repeat macroeconomic double dip. If things are fairly stable, I think Facebook is a very strong bet.

For me, it comes to down to what’s the financial value of the investment and what’s my opportunity cost and the branding value of what I’m buying.

What do you mean by branding value?

Very hypothetically, let’s say I want to focus on social gaming and so buy Zynga’s stock on the secondary market. Let’s say I make a $50,000 investment at a $5 billion valuation. If Zynga then gets purchased for $4 billion two years from now, I lose $10,000. But if for two years, I can say I’m a Zynga investor as part of my investment resume when competing for [stakes] in other social gaming companies, will that value exceed the $10,000 I’ve lost over those 24 months? The answer would very clearly be yes.

Some of your investments, like Twitter, have already had dramatic up rounds. Have you sold any of your shares on the secondary market?
 
I haven’t sold any of my shares to recognize a gain. I have a barbell strategy of investing to begin with that puts the vast majority of my assets [in cash and low-risk places] and a discretionary amount of my liquid assets into higher-risk investments, meaning angel investments. And that’s my casino fund to begin with, so if I’m going to bet, I may as well see if I can get 20x out of it, rather than 2x or 3x. Though I could see my business model as it relates to early-stage investing evolving into a hybrid of making straight investments in the secondary market for doubles and triples and advising startups [for equity] for 20x returns.

You’ve invested almost exclusively in consumer Web companies up until now. Might that change?

I have a fairly simplistic investing and advising model. If I wouldn’t use the product myself or couldn’t pitch it to the New York Times or sell it to my million blog readers, then I don’t become involved, My perceived risk is, rightly or wrongly, closely related to my ability to help and directly impact [a startup’s] valuation or revenue. For example, in the case of Mike Maples, who I consider a mentor, he’s very good at choosing industries, trends, and enterprise investments that work, but because I feel like I’m out of my element, I typically haven’t been involved in those companies.

Is there any overlap in how you approach writing a book and investing in a startup?

There is a tremendous amount of overlap, but I think that’s a reflection of an overlap in interests and an overlap in my media presence and credibility that can then be leant to companies in a particular space.

So with “The 4-Hour Body,” will I be doing more investing in self-tracking physical performance biotech space? Broadly speaking, absolutely, because with one blog post, I can dramatically change the number of options for a startup I’m involved with, depending on their stage of development.

Before you go, I have to ask: What did you make of the book’s widely read review in the New York Times last week?

I thought it was actually really funny. If you lose the ability to laugh at yourself, it’s extremely easy to lose the perspective that helps you make any type of decision. It didn’t keep me up at night at all. It was so over-the-top and purposely written to be over the top that it didn’t bother me.