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August 27 - October 5, 2022
No gamble, no future.
Product/market fit means that the product the founder has built, whether it’s Uber’s ride-sharing app or Instagram’s photo filters, has found a group that is delighted by it. If a large number of folks find a product delightful, there is a solid—but not guaranteed—chance that the founder can then solve the next biggest challenge: scaling and monetization.
The best angels in the world have four qualities, giving them the ability to (1) write a check (money), (2) jam out with the founders over important issues (time), (3) provide meaningful customer and investor introductions (network), and (4) give actionable advice that saves the founders time and money—or keeps them from making mistakes (expertise).
Of all the venture capital money being invested in the United States, 30 percent is invested in the Bay Area. That’s nearly double the money that’s invested in Boston, New York, and Los Angeles—combined.
The term “network effect” means that the value of a network increases with the square of the total number of members or nodes. If a network has ten nodes and you add an eleventh, the network becomes 21 percent more valuable—not 10 percent.
The greatest product Silicon Valley ever built was Silicon Valley—which, generation after generation, reinvests in and propels itself to ever greater levels of efficiency.
“I invest in people who build things, not people who talk about building things.”
Bootstrapping means you are using whatever resources you can get your hands on to solve your problem and pull yourself upward, including that little strap on the back of your boots.
many times the founder of a startup will find a client who is willing to pay for a product that they built with sweat equity.
The other important reason the number of startups—or startup experiments, as I like to call them—has increased so dramatically is that the cost of getting a product to market has dropped from millions of dollars to, typically, anywhere from under $25,000 to $250,000.
Participating in a bridge round can lead to putting “bad money after good,” where an angel funds a struggling startup, or even one that is now likely to fail, out of loyalty to the founder or out of their own ego—but not based on the core fundamentals of the startup.
Before the Series A, founders typically answer to no one. There is no board, there are no board meetings, there are no board resolutions, and no one is focused on the stock price, because the focus is, quite correctly, on trying to find product/market fit. Once you have a Series A, the chief executive officer (CEO) is going to spend about 20 percent of their time “managing their board.” This means, setting up a board meeting every six to ten weeks, or six to eight times a year.
there are five kinds of people on a cap table: founders, employees, advisors, angels, and VCs.
this is a very common situation that shareholders face: Should we sell the company now or raise more money and sell later?
My definition of opportunity cost is “the lost gains resulting from the misapplication of your time.”
How to allocate your finite time and energy efficiently is something you constantly have to revisit as an investor, founder, parent, and human being. The cost of not revisiting your allocation of time is great, leading to massive regret at having spent too much time on a startup, marriage, friendship, or investment that is destined to disappoint you or destroy your soul.
Life is short, you should spend your time working with the good people, and if you do get screwed, look at it as a small price to pay for getting that person out of your life.
You can make your own luck in this life by putting yourself next to the people who are already winning.
There are a number of sites offering angel syndicates here in the United States including AngelList, SeedInvest, and Funders Club.
you should only invest in these ten startups if you would buy stock in the founders themselves.
When you meet with fellow investors, your goals are: Figure out what they invest in and why. Figure out what value they bring to startups. Make sure they understand what value you bring to startups. Ask them, “Have you seen anything interesting lately?” Offer them, “I just invested in these two startups, which are exceptional. Would you like to get introduced to the founders?” Determine if they prefer double opt-in introductions or blind introductions.
First, people told me that being a great angel investor is about picking the right startups. Great! That makes sense, thank you for the advice, I will now go about picking the right startups!
use two methods to sort through the deluge of startups contacting me. I eliminate the small ideas and weak founders. Then I double down on the great founders and big ideas.
Independent films, restaurants, bars, bed-and-breakfasts, consulting firms, clothing lines, and microbreweries are—with very rare exceptions—the businesses that, no matter how hard you and the founders work on them, will not scale.
don’t need to know if your idea is going to succeed, I need to know if you are,”
you wouldn’t buy stock in a founder, you shouldn’t buy stock in their company—because there is no difference between the founder and their company; they are one and the same.
Why has this founder chosen this business? How committed is this founder? What are this founder’s chances of succeeding in this business—and in life? What does winning look like in terms of revenue and my return?
When you are starting a founder meeting, ask one icebreaker question to get your subject warmed up. 0. How do you know Jane?
1. What are you working on?
2. Why are you doing this?
3. Why now?
Google was the twelfth search engine. Facebook was the tenth social network. iPad was the twentieth tablet. It’s not who gets there first. It’s who gets there first when the market’s ready.
4. What’s your unfair advantage?
“What makes you uniquely qualified to pursue this business? What secrets do you know that will help you beat both the incumbents and your fast followers?”
Tell me about the competition. How do you make money? How much do you charge customers? How much does your average customer spend? Tell me the top three reasons why this business might fail.
At the core of being a great founder is the unrelenting desire to see your vision—or version—of the world realized.
The number one reason a startup shuts down is not actually running out of money, which is what most people believe. The number one reason a startup fails is that the founder gives up.
One huge red flag is when the founders of a company sell off a great deal of shares early, transferring all of the risk and responsibility to their investors.
In my experience, getting in too early is the cardinal mistake of new angel investors.
Pro rata is the ability for you to maintain your percentage position in a company by investing in future rounds.
Pro rata is the right to maintain your percentage, and it’s important because sometimes a new investor will want to invest and take the entire round for themselves.
Pro rata rights are a must and you should never do a deal without them.
This is a marketplace and valuations can go up and down, but valuations are not as important as understanding who the other investors are, how the business is doing, who the customers are, and who’s on the team.
Venture capitalists place a smaller number of bets, so they are much more careful about doing so. I’ve seen venture capitalists not invest in a company for a year or more, while they focus on the startups they have already invested in.
Angels don’t write deal memos, but they should, because deal memos force you to crystalize your thinking in the short term. They also help you refine your selection ability in the future by reading your past deal memos to see what you got right and wrong.
Second, when I write in a journal, I notice my focus and memory increase, as does my metacognition, which is a fancy way to say “my thinking about my thinking.”
The bad news comes early and in large quantities, while the good news takes years—if not a decade—to arrive.
They’re stacked in favor of people who take a long view and who quadruple down on their winners. They’re stacked in favor of the people who are self-aware enough to realize that the losses come early and the big wins come late in the process.
A CEO’s job is to smooth out the emotional roller coaster. Never let your team experience the same highs and lows you’re feeling because the odds are they aren’t built to handle these kinds of ups and downs like you are.
You don’t need to win every pot. You don’t need to win every day. You do need to win in the long term. Think about angel investing as a decadelong pursuit.
