Angel: How to Invest in Technology Startups—Timeless Advice from an Angel Investor Who Turned $100,000 into $100,000,000

by Jason Calacanis

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.” When I write, I’m Zeus on Mount Olympus, looking down on myself acting out the play of my life, with a massive distance causing a unique perspective that simply listening doesn’t provide.

This was, simply put, a lie. Oral contracts mean nothing, we all know that. So to claim them as clients before they signed is fraudulent.

Avoid the liars. Embrace the delusional. There’s a fine line between those two groups to the untrained eye, but after you’ve invested in a couple dozen companies and taken a few hundred meetings and asked a few thousand questions, you’ll find that the bad ones stick out like a neon sign.

When a startup gets acquihired, shareholders are likely to get back just pennies for every dollar they invested, while a B- or C-level banker in a bad suit gets paid a $50,000 retainer and $100,000 minimum commission to sell that company for $500,000 to $2 million.

It’s ugly and it sucks and no one wins except maybe the acquirer, who gains a dozen talented new employees for far less than the cost they would have paid headhunters to recruit those individuals and without losing all of the time it would have taken them to learn how to work together. As a bonus, there’s always a chance that the product they were working on becomes meaningful.

The failed CEO kept telling me that I was holding up the sale. I kept telling him he ran the company into the ground, so it was shameful of him to collect a huge severance on the way out. Hired CEOs almost never work out, and the ones who care more about their severance packages than the business succeeding in its mission—like this one—are the worst of a bad breed.

Google was an M&A grandmaster for the better part of a decade, with most of their success outside of their search engine and Gmail coming from writing checks. They bought their mobile operating system Android in 2005, YouTube in 2006, DoubleClick in 2007, and the pay-per-click contextual ad platform Applied Semantics in 2003. However, when a company gets huge and the founders are ten times ahead of the next closest competitor, as Google was with Facebook, you can get lazy. While Google was busy building self-driving cars and high-speed internet balloons, Zuckerberg grabbed hundreds of millions of unique users that were obsessed with Instagram and WhatsApp, and he now has almost two billion monthly users around the globe.

WhatsApp was a social network based on your phone book, which was really the only thing that could potentially derail Facebook, so they had to buy it. Risking 10 percent of your equity is better than losing 50 percent of it.