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

by Jason Calacanis

This year I invested $750,000 in a company that makes a robotic cafe called Cafe X. It eliminates the two most expensive aspects of Starbucks’s business: real estate and humans.

Every year I place forty bets hoping to win back more in aggregate than I’ve put down.

I’ve invested just under $10 million in the six years I’ve been angel investing, and

the portfolio I’ve built is worth over $150 million—that’s a return of fifte...

If you drill down, I invested under $100,000 in the first year as an angel and hit my two big winners to date, Uber and Thumbtack, in my first five investments.

Scouts was a simple concept: Sequoia Capital would put up the money and twenty carefully selected founders of technology companies would pick founders they know to back.

I’m forty-five years old at the time I’m writing this and I plan on doing five more years of angel investing—I’m on a ten-year plan. Another two hundred bets and I’m done—then it’s your turn. By the time I’m done with my ten-year plan, I will have invested in 350 startups and my goal is to return $250 million on $25 million deployed—I’m exactly halfway there.

less than three years old, have little or no “traction,” and are trying to find something we call product/market fit.

Famously, Mike Markkula put $250,000 into Apple to become a one-third owner and employee number three. Andy Bechtolsheim, co-founder of Sun Microsystems, invested $100,000 in Google before it was incorporated, and Peter Thiel invested $500,000 in Facebook at a $5 million valuation.

I’m famous for having invested $25,000 in Uber when it was worth around $5 million—it’s now worth $70 billion in the private markets.

Open Angel Forum,

Cyan Banister, First Round Capital, and me.

your shares can be “diluted” over time as the company sells more shares to other investors. The impact of dilution can be mitigated against if you take your “pro rata” in future rounds.

There are a dozen or so decacorns that have been created in the past decade or so ($10 billion companies or more) including Uber, Xiaomi, Didi Chuxing, Airbnb, Palantir, Snapchat, WeWork, SpaceX, Pinterest, and Dropbox.

money, time, network, and expertise.

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).

Your job as an angel investor is to block out the haters, doubters, and small thinkers, because if you think small you’ll be small.

bootstrapped company built off sweat equity is better than a company built on simply sweat equity alone, because it’s even more resourceful.

These kinds of founders are called check writers in my world.

I’m looking for founders who are scrappy—what we call capital efficient.

This round of funding typically comes from the same investors who did the seed round.

the founder and their team have learned a ton about their customers, they’ve built a promising product, and they’ve learned what they need to do in order to hit breakeven.

but the valuation has stayed the same,

asking for the bridge to be at $8 million, you should simply ask the founder,

“clean terms,” which means they shy away from devices like warrants and liquidation preferences.

a professional venture capital firm that will join the board and create proper “governance.”

founders, employees, advisors, angels, and VCs.

secondary shares are a wise way to “dollar cost average” your returns. If you have a chance to sell 25 percent of your position once or twice before the IPO, it would be wise to do so because we’ve all seen companies worth billions go to zero many, many, many times.

ZeroDegrees was even featured on LinkedIn’s competitive landscape slide in their now-legendary Series B pitch deck.

You can make your own luck in this life by putting yourself next to the people who are already winning.

Creating an angel syndication platform in Indonesia or join Angin and push the idea to make the platform available for common people as angels e.g first jobber, fixed income earners.

There are a number of sites offering angel syndicates here in the United States including AngelList, SeedInvest, and Funders Club. At these sites, successful angel investors create an investment group, or syndicate, where they explain what they typically invest in, what they’ve already invested

in (their track record), how much they typically invest per deal (typically $10,000 to $100,000), and how much in “carry” they will charge you on a successful exit.

How? It’s simple. I would get back ten times my $20,000 investment for $200,000, as well as a 20 percent carry on the $2.7 million gain from the syndicate’s return—for an additional $540,000! Now, syndicate members love syndicates because they can invest in startups that more established angels have (hopefully) vetted. It is possible you can invest alongside a lazy angel who doesn’t do a lot of thinking before they invest, but even in that case you would have had, at the very least, the ability to make bets alongside someone with some sort of track record. Plus you don’t have to say yes to every deal. You can always opt out. The only thing you give up by being in a syndicate is 20 percent of the return, which seems like a fair trade of services. At the time of this writing, platforms for doing angel syndicates were still very new. The jury is out on exactly what the levels of returns will be, but the fact remains that they are an efficient and low-risk way to get some experience in angel investing.

That’s why I advocate that new angels do ten small angel syndicates before they start doing direct investing.

you are going to need to invest in fifty startups (diversification!) in Silicon Valley (location!) over three years in order to have a chance at an outsize return.

put $1.5 million to work in these fifty deals, which is $30,000 per startup on average.

an investment that returns all your capital invested: a “dragon.” So your job is to find dragon eggs.

characteristics: A syndicate lead who has been

investing for at least five years and has at least one notable, unicorn investment A startup that is based in Silicon Valley A startup that has at least two founders (with two, you have a backup in case one quits) A startup that has a product or service that is already in the market (you’re not qualified to invest in startups that haven’t released their products—and frankly you don’t need to take this risk) A startup that has either (a) six months of continuous user growth or (b) six months of revenue A startup that has notable investors A startup that, post-funding, will have eighteen months of cash remaining, commonly referred to as runway (ask the founder and syndicate lead how many months of runway they will have post-funding)

you’ve lost only $25,000 of $10 million—or 0.25 percent of your net worth. If your bond portfolio or the stock market returns 4 percent a year, you will recoup that loss in a month.

well, you’ve lost 2.5 percent of your net worth—which the stock market or bond portfolio would pay you back in just over half a year.

look at angel investing as a competition where you’re

trying to provide more value than any other angel in the company—including me!

a “deal memo” explaining why you’re investing, what you think the risks are, and what you think has to go right for the startup to return money on your investment.

For every startup you didn’t invest in, write clear notes on the reasons why you passed. You will look back on these notes and learn exactly how bad you were at this, and over time see how much better you’ve gotten.

If you’re doing deal memos, office visits, and talking to customers when investing $2,500, you’re going to be a powerful Jedi

I’ve stopped trying to understand what will work and what won’t, and instead I use my Jedi powers to

understand how strong the Force is in the founder.

I suggest putting them into a spreadsheet with the words Great, Good, or Okay next to each one.