In Episode 69, we welcome legendary angel investor, Jason Calacanis.
We start with Jason’s background. From Brooklyn, he worked his way through college, then was in New York at the breaking of the internet. He started his own blogging company, and eventually sold his business for $30M. Later, he landed at Sequoia Capital as part of its “scouts” program, and went on to be an angel investor in a handful of unicorns (a startup company valued at over $1B).
As the conversation turns to angel investing, Meb starts broadly, asking Jason about the basics of angel investing.
Jason defines it as individuals investing in companies before the venture capital guys get involved (before a Series A). He tells us that the more you can analyze a company through data, the lesser chance it’s an angel investment. That’s because to get the huge returns that come through a true angel investment, there has to be some level of risk (in part, related to having less data-driven information about a company’s financials).
So, the challenge is to find that “Goldilocks” period – before revenues are so high that a VC is interested, but after a startup company has launched a product and shown a hint of traction (so many early stage companies end up failing even to launch a product). When you time your investment in this manner, you reduce your downside risk.
Meb makes a parallel to traditional equity investing, where only a handful of stocks make up the majority of overall market gains. He suggests this dynamic is likely even more exaggerated in angel investing.
Jason agrees. That’s why he suggests you want to go slow at the beginning, ramping up as you learn more, building your network, and growing your deal-flow. But when you get it right, it can result in massive wealth. Or as Jason says, “I think that this is a little secret way… a dark art of becoming truly wealthy… massive wealth.”
Meb points the conversation toward a section of Jason’s book which made the point that to get started in angel investing, you need at least one of four things: money, time, expertise, or a great network. He asks Jason to expound. So, Jason provides us some color on these different angel-factors.
This dovetails into how much of your net worth should be allocated toward angel investments. It’s a great conversation diving into the math of various net-worth-percentages, and how a couple of investment-winners can have a profound impact on your overall wealth. Meb tells us about his own early-stage investing experience, and how the contagious optimism is exciting.
Meb asks what are some resources and places to go for more information. Jason points toward doing some syndicate deals. By doing so, you can read the deal memos, and track the investments even if you never actually invest. It’s a great way to learn – Jason uses the analogy of playing fantasy baseball. The guys go on to discuss ways to grow your network through other syndicate investors.
A bit later, Meb asks about pitch meetings when company founders are looking for money. What’s your role as a potential investor in these meetings? Jason likes to ask the question “What are you working on?” He then provides some great reasons why this question is effective. A follow-up question is “Why now?” In essence, what has changed that makes this moment right for your business? For example, for Uber, it was GPS on phones.
Curious what the “why now?” of the moment is? Robotics is one of them. Jason gives us a couple others (but you’ll have to listen to discover what they are).
The conversation drifts into how to exit your angel investment (or invest more). Jason says if you have a breakout success you want to quadruple down. For instance, if a big VC like Sequoia is thinking about investing, you’d definitely want to jam as much money in as possible. The guys then discuss taking some money off the table if your investment goes public, perhaps selling 25% of your position at four different times.
Meb likes this idea, as we discuss the behavioral challenges of investing so often, with so many investors thinking in binary terms – “in or out?” But scaling is such a powerful concept.
There’s so much more in this episode, and if you’ve ever been curious about angel investing, you’re going to learn from the best. The guys discuss how the lack of liquidity can be a blessing in disguise… why the sophomore year of angel investing can be brutal… a great way to tell if your angel investment is doing poorly… a huge ($10M huge) tax benefit of early stage investing… and of course, Jason’s most memorable trade – it turns out, he was the 3rd or 4th investor in Uber.
Want to hear the details? You’ll get them all and more in Episode 69.
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