Angel investing is a brutally hard job ...
… said no one ever!
[ 1,600 words on the topic below. Click to tweet: http://ctt.ec/_G49d ]
I’m absolutely loving being an angel investor. It’s a blast to meet smart folks with killer ideas who want to change the world -- and then I get to write a check and give one out of every 250 of those ideas a try!
In the past year I’ve invested $1.95m in 30 startups from the LAUNCH Fund (from my $10m angel fund). We are now 19.5% invested in 13.5 months. We’ll invest another $4.05m in the next 24 months for a total of $6M/60% invested, keeping back the last $4m to keep our pro rata in the winners.
I’m told this is a savvy plan by my much, much savvier friends.
You may remember that I wrote a blog post 6 months ago about how excited I was to invest in Swell. [http://goo.gl/wwdEGL] Recently there were some reports in the news about Swell and that technology company we all love soooooo much in Cupertino. [ http://goo.gl/nlyYqE]
A company which, I might add, is performing at an absurdly high-level while evolving their strategy ( <---- shameless suck up).
Anyway, we got a “quick win” for my fund and I’m super happy for the founders of Swell. Great things to come from Apple+Swell combo I’m certain.
During the past four months we syndicated nine of the LAUNCH Fund’s deals to our AngelList Syndicate for a total of $3.18m invested. In those deals the LAUNCH Fund did a total of $550k, while the Syndicate came in for 4.78 times that amount for $2.63m.
Our average Syndicated deal was $353k, with $61k on average coming from the LAUNCH Fund and $292k come from our Syndicates.
Two out of nine deals are closing as I write this, so that $2.63m will be slightly higher if we continue to be vastly oversubscribed.
The LAUNCH Fund will do three deals a month and ~30 a year. If we syndicate 20 of those deals, we are on pace to put $7.67m a year to work.
This is the revolution and no one in the mainstream press seems to have caught on yet (despite me telling them: “hey, you might want to look over here … something is brewing.”).
A couple of years ago my level of angel investing would be significant on a number-of-deals basis (two or three per month), but not very important or significant on a dollar basis.
Well, I’m able to lead a round of funding, set the price with the founder, and perhaps even take a board seat. (In most cases we get the option of a board seat, even though I really don’t have the time to sit on that many boards.)
Bottom line: when I wrote about AngelList 11 months ago, and said a bunch of ‘outlandish’ things [http://goo.gl/N7cDa8]; this was all very speculative. Most folks thought that AngelList wouldn’t be able to attract real fund managers, and that those fund managers wouldn’t be able to get access to A+ deals.
Those questions have been answered, and folks like Gil Penchina (serious angel), and Tim Ferriss (serious thinker, author and personality, and developing into a VERY SERIOUS angel investor), have proven that they can bring real deal flow to the platform.
What AngelList Syndicates has done for me most of all is to make me more helpful to founders. Instead of having to manage another dozen angels, they can just manage a relationship with me. Not only that, they get 99 folks on their team who have a literal, vested interest in their success (the members of the Syndicate).
That’s 100 folks for one mention on your cap table. One hundred affluent and connected folks who might tweet out a job posting, or hopefully refer someone to you. Or intro you to a partner or possible client. Or another investor. It’s a big deal.
Moreover, AngelList has given many ‘civilians’ (folks who don’t typically have access to these types of deals), the ability to put $1,000 to $10,000 into deals they would never even hear about until they were well-funded.
There is no guarantee of success, but this is a huge step in the right direction.
99 Limit Throttles Everything
The crazy thing about the massive performance to date of syndicates, is that it has all been done even though only 99 people can invest in a syndicate. This is an SEC limit, I believe intended to protect the rich (only accredited investors can participate in this type of deal flow), in some aggregate way.
Brad Feld talks about it here: http://goo.gl/xNqt7Z
I get that the SEC wants to throttle the potential fallout from a deal going belly up, but the entire point of angel investing -- at least the way I do it -- is for 7 out of 10 deals to go belly up! We want deals that are so risky that there’s only a 1-5% chance that the startup will have an absurdly big outcome.
For example, if you invest in 50 quality Silicon Valley startups (real deal flow, not second- or third-tier deal flow) you might have 30-40 return little to nothing. Big zero.
You might have 10-15 return a small amount and have one or two have 50x+ outcomes -- with the lottery ticket chance that you catch a unicorn like Facebook, Uber, Twitter, Airbnb, Dropbox or Box that could return 100-3,000x.
[ Lottery ticket is the key phrase in that paragraph above. Expect one in every three or four lifetimes. ]
In truth, 500 folks investing $1,000 each is safer than 100 folks investing $5,000 each. For me, well, I think people should be able to invest and spend their hard-earned money however they want. I don’t think there should be a category of “accredited investors” vs. “non.” I think that is actually a very class-based system where the rich get richer and the “poor schlubs” (as which I spent 80% of my life being classified) need to be protected from investing in the next Facebook or Twitter.
Poor folk should be allowed to place a $1,000 bet on LinkedIn or Facebook if they think it’s the next big thing -- just like they can place it on a roulette wheel in Vegas.
That being said, the 99 limit should be something like 500 so that we can keep the American economy moving. Rich people are simply NOT investing their money, and getting them to take it out of bonds, second homes, and JetSuite memberships -- and into angel investing -- is critical to our sustained growth as a nation.
Other countries have fewer rules and they will benefit from them. Let’s stop trying to protect the rich from investing their money in startups, and start trying to build more startups -- because startups create jobs. Most of them, in fact.
Should you Angel Invest?
I get this question a lot. As far as I’m concerned if you keep angel investing down to 1-5% of your net worth, well, you’ve controlled the risk.
If you put that modest percentage to work in 50 deals, that means, in the most aggressive 5% model, each investment is 10 basis points of your net worth. If you were worth $5m in this example, 5% of your net worth would be $250k. In 50 deals that’s $5k per deal. If you did 2.5% of your net worth, it would be $2,500 in 50 deals.
Well, that’s sort of the sweet spot for angel investing through a syndicate on AngelList, or some of the emerging competitors. That list includes MicroVentures, Crowdfounder, FundersClub, and CircleUp, among a growing list of options.
Again, if you are not an “accredited investor” as defined by the government then you’re too simple or too irresponsible, I guess, to invest your own hard-earned money. #sarcasm
More to Come
I’m going to keep updating folks on my education as an angel investor and Syndicate. I’m in a unique station in life, in that I’ve put 25 years into being a journalist and entrepreneur in technology, so I’ve got a heck of a network and a ton of experience.
It’s making angel investing really pleasurable so far, but of course in a market this hot everyone looks like a genius. I’ve been through two brutal, brutal tech corrections in my career and I’m guessing there will be a third some day -- perhaps in the middle of my first fund.
I can’t control that, but I can control the checks I write, and I’m writing them based on big, crazy ideas by passionate people who are executing at a very high level.
If that’s you, well, you know how to find me (and if you watch This Week in Startups, you’ll know what impresses me).
P.S. - If you want to join the Syndicate, angel.co/jason
P.P.S. - This Week in Startups is my podcast: www.thisweekinstartups.com
P.P.P.S. - The LAUNCH Festival is March 2-4 at Fort Mason. 12,000 folks will be there, save the date.
P.P.P.P.S. - LAUNCH Scale is an intimate event taking place on October 23-24, more at LAUNCHSCALE.NET & read: Startups are about Scale [http://goo.gl/jhUC16]
Angel investing is a brutally hard job ...
Startups today are about one thing: scale.
As in getting big and doing it fast, like: Uber, Airbnb, Dropbox, Snapchat and a couple dozen others.
In this email I want to accomplish two things:
1. Explain why SCALE is so critical today.
2. Get ideas from you on topics and speakers for the LAUNCH SCALE event I’m hosting.
[ LAUNCH SCALE: Oct 23-24, San Francisco -- http://events.launch.co/scale ]
“But wait Jason,” I can hear one of you tweeting me, “didn’t you say just two years ago that we are living in the ‘age of excellence’ and all that matters is how good the product is?” [The Age of Excellence: http://blog.launch.co/blog/the-age-of-excellence.html ]
That was 27 months ago. Things have changed radically in that time, and what has changed most is that “startup alchemy” has given way to “startup science.” If you look at all the aspects of building your company, it has become productized:
-- We have MailChimp teaching us -- heck, forcing us -- to do email perfectly. Ten years ago we had to spend entire days per month sending emails. Now it’s minutes.
-- Amazon Web Services, Dyn, and Rackspace are letting folks build their infrastructure perfectly and quickly. Years ago it tooks months to get your stack up and running.
-- InVision is letting us build flawless mock-ups, and HipChat is letting us communicate 24/7 across mobile and desktops.
-- Marketing is as easy to implement as buying books from Amazon was ten years ago. Non-technical folks can launch campaigns on Twitter and Facebook’s marketplaces in hours, without ever needing to hire an agency. With AdStage it gets even easier.
-- You can go on Dribbble or Behance and sort and surf through killer designs -- made by people in South America, Asia, and Eastern Europe -- that are indistinguishable from folks in the United States!
-- Finally, the accelerators are filling in a ton of the gaps in building your product.
What’s left if every aspect of a startup is being perfected and productized?
The Questions to Ask Yourself
Given a year or so of capital/time you should be able to build a solid product that some group of users find value in. If you can’t, there are two reasons:
1. You’re probably trying to do something wildly complex or far out there in terms of even being possible (think an electric car, artificial intelligence).
2. You suck and shouldn’t be an entrepreneur.
If your problem is #1, well, then just pivot to the “next best manifestation of your vision based on what you learned.”
If your problem is #2, simply go work for someone brilliant for two to five years and take a LOT OF NOTES.
If you have built a great product, but it’s not growing, ask yourself the following:
I. “How much time and money are we spending in total as a company each month?”
II. “How much of that time and money is going directly toward the growth of this product?”
III. “Is our team aligned around the goal of growth or not?”
In my case, I told our team that we would build Inside.com to the point of having a core group of thousands of daily users who love the app, and if we succeeded then we would focus on growth.
We are in the process of looking at our budgets and time, and literally putting as much behind the SCALE of our product as we can.
There are two primary growth types:
a) Adding new users
b) Getting existing users to use your product more
So we are pursuing both of these with content, social, targeted ads, PR, and most importantly, product design.
It’s HARD to make a news product viral, but we’re trying!
Help Me Help You!
Now that I’m in the middle of trying to SCALE Inside.com, it’s the perfect time for me to bring 250 of y’all to learn together.
That’s LAUNCH SCALE, and I could use your help with the following:
-- Speakers: We are looking for executives who specialize in growing startups, and have had great success in doing so. Think backwards from high-growth startups (Uber, Airbnb, Box, Dropbox, etc.), as well as from the function areas (PR, viral loops, UX, paid, social, street teams, community, content marketing, etc.).
-- Join us: You can buy a ticket with the 30% FOJ discount code (“friend of Jason”) that is good for the next week.
-- Diversity: All of our events, in addition to my podcast and investing, are working hard to present tremendous diversity on the stage and in the audience. Our team believes that our events and products benefit greatly from lots of different perspectives. With that in mind, please help us find speakers and submit them here: http://events.launch.co/speakerformscale. Also, if you know of anyone who would benefit from a scholarship, we reserve 10% of our seating for folks striving to take it to the next level (like many of us did in web 1.0!).
-- Sponsor: We are doing two types of presentations at LAUNCH SCALE:
1. Startups that have scaled
2. Companies that provide tools that help startups scale. So if you are a company that makes money providing tools for companies to grow, well, you should sponsor the event and show your product/case study. Emailpartners@launch.co
We have the following presentations already lined up:
1. Steve Huffman, Co-Founder - reddit & Hipmunk
2. Marco Zappacosta, CEO - Thumbtack will explain how thumbtack got 70,000 paying customers without a salesforce, and raised $50M.
3. Andrew Johns, Head of Growth & Revenue - Wealthfront will talk about how they attracted $1B in assets under management with a tiny marketing budget.
4. Patrick Cheeseman, Head of Customer Experience - HotelTonight will discuss how to use support to drive product innovation.
5. Ryan Mannion, CTO - POLITICO will discuss how to grow from 0 to 100 Million monthly pageviews.
6. Christopher DePatria, VP of Revenue - SignPost will explain how he grew their sales team from 5 to 100 in 2 years, and signed up 93k SMB customers.
7. Aaron Magness, VP of Marketing - Betabrand will tell us how they use crowd-funded emails to never have unwanted inventory again.
8. Craig Zingerline, Sr. Director of Product - Red Tricycle will tell us how they grew to 750,000 emails without spending a dollar.
9. Arjun Naskar, Growth Manager - Homejoy will discuss how to expand into 31 markets in 2 years.
Any questions, hit reply and ping me AND the team!
Thank you for attending LAUNCH Beacon. In total, over 300 people took part of the summit, discussing what’s next in retail, e-commerce, payment, and location.
1. Keynote Conversations and Fireside Demos
@Jason sat down with Ryan Caldbeck (CircleUp) and Ryan Craver (Lord & Taylor) for two keynote fireside chats. Ryan Caldbeck discussed the future of crowdfunded investment, while Ryan Craver shared what’s on the horizon for tech in retail.
We also heard from:
- Ken Denman (Emotient), who has developed facial gesture recognition whose retail applications can range from in-store merchandising to omni-channel discovery.
- Jared Schiffman (PERCH), leading the way in interactive retail displays.
- Phillip Bückendorf (Downtown) showed us how easy ordering and paying in a restaurant can be.
2. Power Lunches
The conversation didn’t stop when lunch was served – our four Power Lunch breakout sessions fostered discussions about payment strategies, location & analytics, clienteling & engagement, and social & mobile discovery, each moderated by our friends at Pivotal Labs.
3. Photos and Video
Photos from the event will be up shortly - check back soon for links! Select video will be released via This Week in Startups. Subscribe here on Youtube: http://www.youtube.com/ThisWeekIn, or in iTunes here: http://bit.ly/bit.ly/TwiStV
3. Press Coverage
Have press or a blog post to share? Send us the link and we’ll tweet it out: email@example.com
GPS changed everything about our lives in the past decade, but an even bigger change is coming in the next decade: micro-location.
We used to have glove compartments filled with maps, we set up elaborate plans to “meet at the fountain at 11:45pm,” not to mention the 15 minute phone calls with cab companies in which we had the pleasure of hearing a salty dog dispatcher scream at a driver over a CB radio.
Delightful stuff that our kids will never understand as they blindly follow Waze’s audio instructions while driving, never once questioning them as they’re told to take 4th Avenue instead of the BQE. They simply “Glympse” each other at Disneyland before UberXing themselves home on their parents’ account--with dad hovering over the driver’s speed while playing poker.
New sensor technology called “beacons” is going to track us all down to the--wait for it--inch. You’re not going to meet “over by the Small World ride” at Disney, you’re going to meet 17 feet from the back of the line.
We’re not going to go to the bar and ordering a drink, we’re going to order another round of greasy grilled cheeses while walking from the pool table to a booth at Antonio’s Nut House, with a waiter trailing behind us -- never needing to ask “Did you move tables?”
None of us know the exact impact of micro-location, but my four-person research team (it’s good to be me!), studied the local space for the past four months and they narrowed down over 400 players to the 70 most
After reviewing those 70 with them, I personally narrowed it down the 30 most important. I met with all of those for an hour each and I can tell you my mind is completely frackin’ blown by the impact of local.
And I’m going to invest a couple of million bucks in this space in the next year. I’m not exaggerating. Why? Because some of my best investments to date are in the local space: Uber, Thumbtack, MyTime, StyleSeat, Boxbee and SignPost are all crushing it for me. In fact, the returns on that “cohort” -- even excluding the super-unicorn-pegasus of Uber--are 10 to 50x already.
Instead of hoarding my research and deal flow, I do something no other angel does: I host an event and let everyone out there come meet the companies I’m *considering* investing in and that I think will change the world.
1. I’m not in competition with other investors. Startups love to have me along for the journey and I invest for the journey, not the destination. Sure, some VCs have sharp elbows, but after 70 deals, I’ve only had one situation where another investor screwed me. They f@¢ked me badly, but reputation is a long game and I’m not sweating it.
2. Angel investing is a collaborative sport. I need two or three folks to join me on every deal in the first year or two of the startup to support the founder.
Here are some of the folks I’ve been hanging out with, and who will be coming to LAUNCH Beacon on June 16th in New York City.
[ You can buy a ticket here: launchbeacon.co and use JCAL10 to get 10% off ]
Kenny Lauer runs digital for the Golden State Warriors, which is one of the most exciting arenas in sports. He’s working with Aaron Mittman of Sonic Notify to do insane, down-to-the-seat-level promotions, like upgrading your seat, getting discounts for food and player info.
Micro-location in sporting events and concerts will be extraordinary in the coming years. Imagine you’re on the Knicks side of the arena and your tablet shows you close-ups of only the Miami Heat side. Imagine we all get alerts on our smartphones of what play the Giants should call, we vote and the coach calls that play... I know, that would never happen... (except in a pre-season game perhaps!). Can you imagine how many people would go to a preseason game where we got to call the last play of each quarter?
Nathan Pettyjohn is the founder of Aisle411, and they are doing “shopper navigation,” so that you can search for “white dress shirts,” and see seven different ones on a map at some big retailer--then browse through them for inventory, sizes and prices before dragging yourself to the third floor back row to only find out that they don’t have your size (or that they want $425 for a crisp white shirt).
Ryan Caldbeck is the founder of CircleUp, which one of my portfolio companies, SmartyPants Vitamins, used to raise a $2M+ round of funding. It’s AngelList but for consumer packaged goods ONLY. They get 100+ deals put into their system a month. They narrow it down to the two or three that they then circulate among the world’s best CPG investors. It’s awesome.
Perch Interactive makes interactive tables and shelves. Imagine coming into the Nike or Apple store, and when you pick up a product a video plays... on the shelf (from a projector). And you can simply click on the table to see price, order and be on your way. This technology and platform will turn shelves into sales associates and keep us from having to look up additional information on our smart phones.
We are not limiting ourselves at LAUNCH Beacon to technology companies, we’re also inviting folks like Ryan Craver, who runs strategy for Hudson's Bay | Lord & Taylor, so we will get to hear from the people selecting these technologies what they really think will drive sales and pull people into stores.
A clever founder named Phillip Bückendorf will share Downtown, an absurdly slick ordering system for restaurants.
Andrew Farah from Density, which launched at the LAUNCH Festival earlier this year, will share his 2.0. It’s a big, big vision that I’m super excited about. In a way, it’s FourSquare turned on it’s head.
Ashley Etling is a dynamic founder from Red Clay, which has reinvented the process of creating new products through a contest format that huge brands are embracing. I’ve really fallen in love with this startup and the two founders. They are going to change the world, I’m certain of it.
Stuart Wall was one of my first angel investments, and after a couple of pivots he’s built the most powerful SMB marketing platform in the world: Signpost. It’s amazing, and he’s one of the great founders who have pushed me to back “great people” even when their 1st idea isn’t perfect (smart folks figure it out).
Sam Rosen is a Brooklyn-born founder of MakeSpace, which is doing on-demand storage. Very similar to Boxbee (which launched and won LAUNCH Festival in 2013). He just raised a huge round of venture and is doing great things.
There’s a bunch more, but this post is already way too long. Thanks to my partners on this awesome event, Pivotal Labs.
Grab a ticket here: https://launch.ticketleap.com/launch-beacon/dates
More speakers & attendees: http://launchbeacon.co
all the best, @jason
ps - I wrote a short note to my AngelList Syndicates here
pps - Amazing episode of This Week in Startups with Science Inc team, Peter Pham and Mike Jones http://youtu.be/icxooH3yjM0
ppps - Inside.com is launching our Android version! Sign up for the beta here: http://goo.gl/miPa8O