Jason Calacanis is one of the world’s best angel investors. His background story is endearing, as he comes from a rag to riches story, which would show the average joe that it’s possible. Seeing his parents argue all the time, mostly about money, influenced him to get rich as a direct and indirect way of solving problems. He was able to invest in Uber at a $4m valuation to turn $25k into $100m, and Thumbtack at a $5m valuation. As well as other home runs in Robinhood, Calm, Wealth front, and likely future home runs, such as CafeX, amongst many others. He cofounded Weblogs and sold it in 2005 to Time Warner for an estimated ~$25-$30 million. Then, he took a high amount of money and started first as a scout for Sequoia Capital to angel invest, before starting his own syndicate. Along the way, he did start a host of other initiatives and companies, with varying degrees of success. His podcast, this week in startups, has been active for over a decade and continues to be available on YouTube. I write all this to show his successful track record, to indicate there may be something to learn from his approach. Many of the points below are taken from his book Angel, and other sources available to the general public.
Allocation
Taking a smaller portion of your portfolio, angel investing will have some risk but maximum reward, the highest of all investment options available to the average joe, the non-accredited investor. Jason Calacanis believes he should have gone into angel investing right away after college, placing small bets everywhere. In an average scenario, an angel investor could expect -7 to 20 percent, assuming no disasters or jackpots. For reference, the S&P 500 is likely to return somewhere between 5–9% on a long-term basis.
With private market secondary trading being developed and soon to be a reality, as well as the possibility of option to cash out some or all of your holdings on future private raises at higher elevations, there is also the potential to cash in some of your holdings. The rich man was asked how he got so rich: “by selling too early”. At the same time, selling 25% of your position twice before IPO leaves you with half. This could be a wise decision as even billion-dollar companies go bankrupt. So, if you have opportunities to get your initial cash back, it could be good to do so, offering more flexibility going forward.
Companies
Invest in companies that will be the ones that are on the cutting edge of change. The world now is changing so fast that each decade of change in the information age is equivalent to ten decades of change in the industrial era. Getting in on these companies at the ground level, ~5–50 million valuation, still leaves a lot of potential for the unicorns to show up. Albeit with lower valuations of earlier companies, it could take much longer for this to occur. Businesses need an unfair advantage, otherwise they are dying rather than thriving. If it is uncertain what it is, they probably don’t have one. Find businesses that scale on technology and software, where the incremental cost and effort of the next one is zero. This works with Facebook, slack, Google, etc. Consumer products do not work as easily as COGS, cost of goods sold still remains.
An apocalypse in the form of white collar jobpocalpyse is coming: accountants, lawyers, teachers, pilots, software engineers, even doctors, may be at risk of losing jobs. Innovation in technology that will eradicate white collar jobs, particularly those that do not face other humans and are repetitive by nature, will be at risk of job loss. Those technologies invested in could produce great returns.
General characteristics: has a working product, 18 months runway post funding, already having reputable investors, 6 months of continuous user growth or revenue growth, 2 founders. This all suggests a company that is off the training wheels and on the cusp of a breakout. Another somewhat uncontrollable factor is timing. Often times it has to be right: Facebook was the 10th social network, Google was the 12th search engine, iPad was the 20th tablet. A good company with the right product that is too early for society may not work either. Take electric cars, now they are accepted by society, but 50 years ago this would have been an utter pipe dream. If the idea is not yet existent, it may take longer for society to accept. Take one of my personal investments in geodome homes that will last centuries, longer than the owners themselves. Small and compact, they do not fit the existing mold of what people think of to live in, be it apartments, condos, townhouses, duplexes, detached single homes. This kind of company could take anywhere from 10–20 years to start being accepted more by the mainstream.
All the great companies from California: 25% of the world’s unicorns, the other 25% from the rest of the US, and another 25% from China. So, the remaining 25% come from the other nearly 200 countries in the world.
To get a return, companies must either go IPO or be acquired. Great companies are bought, not sold. Offers are already being made for them rather than needing to offer them. Those founders are not going around begging to sell the company; they are completing the mission and are getting an offer that makes a lot of sense for themselves, investors, and employees. If the company you buy does not seem feasible to be a buyout target for a larger player in the industry or adjacent industries, either it will become a trendsetter, or, it will struggle in mediocrity.
Founders
Founders with strong strengths is nice, like brilliant and calculating founders. They should not be delusional and difficult ones. Those qualities are often confused as two sides of the same coin. Founders by definition must be passionate and stubborn, otherwise they would have given up a long time ago and just gotten a job. If they don’t succeed, they are assholes and narcissists. If they succeed, they are trendsetters and visionaries. So how do you find the good ones from the bad ones? What filters should be used to distinguish the difference?
The product doesn’t matter so much as the founder. If the founder succeeds, the product will too. Of course, depending on what market, the return will be variable on addressable size, but nonetheless, positive. Pick the right founder, not the right product. Another way of framing it is to just figure out if the founder will succeed overall, and it doesn’t matter the idea, because a successful founder will eventually succeed at one of their endeavors. The best founders are not manageable, inflexible, and pursue their dreams at other people’s expense. Invest in people who build things, not people who talk about building things. In other words, those that walk the talk and not just talk it.
Self-funding: those who can fund themselves on legitimate means are determined founders. They dedicated immense effort, hard work, and passion to the company when nobody had faith in their vision. They even jeopardized their personal savings in the process. Founders, especially those with a family, that started on debt, are extremely irresponsible or self-absorbed assholes, especially those that got passed on by tons of other investors. Concise founders are even better, those who can say a lot with a little. Ones who can present a company in less than 5 minutes. Aka Shark Tank style, except including all the pertinent details. That’s what got Jason to invest in Vlad for Robinhood within 10 minutes.
Bad founders: ones who give up when the going gets tough, those who say they started for money, won’t start until funded, those who want to live the high life, founders selling shares to transfer risk, spend all their time promoting rather than doing the work, talking a big game, arrogant, delusional, behaving as the empty can that makes the most noise. Many who are liars and fraudsters are often very charismatic, so too much charm and ability to woo people over could be a red flag. Weed people out by finding out those who lack integrity. Check the founders before investing, even if it means background checks. Someone who has no integrity and high energy and intelligence is a very dangerous person to your bank account.
Typically, a calm yes is needed for the best outcome.
On life
All of life is an opportunity cost. Focus your time only on what’s important and what you are good at and ditch everything else. Think about and revisit the way you allocate your time and energy in order to get the maximum gain. As selfish as those sounds, life really is too short to be disappointed, destroyed, taken advantage of. Take a look at all the lost souls on public transit to and from work, money and power bring out the worst in people, as people will do anything to get those, even to screwing others over.
Since life is short, spend it around good people, not bad, immature, or clueless ones. As people aren’t everything, they are the only thing. To find the right people to build relationships with, ask the right questions, the hard questions, the uncomfortable questions in order to have meaningful deep and long-term relationships. If you ask direct questions and don’t get a direct answer, those people will not succeed in the long-run. That’s what matters, long-term games with long-term people. They say you are the average of the 5 people you spend the most amount of time with. Make your own luck by putting yourself next to people who are already winning, and not just winning in one facet but all aspects of life. That will increase your odds of being a winner. If we want to deal with high quality people, then it also makes sense to not spend time with low quality people. The best way to deal with stupid people is to not have them in your life at all. One could say in that situation, the juice is not worth the squeeze.
Develop good habits and be aware of bad ones. There are now many bad habits that so many people engage in that it appears to have turned into a good habit. People have a learned helplessness to them by engaging in sedated meaningless activities, such as depressively watching tv, social media scrolling, checking phone, playing video games, lying around doing nothing as life goes by them. Do not go on rants to people you don’t know, it looks and seems crazy. It’s human nature to avoid difficult conversations, and yet, doing the opposite will prove more fruitful. By being low paid, you develop a fake smile and a broken spirit.
Even though life is short, people have long memories. Bad actions will negatively affect your reputation, and all you have in your life is reputation. Significant peoples can choose to switch off their phones as the world can patiently await their attention. People who are not important have to react to their phones and be at the mercy of people pinging them, with nothing else going on their life, the phone is what’s going on. The best interview questions are the ones you didn’t write, the follow ups to previous answers on topics of interest. These are good because it shows genuine and active listening. Great listeners tend to be great investors, friends, parents, and human beings in general. Be a great listener and associate with great listeners.
Conclusion
The successful businessmen, value investors, angel investors, venture capitalists, they all seem to have a unique, idiosyncratic approach to the way they do things. All with philosophical tones too, looking at the finer qualities. A combination of great people and great businesses, with a large endless market of demand, seems to be the key recipe to success. Great minds think alike then, as other reputable investors also stress these key points too. Money is not the solver of every problem, and as the bible would say, the love of money is the root of all evil. But money is a tool that if used properly onto of a strong foundation of values and character, can make one’s life more comfortable and enjoyable.
Disclaimer
This is not Financial Advice. This article is meant only for educational and perhaps entertainment purposes.