How a German Copycat Almost Killed Airbnb

September 14, 2023

“This is war. In a war between missionaries and mercenaries, the missionaries always win.”
Brian Chesky

Today, Airbnb is one of the most successful tech companies in the world. Its listings span the globe. Its market cap is over $90 billion.

But back in 2011, Airbnb almost died. The assailant: two brothers from Germany with a history of copying the most successful startups.

Brian Chesky, co-founder and CEO of Airbnb, told the story of this near death experience on the excellent new Crucible Moments podcast by Sequoia.

A Perfect Clone

“One day, we like noticed that we’re getting all this scraping data and like a lot of weird messages are being sent to our hosts to list them on this site called Wimdu.”
Brian Chesky

Wimdu was a perfect clone of Airbnb. It was created by the Samwer brothers in Berlin.

The Samwer brothers were notorious among US founders and VC’s. They had copied Groupon, and Airbnb was next.

“All of a sudden, I felt like we had a gun to our head.”
Brian Chesky

The Samwer brothers threatened to take over Europe, locking out Airbnb. Since Europe is where Airbnb’s American user base wanted to go, this could’ve kill the company.

Do or Die

The brothers invited Brian to Germany for a meeting.

“…make no mistake — this was do or die.” – Brian Chesky

Brian and Sequoia Partner Greg McAdoo arrived at the converted factory in Berlin that was home to Wimdu. They were shocked at what they saw: hundreds of people, cloning Airbnb.

“On the left monitor is Airbnb’s website and the right monitor is Wimdu. And literally there are designers and engineers cloning the site, like an assembly line cloning the product, in front of us.”
Brian Chesky

The Samwer brothers offered Brian and Greg a choice — buy us, or else.

Brian’s Choice

It would’ve been easier for Brian to buy Wimdu. But it would’ve diluted the company and encouraged more copycats.

Brian decided to stand firm.

“You had the baby, you raise the baby, I’m not adopting your baby. You raise the baby. And I thought ‘there’s no way they’re going to raise this baby for 18 years.’”
Brian Chesky

Brian was right. The Samwer brothers didn’t give a damn about connecting hosts with travelers. They just wanted a quick payday.

And indeed, the Samwer brothers gave up seven years later, in 2018.

What I Learned from Brian as an Investor

No founder who doesn’t care about the business will last 18 years.

To probe a founder’s motivations, I like to ask, “What made you want to start this business?” I’m looking for a personal connection to the problem.

Brian had experienced the pain of being unable to make rent. Taking in boarders saved him.

Brians are rare. But when you find one, there’s no limit to what you can achieve.

If companies I invest in are successful enough, they too will face copycats one day. Brian’s experience tells me not to worry — if I’ve backed the right horse, I’ll succeed.

Wrap-Up

Every company faces a near death experience.

Brian’s story shows us that the way to get through it is perseverance. That perseverance comes from a deep desire to solve a problem.

Have you faced a copycat? What happened?

More on tech:

How General Magic Invented the iPhone — in 1994

Why I Don’t Complain About YC Valuations

The Contrarian

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How General Magic Invented the iPhone — in 1994

September 13, 2023

“General Magic was trying to create what was in essence the iPhone about 15 years too soon.”
Tony Fadell

It was the Dream Team of computing. Andy Hertzfeld, one of the original developers of the Macintosh. Bill Atkinson, inventor of the GUI. And CEO Marc Porat, creator of one of the world’s first satellite networks.

Their mission: make a computer you can hold in your hand.

Photo: The Sony Magic Link

The story of the company they built, General Magic, is the subject of a great documentary from 2018. When I sat down to watch it last week, I felt like I was there with them, building the future.

Build a New World

The team had incredible camaraderie.

Engineers sat on the floor for meetings. When you see the old footage of these confabs, you’ll notice that just about every person is smiling.

General Magic was the real, old Silicon Valley.

No catered lunches and massages here. Just nonstop coding and bunk beds for those few hours of sleep the team managed to get.

“It became my entire life. I shunned even my family to a certain extent. I just wanted to make this company General Magic happen.”
Tony Fadell

Just about the only companies doing this today are run by Elon Musk. No wonder they’re so successful.

Demo Day

After years of intense work, General Magic released the Magic Cap OS in 1994.

The device they created was incredible for its time. You could send e-mail, take notes, and make phone calls — all in a package that weighed just over a pound.

While Magic Cap was a breakthrough, the company struggled to find the right customer.

Who’s Gonna Buy This Thing?

Some employees at General Magic said the best customers would be businesspeople. Others insisted Joe Sixpack was the right market — the computer for everyone.

But can Joe Sixpack afford an $800 device? Does he even have e-mail?

I don’t think so.

The ideal market would have been people like themselves — early adopters who work in tech. But for some reason, they ignored the customer base that was right under their nose.

General Magic’s Blind Spot

Despite its cutting edge tech, Magic Cap had a strange limitation: it couldn’t access the World Wide Web.

The web came out during Magic Cap’s development. The team underestimated its importance and failed to integrate it into Magic Cap.

Customers were left with a device that was cutting edge in some ways, and woefully behind in others.

“No One Came”

The General Magic devices didn’t sell.

“My stomach turned sour and I thought ‘we’re doomed.’ No one came. No one bought it. Nothing.”
Bill Atkinson

As the product the team worked so hard on floundered, the team became demoralized.

Bleeding cash, General Magic went through layoffs. The company continued to flounder for several years, releasing a string of products including a voice-based assistant.

None of them caught on, and the company finally shut down in 2004.

General Magic Lives On — In Your Pocket

Although the company failed, every smartphone on the planet traces its lineage back to General Magic.

Tony Fadell, one of General Magic’s top engineers, went on to invent the iPod and iPhone. Another General Magic engineer, Andy Rubin, created Android.

The iPhone and Android interfaces are surprisingly similar to the old Magic Cap. Magic Cap’s touchscreen with little icons for phone and e-mail would be familiar to any current iPhone user.

“Fail early, fail often, but always fail forward.”
John C. Maxwell

Wrap-Up

If anyone defined failing forward, it’s General Magic. The first experiment by these wild engineers may not have been successful, but their next ones were!

This is how technology progresses. Ambitious people try things, fail, and grope their way toward success.

General Magic teaches me a lot as an investor. If I find the best teams and back them repeatedly, I have a chance to be a part of something big.

What do you think of General Magic? Leave a comment and let us know!

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More on tech:

They Invented the iPad in 1989 — And Lost it All

The Contrarian

Watch Elon Drive Tesla’s Amazing New Autopilot

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Porto Bleg

September 12, 2023

I’m headed to Porto in November! Where should I go? What should I eat?

This seaside town in northern Portugal has captivated me ever since I saw Anthony Bourdain walking down its narrow streets in Parts Unknown.

When you see Anthony digging into a cheesy pork sandwich called a francesinha in a little cafe, who doesn’t want to be there?

I’ll be staying for 11 days in the center of town. If you’re a dedicated reader of Tremendous, you know I love to eat!

Where should I go?

Where I’m planning to eat:

A Perola do Bolhao — a grocery store out of a time machine, known for fine olives and cheeses.
O Alfonso — where Bourdain had his mouthwatering francesinha.
Chocolateria Flores and Chocolateria Equador — known for Porto’s best sweets
Pingo Doce — charming grocery store found all over Portugal. I want their pasteis de nata!
The Dog — cachorros, the cheesy hotdogs Anthony is eating later in the episode. Sliced into small bites, they make the perfect snack.
Murca no Porto — very traditional Portuguese foods like tripe at an excellent price. Delightful, homey setting.
Combi Coffee — beautiful espresso, lattes and pastries.

And yes, I plan to do things other than eat!

Sights on my list:

Igrejo do Carmo — Perhaps Porto’s most spectacular church, replete with traditional blue and white paintings called azulejos. Azulejos are very typical of Porto.
Igreja de Sao Francisco — contains 100 kg of gold leaf!
Foz do Douro — lovely old fort along the sea.
Livraria Lello — bookshop known for ornate woodwork. May have been the inspiration for Harry Potter.
Jardim Botanico do Porto — free botanical garden! How often do you see that?
Parque da Cidade — the biggest park in town, with easy access to the ocean.

I’m excited to add a lot more to my list! This will be my first trip outside the US in two years, so I’m really looking forward to it.

Please leave a comment with your favorite spots — I might even write them up on the blog!

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P.S. I found another, very early Anthony Bourdain episode on Porto. It’s from A Cook’s Tour, his first TV series. Enjoy!

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Photo: “Porto ‘old city’” by austinevan is licensed under CC BY 2.0.

Why I Don’t Complain About YC Valuations

September 11, 2023

“YC valuations are ridiculous, waaaah!”
Every Investor Ever

Demo Day came again last week at Y Combinator, and prices were predictably high. But consider the work that goes into Demo Day…

The Long Road to Demo Day

Over 20,000 companies applied for YC’s Winter 2023 batch. 282 were selected, a little over 1%.

That means that YC staff had to read and discard 19,700 applications. If each one takes even 10 minutes, that’s 3,283 hours of work — more than a year’s worth.

After finding the best of the best, YC intensively coached these startups for 3 months. The coaches are some of the best founders and investors on the planet.

And you expect to get this for $8 million pre-money? Get real.

YC Deals vs. The Rest

We can’t compare a YC deal to the average startup raising money.

YC has the best track record in the business. Airbnb, Stripe, and Coinbase all came from YC — not the random dealflow in your inbox.

What’s more, the average startup hasn’t been vetted and coached by the best people in tech. Nor does it have $500,000 of guaranteed YC cash behind it.

I’ve had the good fortune to back several awesome YC companies in recent years — Caribou, TANGObuilder, and Hellometer.

The founders are scrappy and astute. Clearly, they learned a lot at YC.

But These Companies Have Zero Traction!

It’s true that most startups at Demo Day have little to no traction.

I don’t invest without revenue. So, I’ve never invested in a YC company at Demo Day.

Instead, I like to meet them about 1-3 years later.

These are no longer fledgling companies. They have significant revenue and a growing list of customers.

Best of all, they’re usually raising at the same price as they were on Demo Day!

That’s the flip side of high Demo Day valuations: it’s hard to go higher any time soon. Investors like me can just wait for the startups to grow, investing later in a de-risked company at the same price.

Looking Beyond YC

YC isn’t the only source of pre-vetted, high quality deals.

The LAUNCH Accelerator cranks out awesome startups with real traction at reasonable prices. I’ve done more deals there than anywhere else.

I also like the Entrepreneur’s Roundtable Accelerator in NYC and Techstars.

Or — gasp! — you can do the work of finding companies yourself! You’ll probably pay less, but you know what they say — you get what you pay for.

Wrap-Up

All of us in startupland should be grateful to YC. No one else funds and coaches so many awesome entrepreneurs, every year.

Whether you invest at Demo Day, a year later, or not at all, we’re better off with YC than without.

Congrats to the Winter 2023 batch — see you next summer!

What do you think of YC valuations? Leave a comment and let us know!

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More on tech:

The Contrarian

Double Down or Stand Pat? Here’s How I Decide.

Where I’m Investing Now

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Moran’s: The Best Burger in Town

September 8, 2023

“I’ll have the burger.”
“Burger.”
“Burger, medium rare.”

Moran’s in Hoboken, NJ is a homey Irish pub that serves the finest burger in town. We sat down at the spacious sidewalk cafe on a recent Friday, filled with anticipation.

The setting couldn’t be prettier. Moran’s sits alongside leafy Church Square Park in a charming residential neighborhood.

My friends and I perused the menus, but we all knew what we were going to order. Still, you have to look at the menu, right?

The Moran’s Burger is an 8 oz Pat La Frieda. Pat La Frieda, a butcher in nearby North Bergen, produces an unctuous patty from a blend of different cuts.

If you’re used to just ground chuck, you’ll never go back.

On top of this singular patty goes rashers, a delicious Irish bacon. Add Irish cheddar, a savory housemade ketchup, truffle mayo, fried onions and arugula and you’ve got one heck of a burger.

At so many restaurants, the bun is an afterthought. Not at Moran’s.

Their sesame seed brioche is so good I’d eat it on its own with butter. Matter of fact, maybe I should find out where these come from…

We attempted a little desultory chatter, all the while glancing at the kitchen. I need that burger…

Out they came! As the waiter laid the towering sandwich in front of me, I couldn’t have been more excited.

“I’m digging in!”

The first bite is always special. The beefy juices oozed out, dribbling down my chin.

Good, they remembered the mayo. I dunked a fry in — this is one thing the French got right.

Alternate forms of bacon usually don’t do it for me, but the Irish came through here. Rashers are a great addition — fatty and satisfying.

Conversation dropped off as we sailed into our burgers. When the table goes silent, you know the food is first-rate.

In addition to being scrumptious, the Moran’s burger is huge. I was stuffed as I took the last bite.

Moran’s is everything a neighborhood pub should be — friendly and comfortable with amazing food. Stop in for delicious burgers, fish and chips, and more!

What’s your favorite burger? Leave a comment and let us know!

Have a great weekend, everyone!

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The Contrarian

September 7, 2023

“He was a nobody.” Peter Thiel didn’t stand out amongst the horde of bankers at Credit Suisse. But somehow, this unlikely man became a tech icon worth $8.6 billion.

“The best entrepreneurs know this: every great business is built around a secret that’s hidden from the outside.”
Peter Thiel, Zero to One

In The Contrarian, Max Chafkin tells the story of how Thiel became one of the best known, and most controversial, technologists of our time.

How Peter Thinks

Whenever someone makes an argument to Thiel, he runs through an exercise: what if what they’re saying is false?

This is a great way to evaluate ideas. I often use it myself.

If I can’t invalidate an argument, I have to accept it. But Thiel’s technique makes sure that I carefully examine every idea.

Independent thinking has led Thiel to some of the biggest scores in Silicon Valley history. They weren’t obvious picks — a social network for a handful of college kids, or esoteric software for the Pentagon.

But they worked.

Missing Tesla and YouTube

One thing about The Contrarian that shocked me was how many mistakes Thiel made.

He passed on YouTube, now the world’s biggest video sharing site. He also passed on Tesla, despite knowing Elon Musk personally!

These investments would have made him billions in gains. But they slipped right through his fingers.

Even the best make huge mistakes. But in venture capital, what matters are your wins, not the companies you missed.

Valuations Aren’t Everything

Thiel’s investment in Facebook could not have gone better. Growth was vertical and now the social network was raising money again.

Surely he’d want to double down, right?

Wrong. Thiel thought the $500 million valuation was outrageous, and declined to re-invest.

Facebook is now worth $788 billion. Thiel’s mistake cost him a fortune.

This is something I’ve heard time and time again from investors — “I passed on the next round because it seemed too expensive.” Every time, they live to regret it.

I’m keeping this in mind for my own investments.

Idiot Insurance

If that wasn’t bad enough, Thiel also dumped all his Facebook stock shortly after the IPO. The stock went on to soar, nearly quadrupling in just five years.

Thiel saw none of those gains.

This is why some investors take out “idiot insurance.” They sell half their position, keeping the other half.

This way, they’ve taken meaningful cash off the table. But if the stock rips in the future, they can still benefit.

It All Comes Out in the Wash

With all these mistakes, Thiel looks like a huge failure, doesn’t he?

But of course, he’s anything but.

That’s the nature of our business. If you hit one big winner, it makes up for all the mistakes.

Facebook alone would’ve made Thiel an icon. To it, he added Palantir, SpaceX, Anduril and many more.

Whatever Thiel did wrong, he also had the courage to back companies few people would touch. That conviction has earned him billions.

Wrap-Up

The Contrarian also goes into great detail on Thiel’s misadventures in politics. While I don’t share his political views, I’ve learned a lot from Thiel’s business career.

We don’t have to agree with everything a man does in order to learn from him.

What have you learned from Peter Thiel? Leave a comment and let us know!

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More on tech:

Zero to One

Double Down or Stand Pat? Here’s How I Decide.

A Peak Inside My Angel Portfolio

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Seminary Ridge

September 6, 2023

One hundred and sixty years ago, this was the most dangerous place on earth. This is Seminary Ridge, Gettysburg, Pennsylvania.

From this spot, General Robert E. Lee launched a massive attack on Union forces. After two days of intense fighting, this assault would decide the Battle of Gettysburg.

The Final Battle

Confederate cannon pounded the Union position on Cemetery Ridge. In the woods just behind the artillery, 13,000 men prepared a massive infantry assault.

“Don’t forget today that you are from Old Virginia!”
Major General George E. Pickett

At about 2pm, the rebels emerged from the woods. They faced a one mile march across open ground in order to reach the Union line.

I wonder what was in these men’s minds at this moment.

Most were little more than boys. Many had probably never left their hometowns.

This may have been their one experience of the outside world.

“For every Southern boy fourteen years old, not once but whenever he wants it, there is the instant when it’s still not yet two o’clock on that July afternoon in 1863…”
William Faulkner, Intruder in the Dust

Pickett’s Charge

The march began, to the tune of fife and drums.

Then, the Union cannons roared. These young boys were cut apart — and still they marched.

The Confederate artillery had mostly failed to soften up the Union defenses. Many of the cannonballs had overshot Union lines.

As the Confederates got closer, cannonballs were replaced by canister fire. This devastating ammunition was composed of a canister filled with metal balls.

It effectively turned a cannon into a massive shotgun. Metal balls skipped off the ground, ripping apart the soldiers’ bodies.

The Union Triumph

Brigadier General Lewis Armistead was one of the few Confederates to survive this barrage and make it through the Union lines. Just as he crossed the stone wall on Cemetery Ridge, Armistead was mortally wounded.

He fell just passed the Union lines.

This spot marks the high-water mark of the Confederacy. No rebel troops ever advanced further north.

The Confederates took nearly 7,000 casualties in less than an hour — nearly 2 every second. Pickett’s Charge marked the turning point of the Battle of Gettysburg, and ultimately of the entire war.

Seminary Ridge Today

As I looked out from Seminary Ridge this past Sunday, I was struck by how futile this assault was. Indeed, one of Lee’s generals, James Longstreet, opposed the charge.

Troops were standing in the middle of a field with artillery fire raining down on them. What chance did they have of success?

We are used to viewing the Confederates as devils and the Union troops as saints. But for a young boy born in Virginia, what choice was there?

Many of the Southern troops were drafted. Most were poor.

They had no say in where they went or what they fought for. Their position wasn’t so different than that of the slaves whose freedom was at stake.

Walking this bloodsoaked ground exactly 160 years and 2 months later, I was grateful for the peace we now have. People from all over the country, and indeed the world, can come here in peace and learn about the past.

Today, Seminary Ridge is quiet. The field ahead is full of crops, as it has been for centuries.

Today, we live in a better world.

“Only the dead have seen the end of war.”
Plato

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Citadel Alums Take $300 Million Loss

August 31, 2023

One of the most anticipated hedge fund launches of recent years has turned into a disaster. Two Citadel traders have lost approximately $300 million this year.

From a new report in Bloomberg:

Europe’s biggest hedge fund startup in 2021, founded by two former Citadel money managers Niall O’Keeffe and Tio Charbaghi, has suffered heavy losses.

Their FIFTHDELTA hedge fund that bets on rising and falling stocks lost about 13% in July, extending declines for 2023 to as much as 29% before paring year-to-date losses to 25%, people with knowledge of the matter said, asking not to be identified discussing confidential matter.

The fund began with about $1.3 billion, implying current losses of over $300 million.

This wasn’t supposed to happen. At the beginning, FIFTHDELTA was so hot it was closed to new investors.

Now, they’re raising money again and trying to claw their way out of a deep financial hole.

Citadel traders like O’Keeffe and Charbaghi are considered to be the best of the best. But markets don’t care what’s on your resume.

The fund’s abysmal performance is all the more shocking given this year’s bull market. The S&P 500 index is up over 18% in 2023 so far.

I captured that 18% return at the cost of just a couple basis points in fees to Vanguard. Meanwhile, most hedge fund investors pay a 2% management fee every year — often for far worse performance.

While FIFTHDELTA appears to be weathering the storm for now, it’s swimming against powerful tides in markets.

There are more hedge fund closures than openings these days. Institutions are putting their money with the big players, not upstarts like FIFTHDELTA.

A small, new manager like FIFTHDELTA is already a hard sell. Come into a pitch meeting with rotten returns, and you’ll never see a check.

Long term, I think the long/short strategy of FIFTHDELTA and so many other funds is a loser. The long-term trend in markets is upward — meaning you’ll lose money on your shorts.

What’s more, short positions are costly to maintain. You have to pay interest on the shares you borrow.

Even worse, your gains are capped at 100%. Meanwhile, your potential losses are unlimited.

As FIFTHDELTA teeters, I expect top traders will jump ship. When a fund is carrying big losses, bonuses may not come for years.

People join hedge funds for the money. If the money’s no longer there, they’re out.

What do you think the future holds for FIFTHDELTA and other hedge funds? Leave a comment and let us know.

Tremendous will be off until Wednesday, September 6th. Have a great Labor Day weekend, everybody!

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Double Down or Stand Pat? Here’s How I Decide.

August 30, 2023

When I invest in a startup, it’s just the beginning. I’m scrutinizing every update to see if this will be one of the few, the proud, the Follow-On Investments.

The Feeler Bet

I make a series of bets on the best companies, not just one. My first check is usually what I call a “feeler bet” of around $5,000.

It’s just a small check that helps me get to know the founders. I start getting the investor updates and helping where I can.

This gives me the insider’s view of the company.

I see what’s going well. I also start to see problems that outsiders aren’t aware of.

Double Down

After a year or two, most companies are ready to raise more capital. At that time, I have to make a big decision: double down, or cut my losses?

I want to significantly increase my ownership in a handful of the best companies. I re-invest in around 20% of the companies I back.

For those winners, I usually want to increase my bet by 4-5x.

How My Bets Work

I usually make one or two follow-on bets. These generally come at the Seed Extension or Series A.

At that stage, I have enough information about the startup to make an informed decision. At the same time, the price is still low enough to give me a lot of upside.

Whether I make two smaller bets or one big one depends on where the company is at.

For a startup I re-invested in recently, I gave them $10,000 now, with another $10,000 earmarked for their next round. They were at around $3 million a year in revenue, meaning that I can probably invest again in the next round at a valuation below $30-40 million, my sweet spot for follow-on.

For another company I doubled down on recently, I coughed up the whole $20,000 at once.

They were already at $10 million ARR. The train was leaving the station.

Their next round could be at over a $100 million valuation — more than I want to pay. So it was now or never.

So Who Gets The Money?

I only do follow-on in the very best companies.

I want to see rapid revenue growth. Startups should be tripling revenue year over year, or at least doubling if revenue is over $1 million.

Burn must also be reasonable. I want to see a burn multiple at 2 or less.

Together, these metrics tell me the company’s product is catching on. They also tell me that the growth is sustainable and the company is unlikely to flame out.

The Power Law at Work

The fundamental rule of venture capital is the power law. The power law holds that a tiny fraction of companies give us almost all our returns.

I’ve invested in 26 companies. Realistically, one or two will probably give me almost 100% of my gains.

After a year or two working with a startup, I have a far better idea if it’s a leader or not. I then use that information to my advantage.

I increase my ownership percentage in those couple of winners, while standing pat on the struggling companies. This should magnify my returns in the top startups.

How Pro Rata Fits In

Pro rata is the right, but not the obligation, to re-invest in a startup. If you have pro rata, you have the right to re-invest enough money to maintain your ownership percentage in future rounds of funding.

Despite all the play pro rata gets in books on venture, it’s mostly irrelevant to my investments.

I almost never want to take exactly my pro rata share of a funding round. Either I want to take far more (“super pro rata”) or nothing at all.

Think about it — how likely is it that the exact optimal investment in a round just happens to be the $5,351 that you’re entitled to under pro rata?

That said, pro rata is valuable in competitive rounds. Maybe I can’t increase my ownership, but at least I can defend my position against dilution.

I have pro rata rights in almost every deal I do. You should certainly get them if you can.

Having to Say No to Great Founders

The hardest part of follow-on is having to say no to great founders. Just recently, a very hard working founder in my portfolio asked for another check.

I knew that he’s toiled tirelessly, day and night, to make the company a success. I have great respect for his dedication.

But the progress just wasn’t there. So I passed.

If you give more money to everyone, your returns will stink. What’s more, it’s not fair to those companies that have done everything you’ve asked, and more.

The good news for that founder is that the situation can change! If his company starts crushing it, I’ll be beating down his door to put in another check.

That’s why my answer is never “no,” but “not yet.”

Wrap-Up

Follow-on investing is a superpower.

You gain bigger and bigger slices of your winners. Re-investments and markups can make your top investments dozens of times larger than your failures.

Be ruthless in your follow-on decisions.

Only the best companies should get those extra checks. Throwing good money after bad doesn’t work.

You can still support the struggling companies with introductions and advice. But this is a business, and coffee is for closers.

Do you do follow-on investments? Why or why not?

More on tech:

Where I’m Investing Now

A Peak Inside My Angel Portfolio

Watch Elon Drive Tesla’s Amazing New Autopilot

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

Where I’m Investing Now

August 29, 2023

As people come back to offices, the Bay Area vs. The Rest argument is back. So today, I thought I’d show you where I’m actually investing right now.

I’ve invested in 26 startups in the last 28 months. Here’s where they’re located:

SF: 5
NYC: 4
LA: 3
Silicon Valley: 2
Phoenix: 2
Austin: 1
Chattanooga, TN: 1
Fort Lauderdale, FL: 1
London: 1
Minneapolis: 1
Portland, OR: 1
Raleigh, NC: 1
Sacramento: 1
Salt Lake City, UT: 1
San Diego: 1

The Twin Capitals of Tech

Two areas stand out: the Bay Area and New York. The Bay Area collectively has 7 companies, just over a quarter of the total.

NYC is also heavily represented, with 4 companies, or 15% of the total.

This fits what I’m seeing happen in the market now. Today, the world of tech has two capitals: SF and NYC.

Over time, I’ve invested in fewer Bay Area companies and more NYC startups. This fits a trend I’m seeing of entrepreneurs moving from the Bay to Silicon Alley.

But venture is all about finding the best companies. So, where are my most successful startups?

The Best of the Best

In my portfolio so far, 5 companies have really stood out. They’ve scaled to millions in revenue with low burn.

They just might be the next unicorns. Here’s where they are:

Sacramento: 1
Austin: 1
NYC: 1
SF: 1
Salt Lake City: 1

The locations seem pretty random, and no city has more than one.

Maybe it’s just the small sample size. Or maybe talent is more evenly distributed than we think.

But Don’t Read Too Much Into “Location”…

“Location” is a slippery concept with companies these days, especially startups.

I did the numbers based on where the founder lives. Usually several of the co-founders live there as well.

But almost every startup in my portfolio hires remote employees. Remote work makes top talent easier to access. It can also be cheaper, especially if you hire overseas.

Wrap-Up

Do I favor any one location over another? Not really.

Experience has told me that good startups show up all over the place. They’re a little more likely to pop up in the Bay or NYC, if for no other reason than that ambitious people tend to move to those cities.

But they also pop up in Chattanooga and Salt Lake. And when they do, I’ll be there, looking for my slice.

Where are you investing these days? Leave a comment and let us know!

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More on tech:

A Peak Inside My Angel Portfolio

Watch Elon Drive Tesla’s Amazing New Autopilot

They Invented the iPad in 1989 — And Lost it All

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

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