Tremendous

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New York’s Best Tech Events

June 7, 2023

There are 2 things New York doesn’t lack for: smoke and tech events. But with so many events out there, how do you know which ones are worth going to?

Here are a few of my favorites:

Entrepreneur’s Roundtable Accelerator

With 4 unicorns, this is one of the best accelerators in existence. But it flies under the radar.

Based in NYC, ERA does a semiannual demo day. It also holds great events throughout the year.

Last time, I met a fractional CFO who has been really helpful to one of my companies!

When you meet the ERA folks, you sense their seriousness of purpose. I like that.

ERA’s next event is on Tuesday, July 11. I’ll be there — will you?

Starta VC

The folks at Starta are some of the best hosts in venture. Whenever you walk through the doors, you’re treated to a warm welcome.

I’ve met some great entrepreneurs and investors at these events. They just did their Spring Demo Day, but there will be more events in the fall!

Here’s the link to Starta’s website.

AWS Startup Loft

This one is new to me. But already, it’s shaping up to be very promising.

I was invited by a great founder I know.

And it just so happens that one of the best early stage investors in Silicon Valley is in town this week. So I invited him too — and he’ll be there!

You can see us all tonight at 5:30. Here’s the link.

AWS has deep connections in the startup scene, so I’m sure they’ll be doing a lot more great events.

What are your favorite NYC tech events? Leave a comment and let us know!

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So, How’s That Angel Investing Thing Going?

My Top 3 Tech Podcasts

Meet My New Investment Analyst: GPT-4

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Will CRE Cause a New Regional Banking Crisis?

June 6, 2023

“There are no buyers for empty office space at any price.” That’s a friend of mine who works in NYC commercial real estate. But landlords aren’t the only ones in deep trouble.

I’m writing this post from my living room. Chances are, you’re reading it at home too.

That means we’re not in offices. And as landlords survey their barren domain, things are getting desperate.

From a report out overnight in The Wall Street Journal:

“What we’re seeing is the unfortunate collision of the most rapid increase in interest rates in a one-year period and the realities of how people work,” said Gregg Williams, principal receiver at Trident Pacific, a receivership firm for defaulted commercial mortgages.

Xiaojing Li, managing director at data company CoStar’s risk analytics team, estimates that as much as 83% of outstanding securitized office loans won’t be able to refinance if interest rates stay at current levels.

CRE loans are nothing like residential mortgages.

Landlords make small payments during the life of the loan. The loan is usually for five to ten years, much shorter than a residential mortgage.

In recent years, most landlords have only had to pay the loan interest.

When the time is up, the landlord has to pay the entire value of the building. Since they don’t have that kind of cash laying around, they usually refinance or sell the property.

For a long time, this was a great playbook.

But now, interest rates have doubled. Moreover, work from home is entrenched, which could lead to long term vacancies in office towers.

So if you’re the landlord, what are your options?

You can’t refinance. The rates are so high that you can’t afford the payment.

And if you sell, you’ll get way less than what you owe on the loan.

So either the bank backs off, or you walk away from the building.

So far, the banks are playing ball.

Only some defaults end with the lender taking the keys. Often, property owners can stave off foreclosure by paying off loans with their own cash or by extending and renegotiating mortgages. Still, debt brokers and attorneys say lenders are less patient than they have been in the past.

What else can they do? They don’t want to own a bunch of aging, vacant office towers.

Making a deal with the landlord solves the problem — for now. But if the landlord can never repay what he borrowed, the banks are just hiding losses.

“The banks tend to extend and pretend.”
Warren Buffett, Berkshire Hathaway Annual Shareholder Meeting, May 2023

Bad real estate loans could sink regional banks. Smaller banks own 80% of these mortgages — $2.3 trillion.

If these loans go bad, it will make the banking crisis in March look like a tea party.

One bright spot: the office market in most cities is actually holding up.

Nationally, the vacancy rate is only up 3.7% from pre-Covid levels. The massive outlier here is San Francisco, with vacancies up 12.8%.

The banks at greatest risk from a CRE crisis will be regional banks with exposure to SF, LA, and NYC. One of the largest CRE lenders in New York, Signature Bank, already bit the dust in March.

Long term, I think office space nationwide is in serious trouble. The technology for remote work is getting better every day.

Soon, workers may join meetings from their couch on an Apple Vision Pro. The experience might be just as immersive as in-person without hours wasted commuting.

It’s a future I look forward to. But then, I’m not a landlord.

What does the future hold for CRE? Leave a comment and let us know!

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My Top 3 Tech Podcasts

June 5, 2023

At the end of every day, I take a long walk. As I gaze over the Hudson toward the city, I listen to the best podcasts in tech.

Podcasts are one of my favorite ways to learn. I listen to them while walking, doing dishes, or even (ick) scrubbing the tub.

The information is always up to date. You hear directly from the smartest people in the industry.

But there are approximately 1 gadrillion tech podcasts, with new ones coming out every day. What’s worth listening to?

Here are my Big 3:

This Week in Startups

If you can only listen to one, this is it.

Every weekday, Jason Calacanis chops up the latest tech news. He also demonstrates new AI tools.

You can even hear him take founder pitches and make investments — live! What a great way to learn, whether you’re an investor or a founder.

Jason is one of the top angel investors of all time. His perspective on the latest in our industry is indispensable.

All-In

It’s number one for a reason.

All-In is the most entertaining tech podcast I know of. The besties are razor sharp on VC and macroeconomics.

If you want the big picture of tech, this is the place.

The podcast also forays into politics and world news. Whenever you do that, half the country will disagree with you.

But their views are well-articulated and reasonable. It’s a breath of fresh air compared to the usual political discourse.

20VC

This podcast is less well-known. It’s like graduate school for startups.

The best thing about 20VC is there is an episode on every single topic.

“20VC is like your shadow board member.”

Yup, this made my day! https://t.co/fCH6dLE9Y9
— Harry Stebbings (@HarryStebbings) February 16, 2023

A founder I invested in wondered about how to approach PLG vs. Enterprise sales strategies. Not gonna lie: I didn’t really know.

But Stevie Case sure did! She’s the CRO of Vanta, and Harry interviewed her on 20VC.

Send episode to founder. Happy founder. Awesome day!

You can do this with basically any topic. That’s what makes 20VC so valuable.

Someone needs to digest every episode and make HarryGPT. It could answer almost any startup question with info from high quality guests.

What are your favorite tech podcasts? Leave a comment and let us know!

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PS: Shoutout to a great portfolio company of mine, Podium, for producing the hilarious All-In Balenciaga video! I cribbed a screen for this post. Enjoy!

More on tech:

Meet My New Investment Analyst: GPT-4

So, How’s That Angel Investing Thing Going?

Save Money on Stuff I Use:

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!

Use this link to sign up and you’ll save $15 on your first order.

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Meet My New Investment Analyst: GPT-4

June 2, 2023

I hired a new investment analyst! He’s hardworking, detail-oriented and works around the clock. For free.

His name is GPT-4.

This week, GPT-4 and I have been investing together. We passed on a bunch of companies but we did find one winner!

Let’s look at two companies we reviewed this week…

Company #1

Company #1 is a generative AI company.

It has an interesting concept and a few paying customers, but the details were sketchy and it seemed a little too early for me. I like to see companies at $200-500k ARR before investing.

The valuation is a very reasonable $8 million post-money.

Nonetheless, my decision was pass. But let’s see what GPT-4 thinks…

I prompted GPT-4 by telling it that it was the world’s best angel investor. I often like to assign it an identity so that it will act accordingly.

Next, I explained that I would be feeding it a deal memo.

Let’s see what it says!

It hallucinated some very prestigious backgrounds for our founders! Hey, what founder doesn’t need a little extra credit, right?

But it got the other details dead on.

So what’s your decision, GPT-4?

GPT-4 didn’t give us a decision, only a bunch more questions. Just like a real VC!

I’m so proud!

But let’s force his hand by explaining that this is all the information we have:

GPT-4 is a pass. And for the same reasons.

This deal memo was very short on specifics. It said the company had a few paying customers, but never provided any numbers.

Given that they only have a few customers and just graduated from an accelerator, I’m guessing revenue is minimal. It might be a couple thousand a month at best.

I could chase down the exact numbers. But if I spent all day pestering founders for specifics, I’d never sleep.

GPT-4 may not need it, but I do!

In some cases, I do ask for these specifics. But I didn’t see anything compelling enough here to warrant it.

Company #2

Company #2 is a really cool marketplace that uses AI in an innovative way. It has strong traction, growing revenue revenue rapidly month over month.

It’s also operating in a huge market. The founder is very ambitious and has founded several companies in the past.

Valuation is also reasonable.

I’m in! But before we sign and wire, let’s see what GPT-4 thinks…

This deal memo was very detailed and much longer. Given GPT-4’s character limit on prompts, I had to enter it in a few prompts.

GPT-4 understood it perfectly and gave some interesting results:

GPT-4 is in! And for some of the same reasons.

Traction is strong. The team has very relevant experience and a clear plan to dominate their market.

With my new analyst’s confirmation, I requested an allocation!

Time to Give My New Employee a Performance Review

GPT-4 really impressed me in its ability to digest data on companies and draw sophisticated conclusions.

It spotted a profound lack of information on Company #1. And in Company #2, it identified the strong traction, big market, and great team that makes a winning bet.

Best of all, it had the guts to commit right away when it saw something special. Maybe it really is the world’s greatest angel investor!

Any mistakes it made were minor.

It hallucinated some team educational backgrounds, but it got almost every other detail right. And in any case, I don’t really care where or if people went to school.

GPT-4 is an amazing tool for individual angels. Most of us can’t afford to hire a team! And it’s great to have someone to check your thinking against.

But even if I had a huge staff, I’d still augment them with GPT-4. Just as in chess, I think the best investing will be done not by AI or by humans, but by humans and AI working together.

GPT-4 had a great first week! I can’t wait to unleash him on more startups on Monday.

Have a great weekend everyone!

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More on tech:

So, How’s That Angel Investing Thing Going?

What Can Angels Learn from Warren Buffett?

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So, How’s That Angel Investing Thing Going?

June 1, 2023

Two years ago, I started funneling money into the riskiest asset class on the planet: startups. This morning, I sat down to take a hard look at my performance.

Miraculously, I’ve actually made money!

25 months angel investing…
– 20 companies
– 3% total return thus far.
Waiting for the J curve to make me steeply negative in the next few yrs before ultimate success (?).
— Francis Santora 🐷 (@FrancisPSantora) May 31, 2023

Total Performance

My portfolio is up 3.4% since April 2021. The NASDAQ is down about 7% over that period.

What surprises me most is of the 20 investments I’ve made so far, not a single one has gone out of business!

Performance Breakdown

Let’s break down the outcomes so far:

Acquired: 2

Sold shares via secondary: 1

Markups: 2

Markdowns: 0

Fatalities: 0

Company By Company:

Growing revenue 3x YoY or more (crushing it): 5 – I’ve reinvested in 2 of these so far, and plan to reinvest in all of them

Modest growth: 6

Going sideways: 4

Revenue down: 2

Conclusions

The companies that are killing it are mostly investments made in 2021, not 2022. They’ve had more time to mature.

All but one of the companies going sideways are investments made in the last year. These startups may not have had time to hit their stride yet.

In time, I think some will.

Many of the “modest growth” and “going sideways” companies were very early stage when I invested. Most had revenues of just a few thousand per month.

Meanwhile, the elite group had more revenue to begin with. They were usually in the $250,000 to $1 million ARR range.

You pay a little more to get into those startups, but thus far it’s been well worth it. I’ll be doing a lot more investments like that in the future.

Caveats

This “return” isn’t that meaningful. I can’t actually get the money out for another decade or so.

Angel investing is a long road.

But we have to take our pleasures where we can. And seeing this portfolio perform well so far puts a smile on my face!

I expect my returns to fall precipitously in the next few years.

Years 2-5 as an angel investor are known as the “J-curve” or the “trough of despair.” Companies you love fall apart, while the winners haven’t won yet.

Even the best portfolios tend to get crushed in that period. I’m ready for it.

Outlook

Of my top 5 companies, all seem likely to continue their growth. Of the rest, I can think of at least 4 that could go out of business soon.

For the sake of the founders, the teams, and of course myself, I hope they don’t. But like it or not, failure is an integral part of startupland.

Wrap-Up

I make about 10-12 investments per year. I plan to continue at this pace for another 8 years, bringing me to 100 companies over a decade.

If I can 3x my cash, I’ll be very happy with this experiment. That would put my tiny “fund” firmly in the top quartile of VC funds.

But I’m stubborn. I’d really like to see 4-10x.

Any advice for the future? Leave a comment and let me know!

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More on tech:

What Can Angels Learn from Warren Buffett?

Heading Off the AI Cliff

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More on Fundrise in this post.

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Use this link to sign up and you’ll save $15 on your first order.

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Hot Deals

May 31, 2023

I was working late into the night, researching a very hot deal. It was 2021 and I was amped — until I found out I couldn’t get an allocation!

I was really disappointed. The founder was first rate and the co-investors were Silicon Valley legends.

Surely I was missing my billion dollar opportunity!

Fast forward two years…

The company I was so excited about got sold for a small sum. This “acquihire” provided a soft landing for the team and got the investors their money back.

But those billions remained elusive.

We investors think we need to win allocation in the hottest deals. But my best performers were pretty chilly when I found them.

My Top Performers

Let’s take my #1 performing company. Even though I invested in 2021 at the height of the boom, the round wasn’t the least bit competitive.

It grabbed some solid investors. But most anyone who wanted a piece could’ve walked into that deal.

They just couldn’t see it.

How about #2?

I almost passed on #2, but the founder scheduled a second call with me to show me just how special his product was. I’m very grateful to him — he was right.

And #3?

This marketplace had great early traction, but again the deal wasn’t remotely competitive. Anyone who contacted the founder probably could’ve invested.

In all three deals, I got the full allocation I wanted.

My Hottest Deals

When we turn to the hottest deals I’ve been in, the picture is much less rosy…

Deal # 4 was a great company with strong early traction. The investors included a scout for one of the best venture firms on earth.

I could only get some of the allocation I asked for. I took it, grateful to get anything!

Deal # 5 was a very innovative SaaS company. The round was hot — again, I only got part of what I asked for.

Despite very hard work by the founders and teams, neither of these companies quite caught on. They were acquired for small sums and I got my money back, but nothing more.

Wrap-Up

Looking at every company I’ve invested in, not one of the hot deals has performed well.

Meanwhile, the big winners got a cool reception from VC’s. Perhaps what they proposed was too radical.

But it worked.

Better yet, because I got the full allocation in the successful companies and didn’t in the others, my returns are better!

I’ve invested in 20 companies so far. The sample size is hardly scientific.

But I’m done worrying about getting into the next hot round. Instead, I’m looking for great businesses that need someone to believe.

Do you like hot deals, or do you avoid them? Leave a comment and let us know!

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More on tech:

Heading Off the AI Cliff

What Can Angels Learn from Warren Buffett?

Hard Times for New Funds

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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!

Use this link to sign up and you’ll save $15 on your first order.

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

What Can Angels Learn from Warren Buffett?

May 30, 2023

Startupland is a mess. Valuations are depressed. Companies are going bust. So today, I went back to basics: Warren Buffett.

No one in history has matched his investment prowess.

Buffett’s net worth stands at $112 billion, making him the eighth richest person alive. Since taking control of Berkshire Hathaway in 1965, he has increased its value by a factor of over 37,000.

This afternoon, I dug into his latest letter to shareholders. While Buffett doesn’t do venture capital, his lessons from 80 years investing are surprisingly applicable.

Wins Matter. Losses, Not So Much.

In August 1994 – yes, 1994 – Berkshire completed its seven-year purchase of the 400 million shares of Coca-Cola we now own. The total cost was $1.3 billion – then a very meaningful sum at Berkshire.

The cash dividend we received from Coke in 1994 was $75 million. By 2022, the dividend had increased to $704 million. Growth occurred every year, just as certain as birthdays. All Charlie and I were required to do was cash Coke’s quarterly dividend checks. We expect that those checks are highly likely to grow.

Assume, for a moment, I had made a similarly-sized investment mistake in the 1990s, one that flat-lined and simply retained its $1.3 billion value in 2022. (An example would be a high-grade 30-year bond.) That disappointing investment would now represent an insignificant 0.3% of Berkshire’s net worth and would be delivering to us an unchanged $80 million or so of annual income.

The lesson for investors: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well.
Warren Buffett

Berkshire’s investment returns follow the power law.

This rule holds that a small number of wins will provide almost all our returns. It’s the fundamental principle of venture capital.

So whether we’re Warren or not, we can’t worry too much when we strike out. Instead, we have to keep swinging at good pitches until we hit.

Our satisfactory results have been the product of about a dozen truly good decisions – that would be about one every five years.
Warren Buffett

Focus on the Business, Not the Stock

That point is crucial: Charlie and I are not stock-pickers; we are business-pickers.
Warren Buffett

No one knows what a stock will do in the short term. Not even Warren Buffett!

But if we focus on buying into great businesses, we set ourselves up for long-term success.

Tuning out price is hard!

One of my most successful companies is raising a new round right now. The price they got is surprisingly low for a company with incredible growth.

If I wanted markups, this would be a terrible bet. I’d be way better off with a buzzy generative AI company with no revenue at all.

But I want to buy real businesses. So I’m going to take advantage of this mispricing and back up the truck.

It’s crucial to understand that stocks often trade at truly foolish prices, both high and low.
Warren Buffett

All Good Things to Those Who Wait

The world is full of foolish gamblers, and they will not do as well as the patient investor.
Charlie Munger

Many great businesses Berkshire owns have faced hard times.

Had Buffett and Munger panicked and sold, we would not know their names. They’d just be anonymous, mediocre investors.

As tough as venture capital can be, this is one area where we have it easy! Once you invest in a startup, you rarely have an opportunity to get your money out.

So I focus on helping build a great business for the long term.

It’s fun. It’s also the only option I have!

Wrap-Up

When markets are in turmoil, always go back to Buffett. No matter what kind of investments you make, his wisdom applies.

Buffett has never been a VC. But if he were, I’m pretty sure he’d be a damned good one.

Now, let’s go buy into some great businesses!

At Berkshire, there will be no finish line.
Warren Buffett

What have you learned from Buffett and Munger? Leave a comment and let us know!

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More on tech:

Heading Off the AI Cliff

The Too Hard Bucket

Right Founder. Wrong Market.

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More on Fundrise in this post.

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Heading Off the AI Cliff

May 26, 2023

With valuations down, this year’s investments should be some of the best ever. But many VC’s are riding AI startups right off a cliff.

Total venture capital investment is down almost 90% from the peak, according to Carta.

Late stage funding has practically ceased to exist. Even seed is down almost 70%.

With valuations and competition down, investments done this year should yield amazing returns.

But the few rounds actually getting done tend to look the same: AI companies with little or no revenue raising tens of millions.

The valuations are often over $100 million. Rewind AI even notched a $350 million valuation.

Fred Wilson at USV has proven that seed rounds at $100 million cannot work. There aren’t enough big IPOs in the world to make money at that price.

Meanwhile, companies without AI at the core are struggling to raise capital.

They have real businesses and revenues. They’re raising at great prices.

But they’re just not cool anymore.

Let’s take a company like Uber. Uber gets you a ride somewhere. Where does generative AI fit into that?

Nowhere I can see. But it’s still a great business.

The next Uber is out there now. But VC’s aren’t looking for it.

Worse yet, many of these buzzy AI companies have minimal defensibility. If you can spin up a service quickly with an API call to OpenAI, so can someone else.

Moreover, AI is evolving so fast that today’s amazing tech is quickly upstaged tomorrow. Deploying tens of millions in that environment is treacherous.

VC funds took a drubbing in 2022. This year, they have a chance to redeem themselves by investing in great businesses at reasonable prices.

Instead, they’re running toward a new hype cycle. And their investors will pay the price.

I think generative AI is a fantastic technology. I use it every day.

But the normal rules of investing still apply. You can’t make money investing in businesses with no paying customers at 9 digit valuations.

So how can you make money?

By investing in businesses with real customers and revenue at reasonable prices. At seed, that’s around $8-20 million.

In a way, I’m happy to see VC funds stampede toward AI. That means minimal competition and low prices for the investments I want to make.

Will AI investments work? Leave a comment and let us know what you think!

Have a great holiday weekend everyone!

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More on tech:

The AI Gold Rush

Hard Times for New Funds

The Too Hard Bucket

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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!

Use this link to sign up and you’ll save $15 on your first order.

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I wrote a detailed review of Misfits here.

Is Billionaire Carl Icahn Facing Disaster? Ackman Says Yes.

May 25, 2023

Things are going from bad to worse for hedge fund billionaire Carl Icahn. Icahn Enterprises stock is down over 20% today after prominent fund manager Bill Ackman predicted disaster for the firm.

In a lengthy tweet yesterday, Ackman outlines a nightmare scenario for the stock:

I have been fascinated by the @HindenburgRes $IEP situation, and there are some interesting learnings here. For example, one learns from $IEP that a controlling shareholder of a company with a small float that pays a large dividend can cause his company to trade at a large…
— Bill Ackman (@BillAckman) May 24, 2023

Icahn owns 85% of the stock in Icahn Enterprises, per Bloomberg. Most of it is pledged as collateral for margin loans — as much as 65%, per Ackman’s estimate.

Meanwhile, nearly all of Icahn’s net worth is tied up in Icahn Enterprises stock.

The stock is down over 60% since a Hindenburg Research report at the beginning of the month called the company “Ponzi-like.” Now, the Justice Department is investigating Icahn Enterprises.

Icahn’s margin lenders must be getting nervous, as Ackman points out. Wouldn’t you be?

If even one of them calls Icahn’s loan, he could be forced to sell large blocks of stock. Since he owns 85% of the float, that would cause Icahn Enterprises stock to drop like a stone.

Icahn has taken huge losses in the weeks since the Hindenburg report. As I write this on Thursday afternoon, his losses likely approach $20 billion.

Ackman and Icahn have a feud that goes back twenty years. But Ackman’s criticism of Icahn Enterprises is valid.

Issuing stock to pay a fat dividend makes no sense. Dividends are to be paid out of actual profits.

But since Icahn Enterprises doesn’t have any of those, this is how they attract shareholders.

Now that Ackman is piling on, I expect more hedge funds to short IEP stock. This selling pressure could push the stock down enough for Icahn’s margin calls to start.

I don’t see how Icahn comes back from this unless the businesses Icahn Enterprises owns start making some money.

He doesn’t appear to have enough spare capital to buy more IEP stock and push it up further. And with the stock under so much pressure, I doubt anyone else is buying.

We could be looking at one of the biggest flameouts in Wall Street history. Unless the 87 year old Icahn has one more trick up his sleeve…

Do you think Icahn will go bust? Leave a comment and let us know?

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