Tag Archives: Angel Investing

Business, Technology

How I Source Deals (Part 2)

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We investors have no function except to find and help the next Google. But, uh, where is it?

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Finding the great companies of the future is a huge part of our job. I look at 150-250 companies every month.

I choose one.

Since I wrote about sourcing deals last fall, my approach has changed a lot. Here’s how I’m finding great startups now:

1) Pitch events. There’s nothing like being in person, right?

Wrong. The best pitch events I attend are usually virtual.

Founders from anywhere on earth can attend. My latest investment is in an incredible company based in the UK.

I never would’ve met that founder at a New York pitch event.

My favorites are Remote Demo Day and LAUNCH Accelerator Demo Day, both put on by Jason Calacanis’ venture firm. Stonks also has some great events.

For in person tech events in NY and SF, check out Gary’s Guide.

2) Portfolio company founders.

For me, this is the highest signal intro I can get. Any meeting with a founder recommended by someone I’ve already invested in goes to the top of my list.

This also is a great strategy for founders to approach investors. Find some founders they’ve already invested in and ask for an intro.

You may already know some of their portco CEO’s!

3) Venture firms. Great deals are currency.

Whenever there’s space in the round, I send out deals I’m doing to a number of venture firms in my network. This helps the startup and the VC’s if they find a great deal.

In return, they introduce me to some founders they’re investing in. These entrepreneurs are pre-vetted by smart investors, making my job way easier!

4) Seedscout. Seedscout is a really cool new platform that lets founders request intros to investors.

This is especially useful for founders who aren’t in Silicon Valley or New York.

I made an investment in an incredible Utah SaaS company I met on Seedscout. I never would’ve met them otherwise.

I like the platform so much I actually invested in Seedscout itself!

Seedscout is free for investors. Check it out!

5) Syndicates. As I approach the two year mark as an angel, I’m doing fewer and fewer syndicate deals.

Four out of my last 5 new investments have been direct. Over time, I’ve built a network that helps me find great deals on my own.

That has two huge advantages.

You’re not at the mercy of whatever a syndicate lead decides to send you. And you don’t have to pay anyone 20% of your gains!

But for a new angel without a great network, syndicates are an absolute must.

The best one is Jason’s, here. Flight VC, an arm of Gaingels, also has some great deals.

I am still happy to do syndicate deals if that’s the best deal available. 80% of something beats 100% of nothing any day!

How do you source deals? Leave a comment and let me know!

More on tech:

HOW I SOURCE DEALS

I LIKE BIG TAM’S AND I CANNOT LIE!

GOOGLE IS LOSING THE AI RACE

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Business, Technology

I Like Big TAM’s and I Cannot Lie!

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I just passed on a company growing 80% month over month. Instead, I chose one growing more slowly. Have I lost my mind?

Not yet.

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These two companies illustrate one of the most important principles in venture capital: market size matters. Without a large enough Total Addressable Market (TAM), a startup can only grow so big.

Company A

Company A is a fantastic consumer subscription company. It has an awesome product and growth rates you rarely see anywhere.

So they’re scaling like crazy — but for how long? To answer that question, I did a little back of the envelope math.

They have about 25 million potential customers, according to my research. At their average revenue per user of $10/mo, that’s $3 billion a year in potential revenue.

And unfortunately, like many consumer companies, churn is heavy. So the company has to be rebuilt every year or two.

Company B

Company B handles international corporate money flows. And while A has a substantial market, the potential for B is staggering.

Corporations move $23.5 trillion across borders every year. At B’s take rate, that alone is a $60 billion a year revenue opportunity.

Better yet, B also charges SaaS fees! That expands the TAM to around $70 billion.

If B takes even a small slice of the market, it could exceed $1 billion in revenue. At a typical 10x multiple, that means a $10 billion company.

And just because B isn’t growing as fast as A doesn’t mean it’s not growing! Revenues jumped 10x year over year, an amazing performance.

Why We Hunt Elephants

VC’s and angels are obsessed with big markets because the largest outcomes matter most. In venture capital, they drive almost all of our returns.

Let’s look at 3 examples: a company that’s acquired for $100 million, a startup that IPO’s for $1 billion, and another that IPO’s for $10 billion.

Assuming 50% dilution from the time we invest until exit, here’s what our returns look like:

That $100 million outcome, as big as it sounds, accounts for less than 1% of our returns! Meanwhile, the $10 billion Big Kahuna makes up fully 90% of all our gains.

If one type of company gives you 90% of your gains, that’s where you have to focus.

Expanding Your TAM

Let’s say your market is small. But you love your business and you don’t want to shut it down!

Think about how you can sell your product to more customers! Can a product that’s useful for auto garages also work for cleaning services?

There’s nothing wrong with focusing on a small market in the beginning. You have to start somewhere.

But if you want to build a venture scale business, you also have to think big!

Best of luck to all startups, big and small!

How do you think about market size? Leave a comment at the bottom and let me know!

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Google is Losing the AI Race

GPT-Powered Search with Perplexity AI

Me vs. ChatGPT: Who’s a Better Blogger?

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Business, Technology

Talking FTX, Twitter and Startups at Starta VC

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Last week, I had a chance to do one of my favorite things: chat with awesome entrepreneurs!

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The venue was Starta VC, an early-stage venture firm based in New York City. Their accelerator brings great entrepreneurs from abroad to the US for an intensive program on building startups, American-style.

These young founders asked some great questions. Some interesting moments:

1:25: Sector-specific investors vs. generalists

2:14: FTX collapse

5:24: How angel syndicates work.

7:13: A trick I stole from Benchmark.

7:53: How I choose startups.

12:41: What’s going on in today’s market.

16:40: The one thing founders should never do.

24:33: Big Tech layoffs.

30:09: How to write cold emails that actually get a response.

33:41: Why AR will beat the metaverse.

42:17: Elon and the Twitter deal.

Thanks to Starta for the invite!

What part did you like most? What did I get wrong?

Leave a comment at the bottom and let me know!

There will be no blog tomorrow. I have an acting gig.

See you on Wednesday!

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Is SBF Headed to Prison?

FTX Blows A Massive Hole in Tiger’s Portfolio

Is It Time for a Startup Hiring Spree?

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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.

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

Misfits Market

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Business, Technology

Bridge Rounds: The Path to Riches?

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We usually think of bridge rounds as throwing good money after bad. But new data shows that some bridge rounds can be an amazing bet.

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Bridge rounds with a top tier VC are some of the best performing investments in venture capital. They have returned a multiple of over 5x in less than 4 years, according to a new analysis from AngelList:

…on an indexed basis, the top-tier / bridge segment is the best performing segment. We find that for investments aged 2+ years (completed after 2018), the gross TVPI of capital in bridge deals with top-tier VCs vastly outperforms all other segments:

Case in point: a consumer app I re-invested in this summer. I first invested in this startup’s seed round last fall.

Since then, it had more than 5x-ed revenue. Burn is low and the company is firing on all cylinders.

Seeing the same great performance I did, several top tier VC’s joined the round. But the valuation was only a little higher than the fall of 2021.

Given the opportunity to put more capital into one of my winners, I backed up the truck. And I hope to invest even more in their Series A!

Why is this such a great bet?

I already knew the company well, and I saw it execute on its plan over a period of 9 months. Meanwhile, the revenue multiple I paid this time was far lower than before!

So what’s in it for the founder?

They can quickly raise capital from investors they already know and trust. Then, they can get back to building.

They’ve still preserved the option to get a Series A at a much higher valuation. And now they have the cash to get them there.

The outperformance of bridge rounds with top tier VC’s is no accident. Many top firms opportunistically offer more money to their top performers, even when they’re not raising.

If you’re getting the investor updates and you saw the company just tripled revenue, why wouldn’t you offer them another $1 million? What’s the point of waiting for someone else to steal the deal from you?

But we have to distinguish these awesome bridge rounds from their evil twin: the bridge to nowhere.

A company in my portfolio that’s barely growing and burning tons of cash raised a small bridge recently.

Tellingly, no top tier VC participated. They were only able to raise from a few angels.

I declined to participate. I’m happy to help the company in other ways, but follow-on capital is reserved for top performers.

No exceptions.

I’m excited to keep re-investing in the stars of my portfolio. I can’t wait to see them use that cash to take over the world!

Do you do bridge rounds? Why or why not?

Leave a comment at the bottom and let me know!

Have a great weekend everybody!

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Bridge Rounds: Yea or Nay?

VC’s Sour on China — Funding Down 44%

The First Time I Used the Internet

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Business, Technology

Why Now Is the Best Time to Invest in Startups

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Venture capitalists and angels are running scared. Venture funding is down 53% from last year.

But let me tell you why now is the best time to invest.

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1) Lower valuations. Companies only get so big.

There are fewer than 50 private tech companies worth more than $10 billion (“decacorns”). We can treat $10 billion as the approximate ceiling for an exit.

So if you get into a startup at a $50 million valuation, you have just 1/5th the upside of someone who got in at $10 million.

Right now, I’m seeing seed round valuations cluster around $10-12 million. Last year, I routinely saw seed rounds between $20-35 million.

So, our returns from the 2022 vintage should be far better than usual!

Think of it like grocery shopping. If you love eggs, you’re going to buy more if they’re 50% off, aren’t you?

2) Less competitive rounds. It can be hard to get into the best startups, no matter how much you’re willing to pay.

But these days, I get into almost any company I want. Investors have the bargaining power in today’s market.

3) Easier recruiting. The biggest problem startups have isn’t raising money.

It’s finding awesome employees!

When Facebook was offering every Tom, Dick and Harry $400,000 a year, startups couldn’t compete. But now that most of Big Tech is doing layoffs, startups can snap up top engineers.

4) The job is easier! Many of the least viable startups have given up raising money and will probably go out of business soon.

This means fewer deals in my inbox than last year. 2021’s frenetic pace has been replaced with a more stately one.

So what’s missing? Mostly, it’s the $100 million seed rounds in crypto companies with no product or customers.

Fine by me!

5) History is on our side. Time and time again, the most iconic companies have been founded in downturns.

Uber, Airbnb, LinkedIn, the list goes on and on. Maybe it’s a coincidence.

Or maybe downturns really are a better time to build.

Either way, I like my odds in a down market.

What do you think of today’s bear market in tech?

Leave a comment at the bottom and let me know!

Have a wonderful weekend everyone! 👋

More on tech:

Andreessen Crypto Fund Down 40%

How I Help Startups

Big Problems at Divvy Homes

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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.

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

Misfits Market

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.

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

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Business, Technology

The Top 5 Things I’ve Learned from Angel Investing

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Some day, I want to look up at a big billboard in Times Square and say, “I knew that company when it was three people. And I saw what it could be.”

But how do I get there?

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I’ve been investing in early stage startups for 15 months today. I went from knowing absolutely nothing about the field to a portfolio of 13 companies.

Here are my top lessons so far:

1) Pay close attention to margins and scalability. Pure software businesses can scale easily.

For businesses that sell physical products, it’s much harder. It’s tough to sell 10 times as many physical goods as you did last year.

In today’s supply chain hell, it may be hard to even find the goods!

But strong software businesses can grow at warp speed. It’s no wonder that all the biggest winners in startupland are pure software businesses.

2) Build relationships with top investors. I don’t know for sure who will find the next billion dollar business.

But I have a pretty good guess of who it might be: someone who has found one before!

Build relationships and co-invest with investors whose track record is strong. They have the great dealflow you need.

3) Look at lots of deals. I look at 100-200 deals a month.

I choose one.

Look at lots of deals from top investors. This will give you a good idea of what the best companies in the market are right now.

Those are the companies you want to be in.

4) Help founders. This not only helps your existing investments, it builds your reputation in the industry.

The stronger your reputation is, the more good deals will come your way. Plus it’s fun!

What each investor has to offer is different.

I’m best at finding new investors for startups. But other angels might excel at marketing advice, product design or something else.

5) Always keep learning. More than anything, I learn by looking at deals and making investments.

There’s no substitute for actually doing deals, even if you make a few mistakes.

Consider them tuition! It’s a lot cheaper than business school.

I also talk to smart people, read books, and listen to podcasts that teach me more about the industry.

There’s always more to know, and it’s always changing!

Here are some great resources:

Angel by Jason Calacanis

This Week in Startups Podcast

The Power Law by Sebastian Mallaby

Venture Deals by Brad Feld and Jason Mendelson

Bottom Up by David Sacks

Lenny’s Newsletter

This is a field that can be learned. Dig in, find great information, and learn from experience!

If you’re interested in technology and business, you’ll find it very rewarding! You have a small hand in helping create the future.

What questions do you have about angel investing? And how can I improve my process?

Leave a comment at the bottom and let me know!

More on tech:

The Power Law (Part One)

Talking Startups and Today’s Fundraising Pullback

How to Write Investor Updates

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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.

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

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I wrote a detailed review of Misfits here.

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Business, Technology

What the Best Founders I Know Have in Common

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Hi everyone, hope you had an awesome weekend! Today, I want to talk to you about some of the smartest people I know.

As an angel investor, I meet with a lot of startup founders. As I took a walk on the Hudson today, it occurred to me that the most successful ones all remind me of each other.

So what distinguishes the best founders from the rest? Here are a few thoughts:

1) They have all the facts at their fingertips. Whenever I ask them a question, they tend to know the answer cold.

I could be asking about a product feature, customer acquisition strategy, or a metric like gross margin. Whatever it is, they’ve thought about it already and know all the relevant facts.

2) Strong customer focus. The most successful founders I’ve seen are obsessed with their customers.

They know everything about them and what they need. And they tailor their product ever more carefully to those needs as time goes on.

What are the less successful founders focused on? Often their competitors, someone “stealing their idea,” or endless fundraising.

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We should always remember that the business’s goal is to serve the customer. Don’t let distractions take you away from that.

3) Openness to questions and criticism.

The best founders I’ve seen gladly answer any question an investor asks. They’re eager to show off their awesome product and happy customers!

The less successful ones evade questions and try to convince investors the business is going better than it really is. I sometimes suspect they’ve convinced themselves too, at their peril.

If we’re forthcoming with information and open to constructive criticism, we can learn from others and improve!

One of the most exciting moments for me as an investor is when a new founder reminds me of one of the best I’ve met. That’s when I start to salivate and reach for my checkbook. 🙂

The good news is that the best founders have a lot to teach all of us about how to up our game, if only we’re willing to listen!

What do you think makes a great founder? What did I miss?

Leave a comment at the bottom and let me know!

More on tech:

The Startup Pitch Checklist

Amp It Up

How to Write a Deal Memo

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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!

Misfits Market

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.

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

Business, Technology

The #1 Reason I Say No to Founders

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Every month, I look at over 200 startups. I choose one.

Among those hundreds of companies raising funds, I always see tons of cool ideas. So what distinguishes the companies I choose from all the others?

The number 1 reason I say no to founders is that they’re raising funds too early.

Many of the pitches I see are little more than a few slides with a lot of projections. But most investors want more than projections.

We want a track record.

For companies raising seed funding, I expect at least six months of revenue, growing month over month. For consumer products that are pre revenue, I’d like to see a similar track record of user growth.

Many companies I see trying to raise seed funding are nowhere near that. They have no revenue and often not even a product! 

What founders have to realize is without any track record in the market, how can investors tell if your company is a good bet?

Without a track record, the only thing an investor has to go on is the team. And talented as so many founders are, the fact is that most founders raising seed rounds are unknown.

They might build the next Uber or Airbnb, but they haven’t done it yet. 🙂 

Raising money without a track record in the market is much easier for serial entrepreneurs with a big win behind them. If you sold your last company for $1 billion, I’m willing to fund you a lot earlier.

Founders will make the fundraising process much easier for themselves if they build their company to at least a few thousand a month in revenue before raising a seed round. 

This gives them greater credibility among investors. It shows they know what investors are looking for.

Bootstrapping your company to thousands in monthly revenue isn’t easy. But neither is raising money without a track record to point to.

Another benefit of doing some building before the fundraising is that you’ll have a better idea how to deploy that capital because your business is more mature. A big check from a VC won’t do you much good if you don’t know how to spend it to drive growth.

Best of luck to everyone out there building!

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More on tech: 

Tech Plunge Hits Early Stage Startups

Founders Biggest Pitch Mistake

Why I Just Invested in Deft, the Best Way to Shop Online

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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 and returns have been great so far.

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If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. 

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me.

Every fruit and vegetable is super fresh and packed with flavor.

I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy!

I wrote a detailed review of Misfits here.

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Business, Technology

A Day in the Life of an Angel Investor

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Not that kind of angel!

You’ve heard of angel investors and their big brothers, venture capitalists. But what does an angel investor actually do in a day?

I thought I’d break down my day today so you can see how the sausage is made:

1) Read deal memos in inbox. It could be as few as 2-4, or it could be as many as 12 or more.

Since I invest in seed stage startups, I generally look for some traction and a valuation of about $10-15 million. I like to see companies with 6 months of revenue, growing 20% or more month over month.

The traction and valuation criteria eliminate about 99% of startups right off the bat.

2) Send over a developer candidate to one of my companies. Looks like they like him!

Adding value through intros to possible employees and investors is a big part of an angel’s job. I try my darnedest to help the companies I’ve invested in.

I found this candidate via a Slack community for developers. Finding good developers who don’t already have a job is very difficult nowadays.

But I still try! One great engineer can make a huge difference to an early stage startup.

3) Answer LinkedIn messages. Usually the deal flow here isn’t great, but sometimes it can be excellent!

Don’t discount cold messages. Jason Calacanis found LeadIQ because the founder cold e-mailed him, and now the company is worth over $200 million!

4) Read about the industry as a whole. Every day, I try to learn more about technology investing as a whole, not just the companies that cross my desk.

Today I read about how founders can get investors to work for them. I also read about finding the sweet spot between valuation and traction, which will inform me as I read tomorrow’s deal memos!

5) Attend a Q&A w/ two expert angel investors tonight!

Being an angel investor is about continuous learning, first and foremost.

You learn about new companies every day and select that 1 in 100 (or more) you want to invest in. And you learn about technology and business in general, which makes you a better investor!

This constant opportunity to learn is one of the things I like best about angel investing. You see companies doing everything from 3D printing human tissue to revolutionizing e-commerce search.

There’s seldom a dull day!

What have you always wondered about angel investing? Let me know in the comments at the bottom!

Have a great day everyone!

More on tech:

This Week in the Venture Bubble

How to Ace a 3 Minute Pitch

The High Growth Handbook: Scaling Startups from 10 to 10,000 People

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You already shop on Amazon. Why not save $100?

If you’re approved for this card, you get a $100 Amazon gift card. You also get up to 5% back on Amazon and Whole Foods purchases, 2% on restaurants/gas stations/cell phone bills, and 1% everywhere else.

Best of all: No fee!

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 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account.

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me. Every fruit and vegetable is super fresh and packed with flavor. I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy! I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order. 

Business, Technology

How to Ace a 3 Minute Pitch

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Last week, I was talking with a young founder who is just starting to pitch investors. She wished she could find a good example of a 3 minute pitch.

So I figured if she was having this problem, others probably were too!

This morning, I made a little video of what I would consider an ideal 3 minute pitch. I used the example of my favorite startup, Uber.

A 3 minute pitch is a key thing to master because startup demo days are often in this format.

It’s also useful if you have brief, individual meetings with VC’s or angel investors like me. You want to pitch in a concise way and leave lots of times for questions.

Why Is This Such a Strong Pitch

  1. It’s short.
    There are just 16 slides with only a little text on each one. It takes under 3 minutes.
    I look at around 25-30 startups a week, so I can only spend so much time on each one.
  2. It clearly frames a huge problem and proposes a good solution.
    Mobility is a big issue, and long before Uber, everyone knew taking a taxi stank. This presentation clearly shows how Uber is better.
  3. It shows a clear growth trend.
    Nothing gets investors salivating like rapid growth!
    Show revenue or user growth in a chart and calculate the compounded growth rate. Make that explosive growth obvious!
  4. It shows the product.
    The same slide deck could describe 100 startups. Showing the product makes it clearer what you’re working on.
    It also shows you actually have something built!
  5. There is a clear request.
    I don’t just say “thank you for your time.” I ask the investors for something specific: $3 million.
    And I make it clear what it can achieve: us dominating the taxi industry.

    A little tip for making sure you hit the 3 minute mark is to have your phone with a stopwatch running right next to you, so you can glance over occasionally.

    I also suggest using this template from Sequoia, as I did. It gives a great framework for hitting the key points in your pitch.

    What did I miss? What questions do you have? Leave a comment at the bottom and let me know!

    Disclaimer: I am not Travis Kalanick 🙂

    More on tech:

    The High Growth Handbook: Scaling Startups from 10 to 10,000 People

    Why I Just Invested in Kippo, Where Gamers Find Love

    How Startup Founders Turn Investors Off

    Photo: “The Ace of Spades” by Toufique E Joarder is licensed under CC BY 2.0

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