Supported by Greenhaven Road Capital, finding value off the beaten path.
Jason Calacanis talked with James Altucher about his new book, Angel.
There’s a part of Danny Meyer‘s book, Setting the Table where he’s dining in a restaurant with a mentor. Meyer asks for advice and the mentor moves the salt shaker on their table, and asks ‘What do you see?’.
Meyer returns the shaker to the center and says the table is ready. The mentor moves the shaker again. Meyer returns in again. The mentor’s point has been made.
Meyer wrote, “Wherever your center lies know it, name it, sticks to it, and believe in it.” Pay attention to where the salt shaker is and always return it to where it should be.
1/ Know the costs. Calacanis said something that echoed my findings on failed start-ups, failure isn’t a total loss.
“Let’s say you were to lose 5% of your net worth (in an angel syndicate). It would be a bummer. But if you think about the network and the education you would build, it would be much greater than 5% of your net worth at any given time.”
Time is our only cost. Time to earn money. Time to network. Time to learn. Another way to express this is the DIY-MBA. When people like Troy Carter, Ezra Klein, and Elizabeth Gilbert skip school to live – they do so because of the time costs. The kind of investing Calcanis proposed in exchange for (possible) financial, relationship, and educational returns is the same thing Tim Ferriss did early on.
Even if the financial part goes to zero, there are other rewards for your time.
2 / Know the odds.
“Most people over-estimate the downside risk.” Elon Musk.
That’s from someone building rocket ships and cars. Calacanis echoes what people like Joe Peta have said know the odds.
Calacanis said, “If I took ten people and said, here’s a deck of cards, it’ll cost you a thousand dollars, but if you pull the ace of spades I’ll pay you a million.” People who pay attention will play that game all day. This instinct from poker has contributed to a shift in Calacanis’s thinking.
Calacanis has transformed from a what can go wrong? mindset to a what can go right? one. “When I invest in a startup I’ll write down five reasons why it might fail – and then rip the paper up. Then I’ll write down the one or two reasons it will work.”
Bill Gurley learned this lesson after missing on Google:
“I think it came down to the price at the time was remarkably high and the team was remarkably self-confident in a way that would cause you to question whether they could pull it off but they did. I go back and the learning is that if you have remarkably asymmetric returns you have to ask yourself, ‘how high could up be and what could go right?’ because it’s not a 50/50 thing. If you thought there was a 20% chance you should still do it because the upside is so high.”
Marc Cohodes knew the odds with an early investment in high-fructose corn syrup. If the HFCS market didn’t metastasis, his investment would be flat. But if HFCS was replaced sugar in nearly everything, well, as Gurley said, “the upside is so high.”
3/ Know the customer. Who is Airbnb for? Serial killers and meth heads. That line got Calacanis a laugh but that thinking made him miss investing.
“One of the secrets of angel investing is separating your limited capacity to understand ideas and be able to read the passion of the person creating the product and why it’s going to work and (see) the crazy first five customers.”
What each of them also did was understand what their customers wanted. Norton hosted a taste testing party. Brown worked in media for a decade. Thiel lived in technology. It’s not what you think is a good and different idea but what others think is good and different.
That understanding only comes from talking to your customers. One way to be a Dead Company Walking is to be a distant owner, someone who doesn’t know their customer.
Calacanis said that being a journalist help him understand the market conditions.
“When you’re a journalist and understand the playing field, businesses, technology and cycles you know how to ask the questions of which founders are full of shit and which ones are actually going to change the world.”
Like animals exist in ecosystems, businesses exist in markets.
4/ Know how to communicate. The better a founder communicates with a funder, the better the situation will be. Calacanis is clear about this from the start:
“What I tell them in the beginning is; most startups fail. When/if we have that shut down conversation I’ll say, ‘it’s okay, most companies fail therefore all I ask is that we shut this down gracefully and after you recover I’m your first phone call when you have your next idea.'”
The idea of good communication permeates the podcast. Investors are like spouses, investments like marriages and the suggestions for both are the same, communicate well.
Thanks for reading, I’m mikedariano