Supported by Greenhaven Road Capital, finding value off the beaten path.
When Jason Calacanis talked with James Altucher he said there are four things would-be angel investors should know:
- The costs. Is 5% of your net worth an acceptable risk for the upside, learning from others, and a new network?
- The odds. What does the upside pay and is it worth the bet?
- The customer. Don’t dismiss Airbnb because you wouldn’t use it. Think like a journalist.
- How to communicate. Be clear. Limit ambiguity.
1/ Sweet spots.
“Find the Goldilocks zone. Before the revenue is so high and the traction is so apparent that a VC would invest but after they launched a product. Not too hot, not too cold.”
Calacanis wants to see some momentum before an investment. The odds of success are lower but so is the price. Later in the process, he explained, once the A-List investors come in, take that as a signal to stay in rather than cash out. “If the smartest kids in the room think it’s a multi-billion dollar company I’m holding.”
2/ Be there.
“To be a great angel investor you need to be in Silicon Valley…if you’re in Silicon Valley it’s like you’re trying to match eight numbers on your lottery tickets and they give you the first five. If you’re playing Texas hold ’em your first card is the ace of spades every time.”
In some areas, the area code matters. Marcus Lemonis doesn’t call in to his businesses, he goes there. David Remnick learned Russian from living in Russia. Sam Hinkie traveled all over the world to watch basketball players.
But sometimes it’s better to be away. Ken Burns lives in New England. That’s better for making movies he says. Warren Buffett isn’t in New York City. Josh Kopelman is a venture capitalist in Philadelphia. Richard Jefferson found San Diego too chill.
3/ Don’t blow up.
“What makes the great investors is they can be contrarian, they’re independent. The big cardinal mistake people make when they start angel investing is, they have a three hundred thousand dollar stack and say ‘f-it’ let me put one hundred fifty in this one startup…and soon you’ve blown your whole chip stack. I’ve seen people go through this who were invested in three startups and they quit angel investing.”
Brad Gilbert wrote for tennis what Calacanis wrote for angel investing. Ray Dalio explained this to Tim Ferriss. Nick Murray warned, “The best and most easiest way he can blow himself up is chasing Alpha.”
“Being a founder is a very hard job. Most people are not suited for it. You have to have a demented, sadistic desire to change the world.”
“Out of one hundred days, ninety-eight of them will be arduous and two will be absolutely brutal. There are no good days.”
Ken Burns said, “I’m in a medium people think is glamorous and only a small fraction of it is. It’s mostly a lot of hard work.”
Marcus Lemonis said, “To be a business owner it’s not a glamorous job. It requires you to make a lot of personal sacrifices.”
Robert Greene said that writing is “not horribly glamorous.”
5/ Emergence. Ask ‘Why now?’
“Usually if something is going to work it means that something has changed.”
“I think the real ‘Why Now’ for Uber and Lyft was GPS on phones because you could see in real time the car coming to you.”
“Bandwidth answers the ‘Why Now?’ for YouTube and Netflix. Because storage and streaming have become so cheap it works.”
“These technological trends sometimes take four or five times to actually hit.”
Marc Andreessen calls this the “Volcano Movie Problem.” In The Evolution of Everything Matt Ridley wrote:
“Just as the light bulb was ‘ripe’ for discovery in 1870, so the search engine was ‘ripe’ for discovery in 1990. By the time Google came along in 1996, there were already lots of search engines: Archie, Veronica, Excite, Infoseek, Altavista, Galaxy, Webcrawler, Yahoo, Lycos, Looksmart . . . to name just the most prominent. Perhaps none was at the time as good as Google, but they would have got better.”
Ridley’s theme is that everything evolves from small actors in certain conditions. Around each corner of time is a series of things that will be ‘ripe’.
6/ How to barbell.
“I guess people call it a barbell, which is what I’ve gone after. Really secure blended portfolio with low fees and then on the other side just complete insane angel investments.”
“This is why poker is a great metaphor for angel investing – because if you go on tilt and start acting recklessly and can’t handle the bad news you’re not going to be well suited for angel investing.”
The barbell approach (NNT AMA) requires mental muscles.
Tennis wrote Gilbert is mostly a mental game. Andre Agassi‘s case bears this out. Good decisions require good self-awareness. It’s knowing what Peter Attia calls “the stress buffer.”
7/ Customers. (again)
“I have to always get founders to stop thinking about the game ‘Startup Land’ and get them to play the game ‘Customers.’ My inbox is filled with ‘How do I get investors to do this?’ ‘How do I convince VC’s to do that?’ I’m like, ‘How do you convince customers to buy your product?’ Let’s answer that question.”
A business that doesn’t talk to their customers won’t be businesses for long.
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