For this milestone #100 episode, the host of Tech in Chicago, Colin Keeley, interviews Nick Moran with questions from the listeners including:
- Nick, there are a number of brands that you own: The Full Ratchet, Venture Weekly, New Stack Ventures, and Moran Capital Partners. Why all the brands and what are you doing with each?
- Can you take us back to your beginning and talk about your experience at Danaher, before you went off on your own?
- Why the decision to transition full-time into angel investing?
- So, after you got involved as an investor how’d you decide to start a podcast about venture capital?
- How have the goals for TFR evolved since you started?
- How did you decide to go the Angel List syndicate route instead of raising a venture fund?
- How do you select your guests and topics for each episode?
- Who are some of the dream guests that you’d like to have on in the future?
- What episode is your favorite?
- What are some of the key lessons learned after 100 episodes?
- How many investments have you made and how much do you invest in each deal?
- Why did you choose to use Angel List to syndicate your deals?
- How do you source your deals?
- Tech in Chicago Podcast
- Colin Keeley on Twitter
- New Stack Ventures
- Moran Capital Partners
- Nick on Twitter
- Part 2 of the interview
- Episode with Jerry Neumann: 20. Non-Unicorn Investing
Colin: So #Colin and #Nick here today. This is #Colin Keeley. I run the #Tech in Chicago podcast. I’m honored #Nick asked me to do this, and I’m super excited to hear more about the man behind #The Full Ratchet. So on #Tech in Chicago I interview Chicago’s top founders and investors. And it’s great to have one of Chicago’s top investors here.
Nick: Awesome. Thanks so much for doing it #Colin. I’ve been a big fan of your podcast #Tech in Chicago for some time now. Seems like you continue to get some of my favorite people in town on the show. You’ve, you’ve had #Ryan Coon, you’ve had #David Rabie, you’ve had #Stu Grubbs, #Ezra Galston. So yeah, when I found out you were doing this and when I started listening to your show, I thought it would be great to, to get together with you and, and do this interview.
Colin: Alright, let’s get to it. So first off, let’s address some of the confusion #Nick. There is a lot of brands that you own. We’ve heard about #The Full Ratchet, #Venture Weekly, #New Stack Ventures, #Moran Capital Partners. Why all the brands and what are you doing with each of them?
Nick: Yes, so clearly #The Full Ratchet is the podcast that I run. So I think most folks are pretty familiar with that at this point. #Venture Weekly is my newsletter. So I send out a weekly newsletter to every subscriber on my list. We wanted to provide some more value beyond just here’s the link to my interviews. So what we did is we put together an aggregator that goes out to all the VC and Angel written blogs in the world. We assess social shares, we access readership of all those articles, and then we rank them. So we can find essentially the top 10 articles of the week. It doesn’t have to be a famous author. It could be, you know, somebody who’s lesser known. But if it’s a well shared or read article then we include that in the top 10 articles of the week. So that’s #Venture Weekly. And I’ve got a team of business school students at #MIT that help run that for me, great group of people. And #Mike Droesch is, is the leader of that team. #Moran Capital Partners is the first Angel investment company and vehicle that I set up with my brother. So that’s when I moved back to Chicago. We were making early stage company investments and that’s transitioned into more of a private equity vehicle at this point. So when I first set it up, I thought we were going to be doing all these, you know, unicorn and tech investments. And the deal flow that we had access to at the time were more localized businesses, great businesses but more service oriented in nature. Didn’t have that scalable opportunity. So we ended up doing a lot more private equity type investments and loans. So that’s kind of how #Moran Capital has evolved. And then #New Stack, of course, is my primary investment vehicle. So I’m partnered with a guy named #Jeff Heitzman on that. We make investments in great tech companies, always equity investments. So it will be a convertible note or a traditional priced round. And that’s the primary vehicle for which I make my current investments.
Colin: Are you still involved in #Moran Capital Partners?
Nick: Yeah. It’s still alive and we still active investments there. So still alive and active.
Colin: Awesome. So let’s talk about where you got started. Can you take us back to the beginning and talk about your experience at #Danaher before you went off on your own?
Nick: Yeah, absolutely. So I’ve talked about this on the show before, but I started out doing M&A at #Danaher, Mergers and Acquisitions. So my responsibility was essentially to create a strategy around sectors, around technology trends. What we would try to do is position our portfolio in these sub sectors that were going to outgrow the greater market. So that was a good job, but I learned quickly that it was not for me. We would, for instance, you know, develop relationships with people over a long period of time, looking to acquire them. So it’s a small business, you know, great founding team, maybe it’s 40 people, maybe it’s valued around 50 million bucks. You develop these friendships with these people and they’re great people, and then we acquire the company and there is, you know, cost center, consolidation, there is head count reduction which essentially are just fancy ways of saying you chop their legs out from under them. So very quickly these great relationships and these great partnerships would devolve into sort of angry relationships and angry interactions. So I realized that wasn’t for me. But fortunately we also had an endeavor we called open innovation, which is working with early stage tech companies, really early stage tech companies, giving them access to our channel, giving them loans, doing licensing agreements with them. And there the conversations were all about growth and expansion, whereas the private equity side of thing was, was just about contraction. So that’s where I wanted to focus, and to my dismay the, the business that I was focused on building or making acquisitions growing this company, #Danaher, the parent company, decided they wanted no airspace and defense exposure. So they divested the entire portfolio that we had been growing. So I was out of the job. So within #Danaher, I had to figure out another opportunity. And I really liked the early stage tech stuff. Fortunately in Colorado they were trying to build out this breakthrough innovation division. They were looking for innovative people to pitch big ideas. So I took a job doing that within #Danaher, I moved to Colorado and pitched this sort of ambitious organic innovation project. It was a, a Razor Razor-Blade product, so a hardware device sort of like a, a dollar shave club, you know, or a printer, you know, a HP printer. So you got the hardware printer and then you used these consumable ink cartridges. So I proposed a product like that within the water analytics space. And about 3 years later and many trials and tribulations, product almost got or project almost got pulled three or four times. R&D team was completely overhauled. We had to raise 10 million bucks throughout the, the course of the project. The entire organization with the exception of a couple executives were against it, thought it was ridiculous, but we got it launched. And, you know, a few years laters now it’s 9 figures of revenue at 90% gross margins. It ended up being this Razor Razor-Blade product with SaaS on top of that. So we had a software offering layered on top of these two other business models. So it became sort of the big success story for the, the entire company. And that was my last experience working there.
Colin: Then how did you decide to get into angel investing?
Nick: Yeah. Well, well I was burked out. So that was my operator experience. And after 3 years of doing that, I was, I was done. So I left the company to sort of start my own thing. And I didn’t know what that would be. My wife and I moved back to Chicago. This is where we’re both from. She started her own business. She’s a counselor. And I basically took a year to kind of figure things out. And during that time, during that first year is when I started making angel investments in entrepreneurs.
Colin: What was your first angel investment and why did you say yes?
Nick: The first angel investment I ever made was a company called #Nanogas, that essentially they figured out a way to infuse water with a very high ppm of gas, say, say oxygen, ppm is parts per million. The magic of their technology is they could keep the liquid stable, when it was no longer under pressure. So if you think about a soda can or a, a coca cola bottle, when you release the top of it, all the bubbles come out. So when you release the pressure, you lose that high ppm of gas. This company had figured out a really novel way to keep all that ppm of gas in the water once you released the pressure, which has tremendous application. They, they’ve got all sorts of applications in waste water treatment, which was an industry I came from. They worked with fracking companies to, to deal with oil. It’s really a revolutionary technology. It’s a cool team working on it. If they can find that killer app then I think it could be a big success.
Colin: So that’s your start as an investor. How did you decide to start the podcast then?
Nick: Yeah. So the first year was essentially a, a process of learning what I didn’t know. And I didn’t know a ton about how to be successful as an investor. So one of the best ways to hack the learning process is to meet with people that have been doing it a long time. You know, I could read the books, I could read the blogs, but I was learning the most by meeting with other people. So that was the primary reason. Just hack the learning process, accelerate the learning curve. The second major reason is in that first year I realized I wasn’t unique. There was nothing differentiated about me. I was just a guy with a good financial outcome running around with some money, looking for entrepreneurs to invest in. And the best entrepreneurs could choose who they wanted as investors. And I had no differentiation whatsoever. So I was looking for a platform or some way to, to differentiate. And what I found is in the market there’s two primary ways that, that people differentiate. First and foremost, they have a track record, which I wasn’t going to have. This is a really long scale business. It takes about 10 years to get an exit. So I wasn’t going to have a track record. The other major way that people differentiate is they build a brand, they build their own platform, their own brand. Most people have done it through content. There’s over a 1000 VC and Angel blogs out there where people are writing. But I realized I wanted to plan a blue ocean not a red ocean. And I saw the, the written blog as, as a red ocean, but realized nobody was doing audio. Clearly there was a demand side for audio content in any niche and I could be the first game in town. So I launched the podcast at about the same time that #A16Z Andreessen Horowitz launched theirs. And we were the only two podcasts in, in the area for, for quite some time. So yeah, I mean, that’s the, the politically correct answer. I think the more emotional answer is I was sick of hearing other investors and their BS. You know, there’s tons of investors running around town talking a big game, preaching that they’re founder friendly, trying to create more transparency in the ecosystem, and the reality is they weren’t doing anything. Everyone can talk but very few can execute. You know, most are just unwilling to do the work. So I think unfortunately, #Colin, you and I live in a world of takers, and personally I think success comes from giving not taking. So I figured out learn from the best, spread the knowledge, build my own brand. And at a fundamental level I just wanted to do the work, week in and week out force myself to create some value.
Colin: That’s an awesome answer. I started my podcast for a very similar reason. It’s pretty hard to get these meetings with the top venture capitalists. There’s founders around the city but you show up with a microphone and people are pumped to talk to you. Alright, so how have your goals changed for #The Full Ratchet since you first started?
Nick: Well, I mean, as you can tell, this started out really broad, maybe a little too strategic, two thirty thousand and just kind of wanted, wanted to build a brand and, and see where it went. And since then they’ve become a little more tactical. So a lot of things have come back to me as a result of the podcast. There’s a lot of people have reached out to me to help with consulting projects, which is how I pay the bills now, so that’s great. It’s been a vehicle for me getting a ton of deal flow. So investors in the audience, entrepreneurs in the audience, as well as people that have joined my angel syndicate, they send a tremendous amount of high quality deal flow, which is everything in this business, you know, getting great deal flow. Deal flow meaning of course, you know, access to pitch decks. And then building my investor group. So after doing this for, after doing my podcast for about a year, I decided to start formalizing things, and put together a real group so that we could negotiate with entrepreneurs, we could give them bigger cheques, we could make more meaningful investments, I could be more of an active investor instead of just a passive 50K cheque or 25K cheque. So I started putting together my angel group and my angel syndicate. And fortunately folks in the, in the audience have been joining ever since. So yeah, so that’s been probably the biggest benefit. It is, you know, I’ve got a really big LP base, I’ve got a really big group of smart people that are co-investing alongside us.
Colin: How did you decide to go that #AngelList syndicate route instead of starting like a full on venture firm?
Nick: It’s a good question. So to start a full venture firm, you got to raise a fund, right. And to be honest, after I don’t know a year and a half of doing this, I didn’t feel confident that I was ready to raise a fund. I did not have a specific viewpoint on my thesis. I knew the things I liked, I knew the areas that I was looking for with entrepreneurs but I, I did not have my thesis formalized. I did not have my structure formalized. So I wasn’t prepared to raise a fund and invest other people’s money. You know, my conscience, I got to be able to sleep at night. So I’m not going to blow other people’s money during my learning process. So that, that’s why I didn’t do the fund. The angel group model is another good question, you know. There’s a lot of localized angel groups around and they’re great. But the knock on angel groups is that they’re slow, you know. The evaluation process for the best in the country may be a few weeks. But for the average angel group it’s a few months, you know. A series of meetings, the entrepreneur comes in for a first meeting with a few people. Then they come in for a bigger group meeting. Then they go into deep due diligence. So at the end of the day they’re not getting a cheque until six months after they approached the angel group. So I wanted to combine the best aspects of VC which is speed and large cheque sizes, with the best aspects of an angel group which is optionality. People get to invest in the deals they want. They’re not invested in everything that I choose. They can choose. So I think we got that. We can cut cheques within two weeks of meeting an entrepreneur .And my group still has optionality. They can choose which deals they want to be in and which ones they want to pass.
Colin: So I want to talk about your podcast a little bit more. How do you select your guests and topics for each episode?
Nick: Yeah. Well, you hit the nail on the head. So it’s either guest centric or, or topic centric. So if there’s a guest out there that’s just a really great voice in the industry, really great perspective, very differentiated and unique, I’ll go after the guest, right. I’ll talk with my coordinator. So I got a guy that’s doing a great job running coordination for the show. His name is #Chuck Feerick. He works at #Healthbox, an accelerator here in town. And we’ll try and figure out a way that we can network to that guest and approach them. The other way of course, as you mentioned, is topic centric. So just like every entrepreneur has a million ideas popping to their head and they probably have a running list of all these businesses they would like to build, I’ve got the same thing for topics, you know. Every time I have a meeting with you or with somebody else in town that’s in sort of the VC ecosystem or startup ecosystem, ideas come to mind of things that we should dive deep on. So I’ve got a running list of topics. And we just with my coordinator we try and prioritize which ones we think would be the most valuable for the audience. On occasion I’ll ask the audience what they want to hear about. And then I’ll try and find the best guest to speak on that topic. So who’s an expert on Artificial Intelligence, who’s an expert on Virtual Reality, who’s an expert on student focused venture capital funds, right. So I’ll go out and find the best of the best, and then we’ll try and network our way to those folks.
Colin: Who are a few of your pie in the sky guests you want to have on in the future that you haven’t had on yet?
Nick : I thought you were going to ask this. I didn’t print it out.
Colin: I get that all the time.
Nick: You know I’d love that. Do you get it?
Colin: Yeah, that’s one of the most common questions I’d say.
Nick: Is it? You know, #Elon would be great. I think #Elon is one of the most visionary people on the planet, and maybe one of the most visionary folks in the past few generations. I think he would be fantastic. I’ve got a friend who, who used to work on #Barack Obama’s campaign and then here in Chicago for the Mayor. I would love to have #President Obama. I know that he has talked about getting into venture capital after he leaves the White House. And I would to love to be the first person to interview him on that. So I’m doing my best to network my way there. We’ll see if that happens. And then, even folks outside of venture capital. Folks like #Warren Buffet that have bullet proof investor value strategies. You know, typically you were talking about growth in this industry, but there are principles at the investment level that I think transcend any asset class. And so I’d love to hear one of them speak.
Colin: Awesome! Hopefully they’re listening or one of their friends is listening and can make it happen.
Nick: Doubt it
Colin: So what episode is your favorite?
Nick: Episode that I’ve done on #TFR?
Nick: You know I’m going to go with, with #Jerry Neumann. I don’t remember what, what episode it, it was. But we called it Non-Unicorn Investing, betting on ponies. And that’s the one that I’ve re-listened to multiple times. I got the most value out of it as an investor. And I think the primary reason is he broke down investing strategy in a very simple way. He basically said there’s two major strategies in this business. You can either index, which is invest in everything, which is a great strategy. You know, venture capital as an asset class on the whole and over the past 10 to 15 years has returned in the mid 20s, close to 25%. So if you were to invest in every single startup that got funded in venture capital, you would have a great return. You would have killed the market. So indexing is a real strategy, assuming you can get access to every startup, right. So companies like #AngelList that are taking a small bite of all these startups on their platform, accelerators like #Y Combinator or #TechStars that are taking a small bite out of a lot of great startups, they’re all employing index strategies. And they’re very smart strategies. So the other major strategy is you got to differentiate and you got to focus. So you, you need to have a really compelling thesis that’s really unique and provides a lot of value to entrepreneurs in that space. And if you can do that and you can prove your value, then you can get access to the best deals. So I, I just really like how he, he kind of sized up investing very simply. The other major learning from that interview is he talked about something called the gamblers ruin. And how it applies to angel investing as well. You know I don’t know if you know much about gambling, but I’m sure you’ve sat down at a blackjack table at some point
Colin: Mm hmm
Nick: And you’ve probably lost all your money
Nick: Why do you think, you know, most gamblers lose all their money when they sit down at the blackjack table?
Colin: They don’t know what they’re doing, they don’t follow the appropriate odds
Nick: Yeah, yeah. Yeah I mean, those are two good reasons. I mean that the four main reasons gamblers lose al their money is their investment amount is too high. So maybe they only have $5 when they sit down. So they got one bet, right? The second thing is they don’t keep a standard bet size. So instead of betting five bucks each time, they might bet the entire stack one bet, then 50 bucks, then 5 bucks, then 10 bucks. The third major reason is they don’t press their winners. So if you’re playing blackjack and you have a great starting hand, you should double down or you should split. You got to put more money in when the odds favor you to your point. And then the last thing is every good gambler abandons strategies that aren’t, aren’t working. So those are the four aspects to the gamblers ruin, which I think are super appropriate for angel investors. And if people understand like they need to build a portfolio, they need to keep the same bet size, they need to press their winners, and they should abandon sectors or areas that, that aren’t working too well, then I think they can be successful.
Colin: So you’re a hundred episodes in now. What have your key lessons been from all these episodes?
Nick: I think the biggest lesson I’ve learned is access is everything. The winners in this business are the people that have invested in the best startups. And to invest you have to get access. There’s two functions to access. You’ve got to know about the startup and then you’ve got to have a compelling enough value proposition for the entrepreneur to choose you. And access is tough. You have to get some proprietary deal flow, you have to have a unique differentiation. And if you don’t have those things, you’re not going to get in the best deals. And if you don’t get in the best deals then you’re not going to have these outsized returns.
Colin: So you have an example of a situation where you learned the value of access?
Nick: Yeah. Well we talked about #David Rabie and #Tovala. I don’t want to do too many #Tovala examples but yeah, I mean, we first found #Tovala before they got into #Y Combinator. And it was sort of like love at first sight situation because it fits all of my thesis areas. And we can get into my thesis areas later but I love hardware businesses, I love consumable businesses. And then #David was fantastic. And I was just a huge fan from the very beginning. Now #David, he basically told us he was going to wait. And hopefully I’m not speaking out of turn here, #David, but he told us he was going to wait until he got a decision from #YC until he took investment. So at that stage, I’m talking to my partner and I said maybe we should just give them an offer. And we kind of chatted back and forth about it. And my partner said you know what? Let’s just respect his wishes, let’s see how it works out, and then let’s do our best to get in. Of course, he finds out that he gets into #YC, right, which is great news and also like concerning because it’s like a, a feeding frenzy at this point. You know, all these investors want in. Well, I have a really good relationship with their lead investor fortunately, #Jason Heltzer at #Origin Ventures, he’s fantastic. I, I don’t think you’ve had him on the show yet, but
Colin: Not yet
Nick: But he would be good. He was an early believer of my podcast. He realized it was going to give us this, this leg up and this differentiation and advantage. So he’s been a huge supporter. And I, I continued to have conversations with #David about investing. And #David was like well I don’t, I don’t know guys, I don’t know if we have the room because all these investors want in now and a bunch are on the coast, in the Bay area, and they might be helpful. And we just continued to say look, you know, we’re going to support you in any way we can, we’re a huge fan of what you’re doing, we would love the opportunity. So this is the classic case, right. It’s the startup is pitching you for money, and then something happens and all of a sudden you’re pitching the entrepreneur and trying your best to get in the round. That’s, that’s the scenario we were in. So I may have done three calls with #David trying to sell him our #New Stack and the value we could provide. Meanwhile, I was calling up #Jason, I was calling up #Billy Blaustein at #Sprig, I was calling up my friends at #Pritzker, I was calling up basically everyone in town that knew #David. And I was like guys you’ve got to talk to #David and tell him what you think of #TFR, tell him what you think of #New Stack, because these were all people that were fans of the show, you know, friends of mine, just tell him about you know your relationship with me and that we’re, we’re good folks and we’re going to help. So the next time I meet with #David he’s like everyone around town keeps mentioning you. And he was still unsure at that last meeting, it was a Friday night, it was probably 11pm. We did a conference call. And he’s like I’m going to sleep on it tonight guys and then let you know. You know we wanted to make a big syndicate investment, but at this stage we were just going to do, you know, a small 25 to 50K cheque. And he still didn’t know if he had room because he didn’t want to suffer a bunch of dilution, and I don’t blame him. So I write him an email that night and just, you know, I thank him for the time and say look, if you’re my story, you’re the one that got away, it’s going to be a good story. And he didn’t even sleep on it, he wrote right back and said, you know what? You guys have been supportive, you guys have been great, you guys are in, this is going to be a good partnership. So, you know, we ended up syndicating it later after #YC, so we made multiple investments in that company. We’ve had a great relationship with #David, I’ve even done a podcast with him. It’s worked out fantastic. They all don’t work out so well. Some of them get away. But the yeah we almost didn’t get in on that deal.
Colin: So that’s an awesome story, but let’s hear one that didn’t work out so well.
Nick: I’ve had one where the access piece didn’t work out?
Nick: Well, yeah we’ve had a bunch of those. I guess one of the, the painful examples is a friend of mine that used to work for me at #Danaher. He’s like the most fantastic person I have ever worked with in any corporate environment. Young, brilliant, hungry, wanted to learn. Anyway, shortly after I had left #Danaher he left too. And he became employee number one at the space startup. And I’m going to spare the name of this because I don’t want to get in trouble. But very ambitious space startup. He was employee number one doing sales, working phones for these, these guys. Anyway, they’ve built it into this fantastic company, you know, raise a seed round, raise an A round. The founders are serial entrepreneurs. These are like blow your mind impressive type of people, good friends with #Elon Musk. They’ve got stories left and right. So my buddy has me out to visit, he calls me up and, and says look we need some consulting help with our marketing strategy. So they fly me out to their headquarters, and it’s like nothing I’ve seen, the space startup. They’ve got big hardware equipment. There’s scientists flying by on skateboards down this huge hangar, you know, on the size of a football field. It was just cool. And I’m inspired, I’m meeting with the founders, we go out to dinner and we just have a really good connection. So I ended up doing some work for them, that was great. But they were also inspired by #New Stack’s story, how we kind of endeavored to create a brand and do good investments. And now we’ve got this, this group. And so the founders said, you know what? If you want to participate in our series B round, it closes next week. And we would love to have you participate. Now we’ve never had access. This is, we were talking about access here. We’ve never had access to a really good Series B round. Nobody would give us access because we’re, we’re an early stage seed player, right? We’re not some big venture firm in the valley. So all of a sudden it appeared we had access to this deal. And the founders were willing to promote us and, and willing to let us in, right. Maybe we could only do a half million dollar cheque, but hey, we could get in, which would be fantastic for us. So we wrote the thesis, got that all structured. We got all the docs. I worked with the lawyer and their finance guy, and then in the eleventh hour we had it submitted on #AngelList. We were just waiting on the final conversation with the lead investor. So they wanted to set me up with their lead. He’s a famous name that works at a big venture firm in the valley that I had never spoken with before. So I’m excited to meet this guy and talk about the deal. I’d never done anything in space, you know, it’s exciting stuff. And I get on the phone with this guy and within two minutes he’s like yeah no you’re, you’re not getting into this deal. Your little angel syndicate of retail investors are, are not going to be participating here. Apparently he said he had you know, three people lined up with two million dollar plus cheques that were trying to get in, and he didn’t see any good reason why we should have access. So I tried to sell our value, which definitely very relevant, maybe seed stage not so much as Series B stage, but he wasn’t behind it. So unfortunately that, that deal went south and we never syndicated, never got an opportunity. I went back to the founders and checked in with them to see if anything could be done and he had actually talked to the founders and said that this whole #AngelList process would mess up voting rights unrepairably and would create al this madness on the cap table. Two things which are totally untrue, but you know, it kind of poisoned the well on us and, and that was that. So yeah, we didn’t get access, we probably had no business getting access but that’s one that, that hurt bad.
Colin: How many investments have you made so far and how much do you invest in each deal?
Nick: Yeah. So we only formalized #New Stack about a year ago. So we essentially we have significant cheque sizes, which are six figure cheques where we’re playing an active role with entrepreneurs. And we’ve done five of those investments. But we’ve also done a lot of smaller investments where we’re more of a passive investor. We’ve found a great lead investor and we’ve bolted on, you know, smaller ways. So those are more five figure cheques. So in total between my partner and I we have eighty some odd investments, eighty five, eighty seven, something like that. But we just started with more significant cheques in an active way, so we only have five of those. In terms of how much we invest in each deal, for these more significant investments, sort of our minimum amount is spread around a hundred thousand bucks. And then the biggest check we’ve written today I think is like 380K. So we’re kind of in that a 100K to half a million dollar window. So we can lead a pre seed round, but typically, you know, we’re bolting on with another lead investor as, as a co-investor so to speak.
Colin: Then why did you choose #AngelList to syndicate your deals?
Nick: Yeah, kind of as we talked about before, you know, I think the Angel Group model on an online platform is the best of both worlds. It’s got the speed and the, the cheque size potential of venture capital. And it avoids some of the pitfalls of your angel groups that take a long time. It also just was a much easier and more seamless way of me organizing my followers. So you know, I’ve got people that listen to the show. What I could have done is said hey join my angel group, we’re going to host these webinars, I’m going to send you a stack of documentation that you’re going to need to go through and, and sign off on. And, and then you know, it would have taken months to close deals. Or I could say hey, I’m setting my angel group via this technology platform, all you have to do is jump onto my website, jump onto this page on #AngelList and you can, you can back me. So it’s really easy, I don’t have to deal with any cheques, everything’s done through the platform. I’m not herding cats collecting money from a bunch of angels, which is a constant, constant thing that angel group leaders cite as, as painful. It’s cheap, it’s really cheap to put together what’s called as a special purpose vehicle LLC for an investment. So when you’ve got 18 investors in the deal or even 20, you’ve got to put them all into one LLC as an investor, otherwise the cap table for the startup is all screwed up. And to do that it’s expensive. You’ve got to deal with the lawyers and all that. #AngelList charges essentially a flat fee of 8K per deal. So I’m even consulting a number of the, the biggest angel groups in the country right now that are looking to migrate their entire system over to #AngelList. They’ll probably still do private deals. I don’t know if they’re going to open it up to other investors. But they’re trying to migrate the process because right now they’re herding cats collecting cheques and the, the fees are very prohibitive. So.
Colin: How do you source your deals?
Nick: Good question. So sourcing at a high level, we call it deal flow of course. I’d say it’s broken down into two strategies. There’s hunters and there are gatherers. I’m primarily a gatherer at this stage, you know. I put my content out via the, the podcast, I get my thoughts on paper, on my blog, and I build my group, right. And then I’ll, I’ll tell these networks, these folks that listen and these, these other networks that are built around Chicago and around the country to send me deal flow that’s consistent with our thesis and what we’re working on. And the networks will send deals, right. So I’m very fortunate to have a lot of entrepreneurs in the audience that’s on their pitch decks. We’re very fortunate that #New Stack, our, our angel group is now up over a 100 members. So we’re getting plenty of deal flow from, from those folks that would like us to, to syndicate those deals. However gathering is incredibly inefficient, right?
Nick: 90% of the deal flow that I get is not even in our investment area. It doesn’t fit our thesis. So it’s just very inefficient. So we’re trying to migrate over to, to being more of a hunter, right, which is where we basically find the places where startups live in each of these thesis areas that we have. You know, where are they hanging out or where do they post their questions, or what forums do they belong to, what websites are they promoting their products on. And we’re trying to hunt them down there earlier so that we could find startups that are a great fit for the value that we can add, and find them earlier.
Colin: Where have you found the best hunting to be? Any websites for example?
Nick:Yeah. I mean, most people are going to say a lot of deal flow they get on, on #AngelList, but that’s not the case for me. I use #AngelList as my technology platform to syndicate my deals. I don’t use it merely to source deal flow. Or I’ve done that to a very, to a very low extent. Other places that we, we go out hunting at this stage. So I’m a hardware investor. We can talk about my thesis if you want. But one of the major areas for me is hardware. That’s what I built a product in. I understand the razor razor-blade model, the consumable model. And so I’ll go to places like #Product Hunt. I’ll go to places like #Kickstarter. Those are where a lot of early stage hardware businesses live. And so I can find great consumable space businesses there, and hopefully get eyes on them before every investor is going to have an opportunity.
Colin: What’s that process look like when you find a product you think may be interesting to invest in?
Nick: Usually entrepreneurs are reaching out to me. So I can choose to take the meeting, you know, tell them other investors that they could talk to. But when I’m going out to meet them, you know, I’ll cold email them. If I don’t have somebody in my network that knows them, you know, I can check #LinkedIn and things of that nature to see if, if there’s a way I can get a warm intro, if I know an investor that’s in the deal, you know, I can look him up on #CrunchBase to see if they’ve done a pre seed round or a seed round. So if I know an investor, I’m going to want an introduction through that investor. But I’m not afraid of a, a cold email if I find a product or a great business somewhere, I’ll ping them and just say hey, based in Chicago, we love early stage businesses, we love what you’re doing. We focus on this area and we’d love to, to see if we could help you.
Posted in: Podcast Episodes
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