101. The Man Behind the Mic, Part 2 (Nick Moran interviewed by Colin Keeley)

Download_v2Nick Moran Angel List

In this episode we flip the script and the host of Tech in Chicago, Colin Keeley, interviews Nick Moran with questions from the listeners including:

  • Nick Moran listener Q&AHow did you meet your investment partner, Jeff Heitzman?
  • What’s your investment thesis and how do you evaluate startups for investment?
  • What’s an ideal case study or example of a business that you’d invest in?
  • Why are you a better option to take money from than the 1000+ other early round investors?
  • What are the economics of New Stack vs a more traditional fund or an angel group… At the end of the day, how do you guys make money?
  • What resources, aside from the show, do you recommend to investors and entrepreneurs?
  • After living in both California and Colorado, how’d you decide to move back to Chicago?
  • What are the best and worst things about the startup ecosystem in Chicago?
  • How can listeners help you?
  • Is there anything that has surprised you about VC through your experience?
  • What advice do you have for entrepreneurs and investors?
  • What’s next for you, TFR and New Stack?

Guest Links:

FULL TRANSCRIPT

 
   

   
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  • Seph

    Second half every bit as good as the first. Some highlights:

    @4.00 – 4.45
    Why team up with Jeff Heitzman? Because he is someone who is engaged and willing to put in the work. Jeff makes things happen.

    @5.20 – 7.20
    Nick and Jeff try to stick to three thesis areas each

    Nick’s thesis areas:
    1) Hardware, IoT, Consumables, SaaS layered on top
    2) Tractable, automation of expert tasks so that anybody can do it
    3) Democratization, platforms which allow users to build and drive the value

    Jeff’s thesis areas:
    1) FinTech
    2) Frontier Tech, AI, VR/AR, drones, Space
    3) Chicago

    @7.20 – 8.15
    Evaluation process acts as a gate. Meet the thesis, pass the gate. Over 90% get cut here. Next is the Pre-filter, ten questions that are yes/no. At least 80% yes, then on to the Deep Filter. Deep Filter is another series of yes/no. “Not high science, just a series of gates.” – This does help in getting to “no” faster.

    @8.20 – 9.20
    Tovala as a perfect fit for all of Nick’s theses, based in Chicago.

    @10.00 – 10.30
    “I think that the nice thing about our thesis is… the flexibility to invest in any market because our thesis areas are more thematic and each of them… can fundamentally redefine a market. A startup founder who is using one of these approaches is redefining the market in which they are playing.”

    @10.50 – 11.20
    David at Tovala as an example of a great entrepreneur – “smart, super driven, great networker, above all a leader, embodiment of a chief executive, has area specialists and leads them to be their best, orchestrates the process, communication off the charts”

    @12.45 – 15.15
    Why take money from New Stack? The only reason an entrepreneur should take money is because you can provide some advantage, some opportunity. New Stack investments have the platform of the podcast and a built in network from the podcast audience. The goal of TFR is to get better and better, learn more and more about the discipline, and this accumulated knowledge benefits the portfolio.

    @ 15.25 – 16.00
    “We’re trying to invest in the most innovative people out there and there hasn’t been much innovation on the investment side. One of the themes of the show and New Stack is that we don’t want to approach a modern startup industry with an outdated investment philosophy. And so if you ask any marketer, the hottest content platform out there is podcasting, and we were the first ones with a podcast. And ask any VC what is the most innovative and potentially disruptive force on the investment side, and most will tell you that it’s startups raising capital through Angel List syndicates. And we have, I think, the very first syndicate and certainly the largest syndicate in the Midwest. So we are trying to look at investment through an entrepreneurship lens…” Well thought out, well played, well spoken.

    @17.00 – 20.40
    What are the economics of New Stack? Typical funds are management fee plus carried interest. The breakdown of a standard 2% fee and 20% carry is eye opening, must listen. Most angel groups are an annual membership fee and usually 20% carry to the group leaders. New Stack is free to join, no obligation to make investments. An investor in the syndicate will pay a 20% carry on a sucessful exit, just like any other professional group. But in this case only 15% goes to New Stack because 5% goes to Angel List.

    @20.40 – 20.50
    “We still do well in the event of a great investment and a great exit, but we make nothing near term or long term if we make bad investments.” Y’all deserve big respect for this.

    @20.50 – 21.50
    ***If an investor goes to Angel List, joins the New Stack syndicate, and makes their very first Angel List investment through New Stack, then Nick can get the 5% carry to Angel List waived in perpetuity on any investment made through New Stack.***

    @21.50 – 23.00
    “We don’t get paid in the near term. There is no way that we are monetizing our investments now… In the absence of going out and raising a [VC] fund, there won’t be any management fees, there won’t be any membership fees, there is no initiation fee in the short term. The final note on how we make money is that we invest our own capital. In each deal that we lead… we anchor the deal with our own capital… A little different from other organizations out there that are purely investing other people’s money.” Again, big respect for putting your skin in the game like this.

    @23.30 – 24.20
    “Fundamentally, I think this industry and startups is a human industry. It’s about people. It’s about understanding the human condition. This isn’t a quant industry. It’s not all about the financials. It’s not about digging your nose into spreadsheets. So anything that will help you better understand how people are wired, from investors to entrepreneurs to customers. I would advocate reading stuff outside of the industry that helps you understand people better… resources that can help you better understand people’s wants, people’s needs, the human condition. These can serve you very well in this industry.”

    @25.30 – 25.45
    “A long term, healthy relationship is what both the investor and entrepreneur should want. If there is a weird vibe in the beginning, perhaps better to go separate ways because there are better partnerships out there.”

    @29.15
    “Great businesses can be built [in Chicago]. I don’t think we’re a one-sector town. I think any startup in any sector with the right founder and the right mentality can be built in Chicago.”

    @33.20
    How can listeners help? First, deal flow – if you have an interesting lead, then send it on even if you’re not sure if it’a a fit. Second, building the syndicate and investment group – sign up and join in the process.

Listener Feedback

Pete Maglio

The takeaways to end this episode are fantastic! Thanks @TheFullRatchet & @BenEinstein! pca.st/Fey4 #smartHardware #startups