138. How to Angel Invest Like the Best, Part 1 (Jason Calacanis)

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Jason Calacanis joins Nick to discuss his new book and his secrets to successful angel investing. We address questions including:

  • Jason Calacanis Interview TFRWhy Jason wrote the book
  • What drives him to continue angel investing after all his success
  • His thoughts on angels that make large investments during their first year of angel investing
  • His focus on finding 5,000x returns and his response to those that say he is discouraging innovation w/ this approach
  • How he thinks about the economics and business model of early-stage businesses in nascent markets
  • If he takes a contrarian or adversarial approach with founders

Jason Calacanis Angel BookGuest Links:



*Please excuse any errors in the below transcript

Nick: #Jason Calacanis joins us today from San Fransisco. #Jason is a serial entrepreneur and probably one of the best known angel investors in the world after having invested in #Uber, #Thumbtack and many, many other successful startups. He also runs the #Launch conference and the #Launch accelerator, in addition to hosting the incredibly popular #This Week In Startups Podcast. I was recently sent an advance copy of #Jason’s new book, #Angel: How to invest in technology startups- Timeless advice from an angel investor who turned a $100,000 into a $100,000,000. #Jason, you’ve been a big inspiration to me for many years. Thanks a lot for coming on the program!

Jason: Thank you so much for having me, #Nick, and for that very warm and kind introduction.

Nick: Yeah, sure. Alright! So why did you write the book?

Jason: That’s a great question. I, I’ve been offered a lot of books to write over the last 10 years. I’ve got a great agent. And a lot of the books were, you know, blogging for dummies, startups for dummies. I don’t know why they keep asking me to write the dummies books. I don’t know if I should read into that or not. But I just felt like none of the books were going to be books that were built to last. And I just thought to myself I meet all these shmucks who have never accomplished anything, and then they write a book so that they could become thought leaders. And to me this seems backwards, right? Like if you’re going to write a book, you should be a thought leader who people can learn from and then you will earn the right to write a book. And so in thinking about my career, I’m 46 now, I was like what am I actually an expert on? I mean, I’ve been a pretty good founder but I’m not the greatest, I haven’t built a billion dollar company. I’ve built companies that were tens of millions of dollars. And, you know, as a podcaster I guess I could write a book about podcasting. But I don’t know. But angel investing,

Nick: Who’s going to read it though right?

Jason: Yeah I don’t know who’s going to read a book about podcasting. I’m sure they want me to write podcasting for dummies. But I,

Nick: Maybe the audio version, #Jason

Jason: Exactly. And I just thought angel investing is something that I’m actually an expert on. And nobody’s written a book on angel investing and certainly nobody successful has really taken it on. And I just said I’m one of the top angel investors of all time. I’ve had six unicorns and 125 investments. And that’s one every 21 if my math is correct. There’s very few people who have that batting average. And I’m going to invest in another 200 startups. I’ve invested in 125. So I’ll end my career when I break 300 or so. And hopefully by that time I’ll have ten or fifteen, I don’t know exactly what’s realistic in terms of hitting unicorns and there are cycles. But I thought this is a book that will help a lot of people understand how wealth is created in the 21st century. Because what you and I were taught when we were growing up in the 70s, 80s, you know, 90s, was that the best way to create wealth was to get a white collar job, be an attorney, a doctor, an accountant, a programmer, an IT specialist, whatever it is.

Nick: Yep

Jason: Something that would pay a 100 or 200,000 dollars eventually. Then buy a house and then buy a second house. Don’t go out to to dinner, you know, pack your lunch, don’t go to Starbucks, save your money, be frugal and you’ll die with a million or two or three million dollars, technically be a millionaire. Well most people cannot afford to buy a home anymore. When we were coming up in the world, homes were two times our household income. And when our parents grew up it was one a half times a household income or maybe one time. So when my parents bought their brown stone in Brooklyn I think they paid $50,000. And my mom was making somewhere in the $40,000 range for her job. My dad was a bartender. So they, essentially one year’s salary for the household would have paid for the house or one and a half maybe. Now if you look at any city, you know, the average in a city maybe household income is a 100,000 or 125,000 for the two people in a household. And that 125,000, the house that they would need to buy for their family would be 1.5 million or 2.5 million in New York, San Fransisco, Los Angeles. So the idea of that hack of becoming wealthy, that hack no longer works. And that hack was what Rich Dad Poor Dad, and Secret Millionaire On The Block, and The Art Of The Deal, and all this other nonsense. Great books for the 20th century. They just don’t apply in the 21st century. And so I thought, how is wealth going to be created in the 21st century, how will our kids experience wealth creation if they do? And I believe the way to become wealthy is to get your name on 20, 30, 40 cap tables of high growth technology startups. I believe it’s the best hack in the world if you figure out how to participate in the casino known as Silicon Valley, where the odds are greatly in your favor. And that’s why I wrote the book. I want to see people get rich. I want to see people move from poor to rich, from middle class to rich, from rich to ultra wealthy. I would like to see more abundance and more people move up in the world because I came from a, a family that was barely middle class and that was in debt and, you know, basically lost everything when I was in my teenage years. And, you know, people say, you know, life isn’t about the money. But the people who typically say that already have the money. People who are broke, you know,

Nick: It’s about the money.

Jason: It really is about the money when you don’t have it. When you’ve got $20,000 in credit card debt and a mortgage, and you don’t know how you’re going to, you know, when your car breaks down, you don’t know how you’re going to fix it, which is the situation I remember being in as a child. You know, the car would break down and my parents wouldn’t have the money to or the credit card to pay for it. We have to sit there with a broken car for a month or two on the street,

Nick: Sure

Jason: And figure out how do we get the, you know, how do we get a new car and live without a car for a little while. You know, it was, it was scary. And so I wrote the book because I’d like to see some people change their station in life. It’s a good question.

Nick: So you’ve got a pretty colorful background and path to tech. And I think I’ve heard it plenty of times. I think other people have heard it. I think I’m more curious about why you keep doing it. So you started as an angel, you’ve had tremendous success. I don’t think anyone can argue with the track record. But people think this is so glamorous, right? People jump into angel investing thinking it’s going to be easy. But it’s, it’s not all glamorous, you know. It’s a lot of work despite being a fun ride. So I’m curious, you know, why do you keep doing it? With all the success you’ve had, what continues to drive you?

Jason: It’s a good question. When you have escape velocity, you have enough money for a lifetime or two or three or ten, which can happen as an angel investor, the logical thing to do is to retire. So #Chris Sacca retired from angel investing. #Tim Ferriss retired from angel investing. #Kevin Rose is a venture capitalist now. He’s retired from angel investing. A lot of people who hit home runs stopped, you know, investing. #Nick Luwiche, he was angel investing, I think he stopped. So it’s a valid question. I think for me, I happen to love gambling. I happen to have the brain chemistry and I think the persona that makes me actually enjoy losing because I know that having all these early startups fail means the ones that are left are definitely going to be worth something. So while most people, their brain chemistry is set up to go oh if I lose these three, four or five of these startup investments, well the next five are also going to fail. I look at it as oh I’ve had 6 companies fail out of these 10, there’s 4 left. Okay two more will fail, one won’t return my money, and that last one’s going to return more than 10x. It’s going to return 20x or 30x or 300x, I know it. That’s how my mind works. And so I am able to look at the losses. And the losses in angel investing come early, right? The companies try for a year, they fail, they’re gone. So you get all this quick bad news, which is psychologically brutal. Then,

Nick: Yeah so the second year in the book, right?

Jason: Yeah, the, just the worst year of your life is your second year as an angel investor. Because what happens is the first group of companies you invested, and let’s say you did 10 in your first year. You get into your second year, you’re evaluating your next 10 investments, and the first 10 are coming back to you saying we’re out of money, even the good ones are out of money. And then the ones you’re investing in year two, they need your help too because they probably want introductions or whatever. So you’re trying to find new companies to place bets on while the other companies are telling you they’re failing. So you’re like well, wait a second, maybe I shouldn’t invest in these next 10. When in fact that’s what you should do. You should have enough diversity that you have 30, 40, 50 investments so that you can weather the fact that a unicorn, even for somebody as good as me at this, you know, I hit one every 30 or now, one out of every 21, as time goes on. In the last 3 months I found out about 3 more unicorns in my portfolio. And, and those, of those 3 unicorns, 2 of them were from 2 years ago and 1 of them was from 5 years ago. So you start to see that, you know, year 3, year 4, year 5, the good news happens. And so I think most people, a logical person would look at the, look at the early patterns and say quit, quit, quit. They don’t understand that, you know, and that’s why I wrote the book. Because, you know, listen, what, what’s, this is not a normal pursuit, right? On the face you’d say wow, my first 10 startups, 8 of them have failed already, why the heck would I write another 10?

Nick: Yeah

Jason: What you have to understand is the implied odds. You have to look at the implied value that’s going to come from the two remaining ones. And if I told you right now that you could put a $1000 as a bet and I would, and there’s a one in a hundred chance that will be worth a million, you know. And you’ll be like one in a hundred, 99 times out of a 100 I lose? For a $1000. I’d be like yeah but don’t you understand that you’re getting this incredible odds of hitting a million. Of course you placed a $1000 bet. I would place that $1000 bet as many times as you would let me. And most people’s mind is, are just, most, the human mind and most people have not transcended this. Most humans by default are conservative, are not risk taking. Because if you took risk in the early days of our species, like I’m going to climb over that mountain, you might meet the tiger on the other side of the mountain. Or I’m going to go for a swim in that lake. And you might meet the alligators. Like,

Nick: Yeah, evolution is not kind

Jason: you would,

Nick: to,

Jason: Evolution has not been kind to risk taking. But now you look at making, you know, fifty $1000 bets on startups, it’s $50,000. If you have a $1000 net worth, it’s 5% of your net worth. Is that worth the risk? Well certainly it is if one of them goes to a 1000x, you could have life changing money. And so that’s what I, I try to explain to people that if you don’t gamble, no gamble no future is an expression that I try to explain to people. If you want to have a big future, you got to take some risk.

Nick: But this is part of the challenge I think with newer angels that I encounter is in the first year they’re blowing their whole bank roll. And so year two comes along, and not only are they seeing the failures but, you know, they’re making 50K bets per startup at the beginning and they run out of money.

Jason: It’s a huge mistake. It’s a great observation. When you’re starting out, what I tell people is only do angel syndicates. So either on #SeedInvest, #AngelList, my syndicate which is now on #jasonssyndicate.com, #FundersClub, there are all these, #Republic is doing non accredited investors. There are all these websites where angel investors pre-bet companies, put their own money in, and then offer it for a $1000 or $2000 to other people. So what I tell people is your first ten bets should be $1000, $2000, $3000 bets. But if you add a zero and act as if you put 10, 20 or 30,000 in. In other words, just act like a baller angel investor who’s putting $25,000 in even though you only put $2500 in. Then on those 10 bets you will have met all the co-investors if you do your job right, you’ll have met the founders. And you’ll understand angel investing. And the analogy I use for people is when I started playing poker I would go to a place called Hollywood Park,

Nick: Yep

Jason: Which is one of the most depressing places on the planet Earth. And I loved it because I would go play with like these 60, 70 year old retirees and I would play at the $1, $2 poker table. And when I was learning, I was getting invited to these like high stakes games that Leonardo DiCaprio and DiCaprio and, you know, all these famous people that, eventually that game got busted in Los Angeles. But I kept getting invited to that game and other big games where people go on in for $25-50,000. I was like I’m not going to go there. I don’t know how to play poker well. I’ll play with these $1, $2 people, learn the game and now I do play at very big high stakes games because I feel confident after 10 years of playing poker that I can handle those situations and I’m not at a disadvantage. That’s what you should do as an angel. Make the small bets, play at the small table, learn the craft and then go from there. Another option is to do money ball and do a, a fantasy league. So I didn’t put this in the book but you could do it, you could do this by fantasy. You could go on #AngelList, #FundersClub, sign up for all the different syndicates, get the information, then say I’m going to pretend that I invested $10,000 in these 10 startups and I’m going to track them over time and see in #Crunchbase, #Mattermark, #Dealbook, you know, and in the news if they raise additional funding. Of the 10 I picked, how many had additional funding a year or two from now. That would be a way to be a virtual angel and just basically play a virtual stack. Now I don’t think you’ll get good at poker by playing without real money. You need to have the real money and play. You need to just feel the pain and to really feel your mistakes I believe. But you could if you were totally broke do it that way. And it would be an interesting exercise.

Nick: I’ve, I’ve got a founder right now that I’m talking to about an early stage IoT business that’s been doing just that for 10 years via his blog. He’s been publishing all the startups that he would have invested in assuming he had access, and returns look pretty good. I mean, I don’t think he

Jason: Yeah

Nick: has lying aside to delusion and everything. But what a picker. So if his

Jason: Well

Nick: abilities as an entrepreneur is anything like his abilities as an investor then maybe he’s got something.

Jason: Well he’d also, he’d also have to have access to those deals. So

Nick: Yeah

Jason: it’s one thing to say

Nick: Yeah

Jason: for me to come out right now and say gosh, you know, this new startup I’ve been reading about seems really promising, I would invest in #Robin Hood. And it’s like well, do you have access to invest in #Robin Hood?

Nick: Yeah

Jason: And that’s why in the book I say hey if you want to be an angel investor, you got to spend time in the best markets for finding unicorns and outsized success, which is Silicon Valley. You can do it from other locations but you would just be in all likelihood eliminating the frequency of an outsized return. And the whole name of the game is to get one outsized return in your career. And it makes your career.

Nick: Right. So Hollywood, Brooklyn, San Francisco, and who is #Jason Calacanis, what is, what’s home for you?

Jason: Well, I, I love entrepreneurs. I spent some time in LA. That was a nice, I would say Los Angeles is the best lifestyle I’ve ever had. New York was definitely the most fun I’ve ever had. I loved growing up and New York was the most real. It’s the most, it’s the best city in the world I believe. But San Fransisco, if you look at people trying to change the world and a number of people trying to change the world and the effectiveness and the belief and the optimism that you can change the world, there’s nothing like the Bay area. Now the, San Fransisco is a terribly run city. It is a disaster that a city this, with this tax base, with this, you know, number of entrepreneurs and intelligence and innovation, for San Fransisco to be run so poorly by such corrupt and incompetent executives is just disastrous. This place is the worst run great city in the world.

Nick: You’re not alone. I’m a Chicago guy, so.

Jason: Yeah

Nick: We’ve got our own issues.

Jason: You’ve got your own issues. And, you know, it’s like what is going on where a city has this kind of tax base, this kind of intelligence, and they can’t solve transportation. They can’t solve housing, they can’t solve homelessness and they can’t solve crime. These are very solvable problems. I’m not saying they’re easy, but we’re not even at the New York or Los Angeles level of execution for any of these things. Los Angeles and New York have very efficiently made their cities, you know, easy to, you know, the transportation is easy, housing is reasonable, you know, it’s totally imperfect of course, but reasonably well managed for high growth cities. Crime and homelessness as well is very well managed in those cities. San Fransisco it just feels like it’s completely out of control and people who come here on vacation, never come back. It is a horrible experience for somebody to come to San Fransisco on vacation. I would never, if somebody said where should I go on vacation, San Fransisco would not be on the list of American cities. I would say never come here for vacation. It’s terrible. Maybe Napa, maybe Tahoe, but, or, you know, maybe Monterey or Big Sur, but never the San Fransisco Bay area. It’s a horrible, horrible place to visit at this point.

Nick: Well, getting around certainly isn’t easy, but, but I enjoy getting out there when the weather is bad here in the midwest. But, anyway,

Jason: Yeah

Nick: While we’re talking location and you also touched on sort of targeting some, some outsized potential startups, you know, you talk a lot in the book about finding the 5000x return in the portfolio,

Jason: Yeah

Nick: And how it may take 200 tries or, or more. What do you say to those that accuse you of discouraging innovation by encouraging investors only to hunt for unicorns and only those startups that are born in San Fransisco?

Jason: So, I think if you’re going to invest, you want to look for businesses that can eventually have 50 million, a 100 million, or a billion dollars in revenue. If a company, if you don’t see how a company can reach 50 million dollars in revenue and you can’t explain that to yourself and the founder can’t explain it to you, you’ve got a bit of a problem. And so I always encourage people to just say straight up to the founder, can you walk me through the business model. They’ll explain to you the business model. And if they say well, we think we can sell our data, we think we can sell an enterprise version of the product, we think we’ll have ads, we think that we can syndicate our content and we, we think we’re going to do merchandise. And they list eight different ways in which they’re going to make money, they’re probably not going to make money. But if they say something very simple like we take a percentage of every #Airbnb that’s booked and we charge the consumer and we charge the host and also a fee, and that fee averages 8% or 10%. And most people book, you know, 2.5 nights at an average rate of $80. All of a sudden you’re like okay you get 8% of $200, $16 every time, great. You know, you could see how that scales. You know, if you have a million visits, that’s, a month, that’s $16M a month. It’s a $180M a year or something. $200M a year. If you can’t do that math, then something’s wrong. And so if you want to invest because it makes you feel good, by all mean invest in movies and pizzerias and restaurants. But understand that those kind of investments will at best 2x or 3x your money in all likelihood. And if you’re trying to 2x or 3x your money this, you know, stock market and an index fund is a better way. If you want to try to return, you know, 20, 30, 40% year over year, year after year and outperform the stock market by 5x, you know, the 7% the stock market returns on average. You want to 35% a year, well, you know, that’s going to take finding businesses that can hit significant revenue numbers. Because at the end of the day, these businesses are not ranked on how charismatic the founder is or, you know, how sexy the product seems or how well designed it is. It is going to be based upon how much revenue and eventually how much earnings the company has. And somebody is going to do a price to earnings multiple on #Apple, #Microsoft, #Google, etc. And they might not have that price earning ratio on #Tesla yet or #Airbnb yet or #Snapchat yet, but they will. They’ll apply, you know, hard core metrics to these businesses at some point. And even #Amazon started to have that happen and that’s gone in their favor, right? So you, you want to understand the reality. If you feel like you want to be a home town hero and only invest in Austin startups because it’s your home town, that’s fine. Just don’t have the return expectations of somebody in Silicon Valley. In Silicon Valley we have, you know, a couple of billion dollar companies created a year, dozens of 10 billion dollar companies or a dozen or two 10 billion dollar companies created every decade. And we have a 100 billion dollar plus company created every let’s call it 3, 4, 5 years, maybe every 5 years. So #Uber, #Airbnb, #Netflix, in the latest cohort, #Facebook and #Google, in the previous cohort, #Microsoft, #Apple, #Amazon, before that, #Cisco. So if you want to try to hit a 100 billion dollar company, there’s only 200 billion dollar companies that were not created in the Bay area in technology, #Amazon and #Microsoft, so they’re in Seattle. And of the 10 billion dollar companies, it’s only #Snapchat that’s been made outside of the Valley. There’s very few ten  billion dollar plus companies that get created outside of Silicon Valley. So you just have to understand the statistics. Could that change in the future? Of course. You know, we have in Sweden there’s like 9 billion, nine $1 billion plus companies have been created there. Some have moved out. But there were nine that were created in, in Stockholm, Sweden. That’s amazing! And obviously in China we’re starting to see some, and in India we’re starting to see some. So, you know, innovation is not limited to Silicon Valley but big returns have been polarized to Silicon Valley.

Nick: What about these very founder centric approaches, you talk about this too in the book about, you know, you find these amazing founders who are your, you’re really investing in the founder more so than the company. And I think it relates to, you know, some early ideas. So if you’re investing at pre-seed or an angel round, maybe the economic model isn’t fully developed. Maybe the market is nascent, you know, the product is going to go through multiple iterations before it, you know, finds it’s right business model and finds product market fit. Like, what are your thoughts on that where you can’t really go through the economic exercise? I mean, you can look at the size of a market but, you know, in an abstract sense you can’t, you can’t apply a very specific business model for something that’s not fully built.

Jason: For sure. So companies that have very established predictable revenue and earnings are public companies. And they are fully valued. And the opportunity to invest in them has what we’ll call modest or muted upside typically. Because it’s so well established. You can’t have outliers like #Amazon. But most of the time a company like #Google or even #Snapchat are either over valued when they go public or fairly valued, or fully valued or over valued I’d say. Not even fairly valued. Fully valued. Which mean to double your money it might take, you know, 5 years, 10 years, you know, somewhere around the average of the stock market. You have some people who outperform the market and do it in 3 or 4. You have some people who will be market laggers like #Twitter and I think #Snapchat right now will lag the market in terms of doubling your money. So in the early stages what can you look at? I tend to look at the individual and try to determine if I think they’re a winner. And I look at their craftsmanship and how well they answer some key questions that I outline in the book. And some of those questions are- what are you working on? Why now? And I look at those very open ended questions and I listen very deeply to the answers. The why now question is super interesting. So somebody showed me a #Yelp competitor recently and I passed on having them in the incubator. And of course when you pass on somebody being in the incubator, they want to know why. The typical reason is it’s a competition. There are 7 slots and there’s a 1000 people who want them, and it’s very hard to get into, or 500 people. So it’s not that you’re necessarily bad. It’s that other people are much better. And so that’s really the answer. But the reason I couldn’t come up with a convincing reason for why a local app for local services would beat #Yelp. I just couldn’t see it. I think #Yelp is, you know, fantastic at what it does. #Google local is good. And, you know, I don’t know, a force where I think is excellent but it’s kind of boutiquey, it’s not fully baked in every city. It’s just very good in the cities it is in. So you’d have to have a why now? If, if augmented reality glasses were out, and there were 100,000 people walking around with, you know, augmented reality glasses, and you said I’m going to make #Yelp for augmented reality and we’re going to focus on showing people what’s inside the store and helping them navigate around the city, I’d say oh, well that’s an interesting why now. Now you can have a different experience where you could talk to the person inside the store or see inside the store with your augmented reality glasses, understand how many people are in there, what the top dishes are, and, and see it all in your beautiful heads up display on your Apple glasses, which are going to come next year. That will be an interesting why now.

Nick: Yeah

Jason: To go into an app that’s, the iPhone’s existed, and it’s year ten of the iPhone and year eight of the app store and you’re going to compete against #Yelp. I don’t think so. I don’t think there’s a good enough why now. So you’re playing detective, you know, I, I talk about Columbo in the book. I think you’re really trying to be Columbo where you just ask very basic questions and listen to the answers. But craftsmanship matters. So I look at, I look for people who are just good at their craft. The product is well designed, and it’s well thought out. So when you ask a question, hey why, why is the cab, you know, here on the map when you’re talking to #Uber. And why is there no tipping, and why do you rate the driver. And the, you know, #Travis says oh it’s not just you rating the driver, the driver rates you. And we’re going to remove people who are bad customers so that drivers don’t have, aren’t abused.And that will make drivers want to work for us more. And when you give feedback for the driver, if they fall behind a certain threshold, we turn them off for a period of time and we talk to them about their bad ratings and say hey can you try to solve these issues. And then everybody trends towards good behavior. And good behavior then makes a halo effect around the service. This is, this is a conversation I had with #Travis in the early days of #Uber. And I didn’t know that they were rating the passengers. That was a like a big secret at that point. And the drivers got to rate the passengers. And, or I don’t know if they were specifically it was a secret, it certainly was something that was not public knowledge for a, for a little while. It wasn’t generally understood by the public. Eventually it was, and people started behaving better in cabs. So when you ask people questions and they come up with really, you know, thoughtful answers. And you don’t have to be like a genius in terms of your knowledge, because obviously the founder has much deeper knowledge of their business, and they’re vertical. You just ask very short open ended questions and you listen to, you listen for, you know, somebody who is incredibly considerate and intelligent and passionate. If you don’t hear that passion and you don’t hear a considerate answer, and you don’t hear thoughtfulness, well, if they’re not thoughtful about how they’re designing their product, they’re not going to succeed. You have to be super thoughtful and tactical these days about building products. And so I just have a, and I saw that with #Thumbtack, which was probably my second best investment to date. And they were make, they originally started as a directory of local services. And I remember they had little icons on each, you know, person’s page. And I said why does this painter have a driver’s license and this other logo here? And #Marco said oh hover over it on your desktop. I hovered over it and it said driver’s license verified, insurance verified, physical address verified. And I said why is that important? He said oh well, did you ever worry when you had somebody on Craigslist come by your house that they were going to be a serial killer or rob you or if they were insured? And I was like every time. And I would like watch them and make sure that my wife wasn’t alone with the baby while they were there. I would not let people do services except on the weekend when I was home. And he’s like yeah, well, a person, people, a person with a driver’s license on file and their address and insurance, they’re not going to rob you in all likelihood. And I was like well that makes total sense. So even if that wasn’t the killer feature, at least it was a massive amount of signal there for me that oh this person’s really thinking about the problem. And one great way to tell is to say so tell me about your customers. Now if the person can’t tell you about the customers, well what’s going on?

Nick: Seriously

Jason: They don’t, you’re like what’s going on here? You know, and then I ask them hey can I, if I’m consummating an investment during due diligence, I say great give us the names of ten clients, we’re going to call three of them randomly. And they’re like oh. And I had one person say yeah we don’t feel comfortable with that. I said okay. They said oh ok so, we can, you’re still investing. I said no of course not, I am not going to invest.

Nick: Well that’s not just the information, it’s that they don’t have the feedback process in place.

Jason: Yeah. It’s just crazy.

Nick: So, you know, I’ve thought about this a lot, but you’re an opinionated guy. And on your podcast you challenge people’s, you know, thought processes and you get some healthy debate going. So how does it look with the founders? I mean, are you, are you challenging their thought process? Do you just kind of listen and let them go? Or,

Jason: Yeah, so,

Nick: are you giving them feedback that they’re, you know, making the wrong decision here or they need to rethink this or how does that work?

Jason: So pre-investing, I have a very small mouth and very big ears. I’m listening. I don’t want to tell them what to do. I don’t want to give them too much feedback. I want to just listen so that I can get a bunch of information and make a decision. Now after I have invested, I like to get a monthly update. In fact, I insist upon it now, I didn’t have the credibility or the, the weight in the industry or the ability to insist upon it previously. But now I insist that they send a monthly update. You know, maybe quarterly if it’s somebody who’s really seasoned. And when I get that update, I read it, and I maybe will ask one or two important questions. But how you ask them to a founder is important. So you don’t want to be telling the founder to do stuff because you might send the founder on some wild goose chase. What you could say is have we thought about, you know, in the case of #Cafe X, how are we approaching selecting locations? I’m curious. Have we asked people who want to have the machines if they would be willing to give us free rent for the first two years because they get to have a robotic cafe in their lobby and it’s an amenity for their employees. So have we asked for free rent and what’s been the reaction? So there’s a way to ask it. And I learned that from working with #Sequoia Capital in my early years as an angel and as an entrepreneur. They weren’t really dictating to the founders what to do. They would say, you know, have you met this person or have you heard of this, or have we considered that, you know. And, and that is a very deft way of saying here’s an area where you might want to focus some attention but it’s not a directive. Because directives are silly, like, you know, there’s 20 different ways to run a business and you don’t want to send somebody in the wrong direction. And I think a lot of times I watch my fellow investors send entrepreneurs on these crazy goose chases where they are like building models and board decks and all kinds of nonsense to appease one investor. Another investor has a different world view. They’re doing a whole another set of projections for that investor. As opposed to the founder say hey this is what our mission is, here’s why we’re going in that direction, and does anybody have any questions about this direction we’re going. And somebody says oh have we considered that direction? And you say yeah we considered being an enterprise company but we’d rather be a consumer company, that’s our goal, we think it’s a bigger opportunity and we don’t want to be an enterprise company. And that conversation is shut down. If you want to do an enterprise company that’s a different company, a different group of people, a different amount of funding, a different process. And so I think it’s important for founders to pursuit their own vision. I don’t want to invest in a founder that needs me to tell them how to run the business or what direction to go in. That’s not sustainable.

Nick: Yeah. Best just to go your separate ways at that point, right? But, you know, you mentioned,

Jason: Yeah, or, or just you can write off the investment or you can just let the investment ride, right? Like you, you

Nick: Oh yeah

Jason: You don’t sweat the small stuff as an angel investor. You know 4 out of 5 are going to fail, 8 out of 10 are going to fail, whatever it is. And when things fail, you just move on. You don’t, you don’t obsess over it.

Nick: So you did mention #Sequoia

Jason: Yep

Nick: And I believe you were the first scout

Jason: Yeah

Nick: for #Sequoia years ago. And now it seems like all the big firms have their own sort of scout or investment programs in some of the earlier stage funds or investors, you know. What are your thoughts on this?