Nick: So you did mention #Sequoia
Jason: Yep
Nick: And I believe you were the first scout
Jason: Yeah
Nick: for #Sequoia years ago.
Jason: Yeah
Nick: 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?
Jason: It’s obviously a program that works. You know, when #Roelof Botha came up with it, he asked me for my opinion on it. And he’s like we’ll give you the money, we split the returns 50 – 50. I said what’s the catch? He was like oh you have to fill out a deal memo. I was like f* that, I don’t want to fill out any paperwork. I’ll just make this about one page. And it just says what you think, why you think this will work. And I was like I don’t know if I want to fill out one page, you know. And I was like pretty stupid. And in the book actually I talk about the value of writing deal memos,
Nick: That’s right.
Jason: and writing a thesis, right. So
Nick: You do it for the syndicate investments still.
Jason: I do it for the syndicate investments. I write public blog posts why we invested $378,000 in #Calm.com when everybody told me that was going to be a failed investment and that I’ll, I’ll be putting that back in people’s faces shortly. I cannot wait for that day. But it’s, yeah, you, I learned a lot from that program and the association and I think it’s wise that other venture firms have scouts out there. Because a venture firm putting $500M to work does not have the ability to write $50,000 checks. I mean, just think about the number of $50,000 checks they’d have to write to deploy $500M or even $100M. It’s impossible. You know, I’m writing $100,000 checks right now and I’m going to try to deploy 200 of them in the, in the next 3 or 4 years. That’s a lot of check writing. That’s a lot of babies to have
Nick: That’s a high volume
Jason: It’s a lot of volume. It’s going to be 70 investments a year. It’s going to be 1.x investments per week. And so I have to have a team of 9 people sorting through all these deals, managing the incubator, managing the syndicate. I mean, it’s becoming quite an operation. It’s very hard to scout early deal flow. And it’s not for the faint of heart. You have to be passionate about investing in this segment of companies. And I think I figured out a way to scale it the same way #Y Combinator has. But very few, or #Ron Conway did, very few people have figured out and have the energy level to do this category at scale. It’s, it’s one thing to do 10 investments a year. It’s another thing to do, you know, I’ve been doing 40 a year, 30 or 40 a year for 4 or 5 years. So like it’s not easy. And I’ll, I’m going to be doubling that pace soon. So you need to have infrastructure, you need to have a process. We have that after 4 or 5 years of doing this. But most people do not. And so I don’t suggest people try to scale it unless they have already done 50 or 100 investments, and you have enough infrastructure and lessons and legal and accounting and auditing in place. It’s, it’s hard to scale. And it’s for these big firms they’re just not equipped to do, you know, $200K or $100,000 investments. And then also do a dozen $20M investments. You know, it’s just too hard.
Nick: So while we’re talking volume, you just mentioned 70 per year. It’s more than one a week. That’s unbelievable.
Jason: Yeah
Nick: But clearly, you know, you’re doing it. I think you’re already doing 30 per year, per the book.
Jason: 30 to 40 now
Nick: Okay 30 per, yeah, 30 to 40. So you also emphasized the importance of carving out about 3 hours for every founder that you meet with. So you
Jason: Yeah
Nick: talked about an hour for prep, an hour for the meeting and then an hour post work.
Jason: Yeah
Nick: How can you possibly keep up the pace, #Jason, when you’re insisting on this significant time commitment?
Jason: Yeah, you have to have a team. And I have a great team that scales this. So I’m, I have defined what we’re looking for very clearly with a team of 9 full time people. Those 9 full time people help produce This Week in Startups, our events, social media, email newsletters, launch taker, etc. All of those things are a massive draw for people to come into our circle. And we also do some new products. We just started something called Foundry University, and we have something called Angel University, and we do something called Angel Summit. These are hacks that we’ve come up with. 35 women will be coming to the female Foundry University in July for 2 days. My team puts out a call. They write the agenda based on some topics. They get the speakers. It’s two days. It’s 12 hours of content. They bring the top 35 people based upon how they correlate with my specific Goldilocks Zone. My Goldilocks Zone, not too hot, not too cold, Not pre market, not pre product market fit, not series A ready but right before a series A and right after getting the product into market. I tell them bring me 35 companies like that. Then I go for 2 days, I meet 35 companies in 2 days. I do interactive training with them. And then I get to know them. Now I’ve met 35 pre selected companies based on a pool of 500 applicants. So it’s, you know, the top X percentage, whatever it is, 7%. And that winds up giving me a massive advantage over my contemporaries who don’t have a team doing that. Right? So it’s, it’s all about coming up with these kind of hacks. So in this case, I don’t have to do an hour of prep, an hour of post, and an hour of meeting. I can have my team do all the prep, bring me the companies, give me the dossiers on 35 of them. I scan the dossiers while I’m there. I meet them. I have each one pitch me. I give feedback to each one. And then post I say hey these 10 are the ones I think have the greatest chance, invite them to my incubator. Then we spend 12 weeks together with those 7 or 8 companies if they say yes in the incubator. And so that’s the efficiency that I’m creating inside of our organization, which it might be the follow up book, Super Angel or something like that. Or, or Incubator, you know, something about incubators or accelerators, because there is a whole another way to scale this. So if, and you read the book,
Nick: Yeah
Jason: Did you like the book?
Nick: #Jason it’s a page turner! Which is very rare in the industry. I mean, I’m sure you’ve read some of the other books. I’m not going to name them all. And they’re, they’re awesome, they’re informative, they can really get you a head start on getting up to speed in VC and angel investing. But, but yours was actually a page turner. I get through it in 3 nights. It was enjoyable to read.
Jason: That’s what I was going for. I wanted it to be entertaining. I wanted it to be fun to read, funny at times, and insightful and candid. So I, I kind of went full, full candidness. We did have to change the names of some of the investors and companies mentioned in the book. So we would protect the innocent or the guilty as the case may be.
Nick: Yeah, there’s one from Chicago, I remember in particular.
Jason: Yeah. You don’t mention the name, you don’t mention the
Nick: I won’t
Jason: founder.
Nick: I won’t, I won’t. But yeah, I’m not blowing smoke here. I mean, it really reads like your voice. So well done.
Jason: Well, that was a big debate with Harper Collins. They paid a lot of money for the book. I got like talking to a couple of my friends. I got 10, 20 times what some of the top authors got on their first book. Because I think Harper Collins realized this is a potential best seller. It’s like a very unique piece of work. But they said to me, so are you going to, do you want to write it yourself or would you like us to put you in touch with a ghost writer or a collaborator who could do it for you and we’ll pay for it or you’ll pay for whatever. And I was like umm no I want to write it myself. And they’re like okay. And I could tell they were like not exactly okay. I said, they said well will you send us the first 5 chapters. I didn’t write the book in advance, which is also kind of miraculous. So I sent them the first 5 chapters. And my editor Hollis just said this is amazing, do not change anything, I am intrigued, I am scared, I am enthralled, get me the rest of the book, you do not need a ghost writer, you have a very unique voice and it’s coming through. And this is a best seller. And I was like oh wow, thank you!
Nick: Well, you know, for someone as public as you, I think people would see right through it if, if you had a ghost writer.
Jason: Yeah, I agree. And then even reading the book, they’re like oh my god we got the greatest reader, this person read this person’s book, that person’s book. And I was like I want to read the book. And they’re like uh, you know, like, you have a lot riding on it. And I said I’ll tell you what, I’ll, I’ll do the first day reading, you tell me if it sucks or not. If you think it sucks, forget it. If you think it’s great, I’ll read the rest of the book. And we, they had 5 days book to read the book. I did it in 3. And they were like this is incredible. So I was like great, you know, so, I’m, I’m proud that we, that I actually did the work. I did have one person help me, my former partner #Brian Alvey from #Weblogs Inc, who has been my friend since high school when we played dungeons and dragons together. And we, we played computer together and computer games and everything. I said hey would you come over to my house and just I’ll write a chapter, you read it, we’ll go for a walk, we’ll get some lunch, we’ll write some notes, we’ll walk back, we’ll do a little more writing, we’ll just do that for as many days as it takes. And so we would average two or three thousand good words a day. We did it for 19 days. And we hit, you know, whatever 50,000 words. We have like 20,000 left. And I said ok, or 15,000 left. And I was like alright, let’s go to Los Angeles. I had speaking at a #Mark Suster’s conference. So I said I’ll get a suite at the Standard hotel and we’ll stay there until it’s done. And so we got to day 3 and we finished the book in 3 or 4 days. And we did a writing session in the morning, went for breakfast, we wrote, lunch, and wrote. We went to the gym, we wrote, we went to dinner, then we came back a wrote a little bit more. We did that for 3 days and we started doing 5000 words a day. And let me tell you something, you start writing 5000 words a day, your brain melts. And I was melting. Like literally my brain was coming out of my ears and nose and eyes. Like I was just, but we got there. And we could have written a lot more too. We had to just stop at a certain point. Because I said I want it to be, you know, something people can read like you said, in 3 or 4 days, get their bearing and get to work on the strategy. But I’m really hoping that some people will become billionaires or millionaires based on reading the book and investing. And my secret hope is that they share their deal flow with me. So the whole thing is a front for me to create the largest angel syndicate and network in the world.
Nick: Don’t steal all my deal flow. Everybody out there listening, remember #New Stack, #New Stack Ventures and our syndicate as well. But #Jason certainly has a, a much larger one. And does a lot more deals.
Jason: Here’s the good news. Have you met a startup yet that only did one round of funding?
Nick: No
Jason: Have you met a startup that only had one investor in their early rounds of funding?
Nick: Not a successful one. I don’t,
Jason: Exactly. So there’s, it just doesn’t happen. What we do is a collaborative of sorts. So I even tell people now with my syndicate. I tell my entrepreneurs go find another syndicate. Listen, I already own 3, 4, 5, 6, 7% of the company, go find another syndicate. You could use #Nick’s, you could use #Gil’s, you can use anybody. So I don’t care. The more people involved in a startup who are good investors and who do heavy lifting, the better it is for the company. So I’m always looking for collaborators to help with my companies.
Nick: Well, very impressed that you are able to find time to write this book amidst everything else. But speaking of which, the book is Angelthebook.com, it comes out July 18. If you go to the site there, it just tells me you can pre-order. Is that correct?
Jason: Yeah, you can pre-order on Barnes and Nobles, Amazon, iBooks if you’re into reading on your iPad, audible, all the different book stores out there. And if you go to angelthebook, you can sign up with your email and you’ll get invited to some parties I’m going to do where people show up with the book, I’ll autograph it and buy you a hamburger. So I’m going to do these special hamburger meet ups. Because everybody likes a good burger. So I’m just going to take over some, you know, 5 guys or whatever and just say if you show up at this 5 guys with your copy, I’ll buy you a burger and I’ll autograph it.
Nick: I’ll take you up on that. I got the autograph but I want the burger.
Jason: Good burgers out there. So I’m going to do it in different cities. So I’m really excited about it.
Nick: Awesome
Jason: I’m just really excited that you read it. I appreciate you reading it.
Nick: It’s good!
Jason: I mean, it’s,
Nick: #Jason, it was a good book! I mean, I learned quite a bit and I’ve been doing this for almost 4 years. So.
Jason: That’s, you know, that’s what I was telling somebody. They were like is this for new angels, for existing angels. Like, you know, if you’re an existing angel, I’m guessing you’ll get more out of it because it will confirm things you’re doing. And then there’ll be things you disagree with me on but there’ll be other things that you’d go oh I never thought of doing that. That’s a great secret. And I just put it all out there. I didn’t hold back any of my secrets. Because it, although many aspects of the world are a zero sum game, angel investing is a collaborative game. And so the more I can empower other people and the more goodwill I put out there in sharing my secrets, my belief is that you’ll come to me and say hey I got the next #Uber, I got the next #Cafe X, do you want to put 25 or 50K. And then you 25 – 50K in the right company, it could turn into $10M or $100M. And that’s what I’m going for. So,
Nick: Yep
Jason: I put all the secrets out there.
Nick: So speaking of points of disagreement, there was one of your filters that you suggested is to look for startups that have 6 months of continuous user growth or 6 months of revenue.
Jason: Yeah
Nick: Are, are you really investing in the angel round or the pre-seed round, if you’re requiring sort of 6 months of traction prior to investment?
Jason: So one of the things I’m noticing in the market is that it used to be companies with that much traction would automatically get a series A. Something has happened in the last 3 or 4 years where there’s too many companies who have hit that bench mark, and the series A people are saying I’m happy to meet with you with 6 months of continuous traction but I’ll probably wait another 6 or 12 months till you hit a $150 or $250,000 a month in revenue to do the series A. So there is a new sweet spot where you can find companies that raised a million dollars at $4M valuation, they raised 2M at a $8M valuation and now they need another million dollars because they can’t get the series A. And you have to search for them. But they are out there and they want to put a million dollars and they’ll do it at the 8 – 9 dollar valuation from a year ago or 18 months ago. There are so many people doing flat rounds with triple the performance. And
Nick: Is this like,
Jason: this is the ultimate hack.
Nick: bullpens sweet spot, the seed plus, or,
Jason: I think seed plus there’s if you, if you’re willing to do the work and understand the revenue and understand the traction and make sure you’re not catching a knife but that you’re getting on, you know, a roller coaster as you’re getting up, going up the hill. That’s what you’re looking for. Like they’re firing the rockets, they’re still on the launch pad, but the rockets are now like almost ready to lift off. That’s what you’re looking for, it’s that sweet spot. And then it’s everywhere. I have so many companies in my own portfolio that have hit 25 or 50 or 75 or 100,000 dollars in revenue in a month. And they have 300,000 in revenue for the quarter. And they can’t trigger a series A.
Nick: Wow
Jason: Because there’s too many companies who have hit this bench mark and there’s not enough VCs. So the VCs are going, listen I got five companies here and two of them have a 150,000 a month in revenue, one of them has a 100, and then two of them have 75. I’m going to go with these two. Or I’m going to just take this one. They don’t have the ability to do more than one deal every couple of months. So with their due diligence process joining the board and doing all the work. They’re making a $5M bet. They don’t want, they can’t make five $5M bets simultaneously. So there’s a lot of waiting going on right now. What happens when these companies are waiting? They either have to cut their staff in half to become break even or they have to cut a third of their staff to lower their burn. And increase their performance while lowering their burn. So they need to top off. They raise 3M, they need another million. They raise 4M, they need another 1.5M. It’s happening all over the place. I see it constantly. So what I would do if I was, you know, if you, if you want to find the kind of investments, just look for a company that’s hiring people or that has, you know, raised 3 or 4M dollars and just ask them to lunch. If you, if you go through #Crunch base, #Matter mark, #Deal book, any of these places and look for companies that have, that are 3 or 4 years old, have raised 3 or 4 million dollars, but don’t have a series A. You find that, it’s worth taking the meeting because you might just find somebody who’s a, you know, 6- 12 months away from a series A, but they’re in that Goldilocks Zone where they, you know, they just eliminate so much risk.
Nick: Yup. Yeah. We’re launching a deal that, that fits squarely into that category this week on #Angel List.
Jason: Yeah
Nick: But
Jason: Right. So maybe you can help me get me on it. I made a lot of quick ten dimes.
Nick: Yeah. So I think you’ve already answered this, but, you know, what do you say to those that claim that the best deals are, are funded by VCs and that the angels will only have access to the ones that the top investors pass on?
Jason: I say #Uber, #Thumbtack, #Wealthfront, #Robin Hood, #DataStax, and #Desktop metal, and #Trello. So there’s 7 companies that are all worth over $500M. I invested in the early rounds where VCs were just either not at the table yet or didn’t have the wherewithal and the gumption to take the whole round. So that is complete and utter nonsense. There, there might be some anecdotal stories that, you know, #Twitter or #WhatsApp or #Zinga might have, you know, had very little room left in their round or #Medium or something. But those things are, they still have some angels in it because the founders want to have their friends involved. And yeah you, you’re not going to get into every deal, but right now there are many, many, many more opportunities than there are investors. We are at a shortage of investors. That’s why there’s this opportunity for you and I to do syndicates, right? Why aren’t the VCs coming down here and doing these 250K, 500K checks? They have, their funds are too big.
Nick: Yeah they’re too big.
Jason: So that’s the opportunity for us.
Nick: They can’t put the one at work
Jason: And you know what? Those VCs are panicking about it right now. They realized that they created a monster because they stopped funding in that 250 to $1M check range, they now have to deal with you and #Gil Penchina and me and #Funder’s Club. They’re getting boxed out. And the entrepreneurs are not scared of taking syndicate money. The VCs try to scare, some VCs try to scare
Nick: Oh yeah
Jason: entrepreneurs from making syndicates. They’re like oh my god the syndicates are going to leak information, oh my god the syndicates don’t have the ability to follow on, oh my god these are, these are unknowns, you need professional investors, f* you man. It’s like these syndicates are willing to take the bet when the entrepreneurs need them. These VCs purposely tried to stop #Naval and #Ryan at #SeedInvest. They tried to stop #Funder’s Club. They tried to deride these company, these, these syndicate marketplaces. And you know what happened? It blew up in their faces. Because they don’t want to do the work to meet with these companies and write these hard checks. It’s hard to write the speculative checks. It’s easy to write the check in the 200K MRR, 150K MRR companies. It’s hard to write the 250 check. It’s hard to do what you do, #Nick. It’s hard to do what I do.
Nick: It seems like most of the entrepreneurs have figured that out that they were blowing smoke at this point. But couple years ago a lot of entrepreneurs were a little wary of the syndicates. Now they, they realize that it’s no different than anybody else investing.
Jason: Yeah the money is green and when you get a syndicate, you get 50 investors, 25, 75, sometimes 99 who you could email and say anybody knows somebody at #LinkedIn, anybody knows somebody at #GM? And you know what? Somebody in that group knows somebody at #GM or #LinkedIn and can get you an introduction. So it actually turns out the syndicates are probably better in aggregate than all but the top 20 VC firms. Because the, you know, the #Sequoias, the #Benchmarks, the #Social Capitals, the #Kleiner Perkins, you know, those top tier VC firms they do a great job, #DFJ. Those companies, those VCs go to work for you. But the other ones down from there, a lot of them are calling in rich, a lot of them are not putting a lot of effort into their portfolios.
Nick: #Jason, who amongst the angel community do you admire most?
Jason: #Cyan Bannister, #Chris Sacca, #Kevin Rose, #Tim Ferriss, #Ed Roman doing a great job, #Gil Penchina doing a great job, #Ryan at #SeedInvest, #Naval at #AngelList. These people just, #Esther Dyson the original, #Ron Conway one of the originals. #Steve Case one of the originals. #Ted Leonsis. I mean, there’s people who, you know, are part of the OG group. The original gangsters who just did a great job laying the ground work. And then you have this new cohort, you know, who are just doing the work. You know, you look at some of these folks, they just come to work everyday and they, they do what, you know, #O’Reilly said, which is just, you know, extract less than you put into the ecosystem. Right? Provide more value than you attract. And that’s the way to win. You know, #Tim O’Reilly really nailed it. And I think a lot of people, and #Naval said it to me at one point too from #AngelList. It’s like it’s a competition to see who can provide the most value. And
Nick: One of it is financial services, right?
Jason: Listen #Nick, there’s nobody who provides more value than me. I mean, I know that. I put much more, I have a platform, I have the podcast, I have the events, I have the newsletters, I have whatever my raw intelligence is. And, which may not be my biggest but, you know, there’s probably other people beat me on that one. But
Nick: That’s why we work hard, #Jason.
Jason: I put so much hustle into building this platform with my team, to really, really provide more value than anybody else. I know I’m sure there are some people who will add more value than me. #Gary V does a great job too. But I know I’m in the top 10. And I’m just trying to be number 1. And, and that’s really, you know, the motivation behind putting the book out is I’m, I’m definitely in the top 5 to 10 best angel investors of all time. I just want to be number one. So I got to catch up to #Ron Conway, I’ve got to catch up to #Chris Sacca and maybe #Esther Dyson, a couple of other people in front of me. But I got, you know, 5, 10 more years to do this. And then I’m going to retire. And I got a shot at being number one, right? Hopefully I have a better shot at being number one than #LeBron does. I don’t think he’s going to make it. I think he’s done.
Nick: The book is Angel
Jason: Please buy it.
Nick: The website is angelthebook.com. You can pre-order it. Comes out July 18th. #Jason, it’s a huge pleasure finally getting a chance to chat on the podcast.
Jason: Yeah
Nick: Love the book.
Jason: Come to the Angel Summit. You coming to the Angel Summit?
Nick: I will. Send me a link.
Jason: July 13th, 14th, 15th.
Nick: Oh gosh, it comes up that soon. Okay
Jason: Yeah. Got to come. It’s going to be amazing.
Nick: Alright #Jason, we’ll see you soon. Thanks so much!
Jason: Alright, great talking to you. Thanks for having me!
His thoughts on the original Sequoia scout program and the many similar programs today