205. Unicorn vs Pegasus, The Softbank Effect, & Impacts of a Recession on VC (Jason Calacanis)

Jason Calacanis joins Nick to discuss Unicorn vs Pegasus, The Softbank Effect, & Impacts of a Recession on VC. In this episode, we cover:

Last time we had you on the show was July 2017. What big things have happened over the past (almost) three years with yourself and Launch?
Last time you talked a bit about the “Goldilocks zone”… sort of that post-seed, pre-A round. Is that still the stage getting most focus from you?
I read an article where you suggested that SoftBank is changing the way Silicon Valley thinks about going public.
What are the biggest positive effects you’ve seen from the Vision Fund?
What about negatives and adverse effects?
The volume of startups seems to be ever increasing… Any advice for founders on how to stand out?
Lots of people talking about an upcoming recession in 2020. If a recession were to hit, what happens to venture? How do you think it could potentially impact startups as well as investors or VCs?
How does your investment strategy change in a recession?
Anything founders should should do to prepare for a correction?
As part of the fallout from WeWork… I’ve been hearing a lot of VCs talk about a shift from growth at all costs to a focus on profitability. Are these empty words or are you seeing a material change amongst VCs?
Want to get your input on investment and selection…
First off, in the book, if memory serves, you suggest angels should focus exclusively on SF-based startups and founders should relocate to SF. We recently committed to a Launch Accelerator company that is not in SF, they’re in Chicago. Have your thoughts changed on location?
What is a unique requirement or heuristic you use that you don’t think other investors consider?
What are your biggest red flags or dealbreakers?
What are some acceptable risks or issues vs. what’s not acceptable?
I notice you talking about Pegasus startups (vs. Unicorns). What the heck is a Pegasus?
What tips do you have for founders to reach the Unicorn as well as Pegasus status?
You also talk about the “Dark Pegasus” can you give us some insight into what that entails and how to avoid these startups as an investor?

Guest Links:

Key Takeaways:

Jason explains his funnel as “taking freestyle capital,” and combining it with their accelerator as well as their fund and syndicate. People thought this would be a conflict of interest however their founders see it as a feature.
Often VCs will forget that in this business, their customer is the founder. Jason shares the importance of staying humble, remembering to covet your customer and serve founders the best that you can.
Jason believes in order to be a good Angel investor you need to be in Silicon Valley. However, a great entrepreneur can come from anywhere and due to the difficulties of building a tech team, it’s best for founders to find a way to scale their companies outside of Silicon Valley.
When a company comes out of the LAUNCH Accelerator, Jason typically co leads, participates in or even leads their next funding round, which in his experience creates alignment rather than a conflict of interest.
Jason see his role as an investor to anoint and prepare companies for downstream investors by solving as many problems as early as possible and removing objections that later stage investors may uncover while doing their diligence.
At LAUNCH they’ve created an alumni network that includes a Slack channel for all of their companies that have graduated from the accelerator. This allows founders to ask tough questions and get real answers from other founders that have experienced the same problems.
A Pegasus is a company that skips a round of financing or two because they’ve been able to run off of profits and reinvest them, keeping the company very lean.
The founders of Pegasus companies are realizing how diluted rounds can be and maybe they shouldn’t give up as much equity. They make sacrifices early on, such as, having less runway and smaller salaries, leading to bigger wins and more control of their companies later in the game.
As a result of the WeWork fallout, it has created a ripple effect that has polluted the ecosystem. Now we see VCs shifting from a “growth at all costs” mindset to being more profit focused.
In Jason’s opinion, it’s great that Masayoshi Son is thinking globally and making big bets, however smaller, more staged bets would have a more positive impact.
Making big bets and giving a founder of a successful company massive rounds of funding at once, has the potential for positive impacts, Uber as an example. Although, this also has the potential to create distractions and hurt the company more than help it.