Interview with Jason Calacanis: Investor in Uber
Here are a few of my favorite lessons from his interview:
- Don’t be afraid to work with difficult founders. Jason learned from his time with Sequoia that many of their best investments were in opinionated founders that can be difficult to work with — people like Steve Jobs, Elon Musk or Peter Thiel.
- Invest your pro rata. As you get more information about the companies you’ve invested in, you should be looking for opportunities to invest more in the great ones. Go to 57:21 to hear why you should allocate your capital between exploratory and follow-on investments.
- A good relationship with the founder is the best protection for your investment. At 45:57, Jason describes how later-stage investors can hurt your returns. There are a few ways to protect yourself: (1) be aware of how this happens, (2) invest in people that you trust to protect you and (3) develop a reputation as an important source of new deals.
Share your favorite part of this interview by leaving a comment on Soundcloud.
Read on for a full transcript of the interview.
Tyler Willis: [0:10] Hi everybody. I’m Tyler Willis. I’m an entrepreneur and an angel investor, and this year I am the host of season one of “AngelList Radio.”
[0:16] In our first season, we are interviewing different investors and we’re learning how they invest and what’s made them successful.
[0:22] Today’s episode is with Jason Calacanis, and it’s a fantastic one. We go deep in the weeds on things like how to intelligently allocate your capital, how to level up as an investor if you’re just starting out, how to evaluate founders, and more. Jason’s experience investing in Uber and his early time at Sequia being in the EIR and part of the scouts program at Sequoia Capital.
[0:42] It’s a fantastic episode. It contains a lot of learnings that any inspiring angel investor should listen very closely to.
[0:49] But before we get started, I should note that Jason is not shy about beating his own drum. As a seed investor in billion dollar companies like Uber and Thumbtack, he’s earned some bragging rights.
[0:59] But statements that he makes on today’s show should be seen as his own and not endorsements that are being made by myself or by AngelList. Also, the episode was recorded a few months ago, so you have my apologies for the somewhat dated, though still excellent, “Star Wars” references.
[1:14] With that, I’m going to let Jason, who is the self-described best angel investor in the world — I did mention that he wasn’t shy about beating his own drum — and the me of four months ago take it from here. It’s a great episode I hope you enjoy it.
Tyler: [1:29] Jason is prolific, I think is the easiest way to describe it. He’s founded LAUNCH, Inside.com, “This Week In,” Mahalo, and Weblogs. We can get into some of the stories of all of those. He’s an investor in over 60 companies, including Uber.
[1:44] Most interestingly, from my perspective, he writes more frequently than almost anyone in tech about entrepreneurship and investing. I think he very generously shares the insights and thoughts of the moment. I think a lot of people, who are learning this game, learn it in no short part from reading the stuff that you produce.
[2:02] Thank you for the time and thank you for joining us.
Jason Calacanis: [2:05] Thanks for having me, Tyler. I think I’m at 150 investments now. I’ve got to update my bio. I’ve got a lot of babies.
Tyler: [2:11] 150 investments, how does that break down in terms of individual investments versus the incubator?
Jason: [2:18] I started my career doing angel investing as part of a program that Sequoia Capital came up with called The Scouts. In fact, I was the first Scout. In the partnership there, I said, “Hey.” I was an entrepreneur in residence there or an entrepreneur in action.
[2:37] They said, “Hey, we want to do some sort of seed investments and we have this idea for a Scouts Program. You put 50K, 25K, 100K into things and we’ll see what happens. We’ll split the carry with you.” They were my first LP and I did about 20 investments with them.
[2:50] Some of those turned out to be doozies. Uber, I was the, probably, third or fourth investor in the $3.5, or $4 million seed round. Thumbtack, I was the second or third investor.
[3:02] I did a bunch with them, and then I did a bunch on my own, then I created the Launch fund, and then I was one of the first AngelList syndicates, and then I created an incubator. Prolific, for sure. Right now, I have 14 companies in my incubator. Seven on Wednesday night, seven on Thursday nights, and I did two classes before that.
[3:25] I’ll probably do…and, I haven’t really talked too much publicly about this, but the incubator is where I have my most impact. I think I did maybe 30 or 40 investments last year, I’ll probably do 50, 60 investments this year, which puts me as the most prolific angel investor on the planet, today, as an individual.
[3:43] There could be groups of people doing more, but as an individual, that’s the most you can probably do, one a week, average. After that, it’s just…you’re spraying and praying. Super prolific, and I think the majority, in 2016, will come out of the incubator. Mostly because the companies I work with want to spend more time together.
[4:04] When I have them in the incubator, I can spend 50 hours with them in three months. What I find, is the biggest value angel investors have, is obviously not money, because we’re putting a de minimis amount of money in, typically $25k, $50k, $100k, whatever. It’s important, but let’s face it, it’s not like a $10 million round.
[4:23] What is important, is our time, our knowledge, our networks, and our ability to be there for the founder. I focus everything I do around spending time with founders, because my two rules of angel investing, which I just wrote about on my blog, calicanis.com., are, I don’t need to understand the idea.
[4:40] I don’t need to know if the idea’s going to win, I need to know if the person’s a winner.
Tyler: [4:43] You’re talking about the blog post you wrote in November, on what you learned from passing on Twitter and Zynga, which was, basically, learning to judge the entrepreneur, not the idea.
[4:55] I know you thought that Ev, at Twitter, and Mark, at Zynga, were really talented entrepreneurs, but you weren’t convinced about the idea, and, I think very bigly, admitted to being wrong there. You took that lesson and applied that to investing in things that weren’t obvious ideas when they started, like Thumbtack or Uber, but that had really killer founders.
[5:16] I know in your blog you called that “Jason’s law of angel investing.” You don’t need to know if the idea will succeed, just the person.
Jason: [5:23] I don’t try to understand the idea all that much. We’ll talk about it, but we’re talking about it through the lens of me trying to figure out if you’re a winner or not. That’s my gift in life. Everybody’s got their superpower, I think mine is to tell if people are going to win or not.
[5:39] I can just look at a person, and really quickly, after a couple of questions, even after not talking to them, I can tell by body language, if a person’s a winner or not. The second rule of angel investing I have is, you’re going to be as successful as the amount of time and effort you put into these startups, these founders companies.
[5:58] The amount of time I spend with founders correlates with my returns. That’s my belief. It’s really that simple.
Tyler: [6:04] How do you spend time with founders if you have 150 investments?
Jason: [6:08] That speaks to scaling. As an example, this morning I had a little jam session with 14 of the incubator companies, and 3 of my other founders. I had 15 companies in a room for three hours today. That’s pretty damn efficient. We went through different things that the companies are doing to be more efficient and to solve certain problems.
[6:29] I won’t go into the details, pretty proprietary, but I’ll spend…last night I had dinner with four portfolio companies at once, at dinner. I’m sorry, three. It was four of us. Then, they can share information. Then, I do my podcast, “This Week in Startups,” which we just had the 600th episode of.
[6:45] That’s twice a week, and we have one or two founders on every episode, so every year I do 104 episodes of that, which equals about 225 founders, or over 200 founders. Of those, at least 10 percent, 20 percent, come from my portfolio. I record those podcasts, and I get to spend time with people.
[7:05] It also turns out to be marketing, because 100,000 people listen to every episode. Then, I throw a conference, like LAUNCH Festival scale. At those events, probably 20 percent of the speakers are my portfolio companies, and then every portfolio company gets a table at the event. These are massive value adds that I can do, that nobody else can do, not Y Combinator, not even Sequoia.
[7:25] They have other things they do that are…obviously Sequoia is much more important than I am, much more powerful, and has more money to spend, but I can do things that no other angel can do. I have tried to build unfair competitive advantage for my companies, and for myself.
Tyler: [7:42] I want to take you…before you go, I am very interested in talking about some of the stuff you’re doing at scale now, but before we get into that, I want to take you back to the start of your career.
Jason: [7:50] As an angel.
Tyler: [7:52] No, the start of your career as an entrepreneur.
Jason: [7:53] As an entrepreneur.
Tyler: [7:54] Your first company was Weblogs, is that true?
Jason: [7:55] That was my second company. I had done “Silicon Alley Reporter.” I was a journalist, and I started a magazine in the 90s about the Internet in 1995. I did 10 years, almost 10 years, maybe 8, 9 years, as a journalist, doing that. I built up to 75 employees and about $12 million in revenue. I interviewed founders for a long time.
[8:16] What happens when you interview founders for a long time, is you start to understand when they’re full of shit, and you start to understand when they’re passionate. You can tell who’s a charlatan, and who’s destined for greatness. That’s when my signaling started, because as a journalist you’re just getting PR people, and spin, and all this kind of stuff.
[8:34] Your job is to unspin. It’s very similar to being an investor. That’s why Michael Moritz, from Sequoia, actually was a journalist, and became the best adventure capitalist of our time.
Tyler: [8:45] Sure, Esther Dyson, too.
Jason: [8:46] Esther Dyson, journalist, analyst, investor. The list goes on. Om Malik, MG Seigler, from TechCrunch. It’s a pretty big pattern, here. Journalist equals an inquisitive person, who can communicate well and interact with people. I do think you need to be able to ask people questions, and then listen to their answers.
[9:12] I practice a certain mindfulness, an intentionality, when I hear people’s answers, and I try to look through them, look inside them. Figure out why they’re answering the question the way they’re answering it, and how they’re perceiving why I asked the question. I’m wondering what they think my next question will be.
[9:30] I’m wondering what they think I’m thinking. This is all very meta and crazy, but I’m a high stakes poker player, and this is what you’re doing in poker, constantly. You’re trying to figure out the situation, with partial information. That’s what I do as an angel investor. I’m trying to figure out the situation, and try to win, with incomplete information.
Tyler: [9:49] Was this something that’s kind of an obsession, with going three or four layers deep in your mind? Is this something that you’ve always had as a personality trait, or is this something that you developed as a journalist?
Jason: [10:00] As a psychology major, I was very fascinated with behavior, motivation, and those kind of things. Then, as a journalist, for sure. Then, getting into mindfulness and meditation, and studying martial arts for my whole life. All of these things, being a long-distance runner for a period of time, being a high stakes poker player for a period of time.
[10:17] All of these things really require a level of concentration and considerateness, that allows you to be present in the moment, and think deeply, and read people. Read yourself, understanding your own psychology, too, like, “Why am I doing this?” Like, “Why am I doing this?” I’m one of the first investors you knew, but, “Why am I doing this?” [inaudible 10:42] with Thumbtack. I could retire, “Why am I doing this?” I know why I’m doing it.
Tyler: [10:42] Why?
Jason: [10:43] I’m doing it because I love it. I love to win and I love to see things launch. That’s why I call my company Launch. I love the act of creation. That’s why I’ve chosen to be an early-stage angel, not late-stage. I get offered to be at all the late-stage…not all of them, but a lot of the late-stage firms really wanted me to put Launch, and what I do under their umbrellas and join them and be a partner.
[11:03] It would have been better economics. It probably would have been an easier lifestyle, but at the end of the day, you have to do what you love. You have to be able to wake up in the morning and say, “I can’t wait to get to work and work on something.” I loved, this morning, just working with 15 companies on this very specific issue, this topic we’re discussing and how it impacts all their businesses.
[11:23] They left and were like, “This is the greatest two or three hours I’ve had in the last couple of months, working on this one topic. Last night, dinner was great.” You have to understand what motivates you, and what you enjoy, and that’s one of the things I look for in entrepreneurs.
[11:41] “Why are you doing this?” is always a great question for an angel to ask a founder, and then to listen to the answer intently and try to see if the answer they’re giving is actually authentic, and if they actually even know why they’re doing it. A lot of times, probably two out of three entrepreneurs I meet, they don’t actually know why they’re doing what they’re doing. They don’t have intentionality.
[12:00] They’re like, “I think this is an opportunity. This could make money. I think investors will like it. I think Pinterest is broken so I think there needs to be something better about this.” It’s not the right reason.
Tyler: [12:10] When do you know you’ve heard the right reason? What’s an example, maybe, of someone who answered that question exceptionally well?
Jason: [12:18] For the great entrepreneurs, there’s a certain inevitability to what they’re doing. You can start to feel it. The world should be different. This person sees the world as broken or needing to evolve in some way. They have the solution. They need to implement that solution. They just can’t sit there and watch the world continue to do whatever it is this way.
[12:49] I felt that very early on, obviously, from the Uber founders and Thumbtack. I felt that early on from Twitter and Zinga, which I passed on investing on. Those were $50 million mistakes each, easily. You really start to understand, when you’re talking to somebody, if they have this sense of purpose, a sense of mission, a deep, deep caring about the result of their work.
[13:16] For other people, it’s maybe not there. It’s not enough to just be super motivated. You also have to have the ability to execute. I’m looking for this level of motivation that is maniacal. A desire, a passion that’s maniacal in nature, that’s not healthy. It’s unhealthy. Then I also want to see someone who can execute. If you’re maniacal and you can’t execute, you’re just a crazy person.
[13:45] If you’re maniacal and you execute like a fiend and you’re just extremely good at what you’re doing, you’re Elon Musk or Steve Jobs. There’s a fine line. Without being a world class engineer, Elon would just be a crazy guy saying, “We should go to Mars.” It sounds crazy when he says, “We should go to Mars.”
[13:59] It sounds crazy, but because he’s so good at executing, the fact that he can make a rocket take off and land and be reusable and Tesla can drive itself, you build this credibility. It sounds crazy to go to Mars, but maybe he’s the guy to do it. The credibility is building up.
[14:17] Same thing with Uber. Sounds crazy that people will take a ride anywhere they want for six bucks. This is going to change transportation and it’s going to be in every city and you’re not going to have to worry about getting a cab ever. The idea of waiting for a cab is gone in our lifetime. It’s gone in three years. This idea of not being able to get somewhere. People forget how profound a change has occurred because of Uber.
[14:38] You wake up in the morning and, to get anywhere…75 percent of the population of the United States is serviced by Uber already. We’re talking about a five year story here. We’ll be at ’15, 99 percent, 98 percent, who knows? That’s just mind blowing that you can take out your phone, and within five minutes, be in a car and be going anywhere you want at a price that’s half or a third of whatever it used to be.
[15:05] Mind blowing.
Tyler: [15:07] Let’s talk about Uber a little bit. That’s your marquee investment at this point.
Jason: [15:12] It’s a little bit crazy. Now I’m known as the guy who invested in Uber. Everything else I’ve done in my life has been surpassed by that 15 minutes when I was smart enough to say, “Yes,” or not stupid enough to say, “No.”
Tyler: [15:25] That was part of your first group of investments.
Jason: [15:27] Probably my first five, yeah.
Tyler: [15:29] You’d started working with Sequoia as part of the Scouts program. Walk me through that meeting. You sat down. How did you get…
Jason: [15:36] I was at a bar. TK and I, Travis, were friends for a long time. I knew him when I was a journalist when he did Scour, I knew him when he did Red Swoosh. We’ve been friends for a long time. I was at a bar on the [inaudible 15:55] , some party some dude was having. We were walking out. He said, “Can I show you what we’re doing?” I said, “Sure.” I said, “Can I invest?” He said, “Sure.”
[15:59] He said, “It’s called Uber taxi.” I said, “Why don’t we just call it Uber?” He said, “Yeah, we’re doing that.” I said, “Oh. Can I get credit for that? I know you’re doing it anyway, but can you give me credit for that, so that I can be like Sean Parker when he said, ‘Drop the “the” from Facebook.’“ Travis was like, “Sure, you can have credit for that, Jason.” [laughs] Now I tell people that was my idea. It wasn’t.
Tyler: [16:20] Drop the taxi.
Jason: [16:21] Drop the taxi, because it’s not a taxi.
Tyler: [16:23] It’s worth reflecting on the fact that these big investments really often come from informal settings. You were sitting down with Travis at a bar and that gave you the chance to be a seed investor in Uber, which is the best investment you’ve made so far.
Jason: [16:42] It’s random moments like that. One of the things, as an angel investor, you have to get comfortable with is losing seven or eight or nine times out of ten, you’re going to lose your entire investment. This is a crazy pursuit. You have to deal with bad news constantly. The companies that are failing take 10 to 50 times more of your energy and emotion and time than the winners.
[17:12] If you are emotionally not resilient, it is not the job for you. Every day, there’s three or four phone calls from founders that come in, or emails us, that they’re running out of money, they’re fighting with their co-founder, they’re being sued, somebody copied their idea, nothing’s working, the company’s sideways, they got hacked. It is a shit show most days.
[17:39] You have to have a certain desire to deal with insurmountable odds. You’ve got to have a little Han Solo in you, not C-3PO.
Tyler: [17:49] I like that. That’s a timely reference, as well.
Jason: [17:52] There you go. Two weeks before “The Force Awakens.”
Tyler: [17:54] I want to highlight some things you said about the Uber meetings.
Jason: [17:57] It wasn’t a meeting. It was standing outside of the bar.
Tyler: [18:00] Right. You’re getting this opportunity because you knew Travis and you’d known him for many years.
Jason: [18:04] It was a 10 plus year relationship. It wasn’t some randomness.
Tyler: [18:09] Somebody who says, tomorrow, “I want to wake up and become an angel investor and invest in the next Uber,” is that a logical thing to think, if you don’t have that 10 year relationship that you’ve been building within the ecosystem of technology?
Jason: [18:27] Every 10 years, there’s some company that breaks out like Uber or Facebook. The chances are you’re never going to hit one of those. The fact that I hit one, you can’t really give me too much credit for. I obviously did none of the work. People get a little obsessive with the people investing in these companies, giving them a ton of credit for what they invested in. It’s a lot of randomness.
[18:50] There are ways you can put yourself into the top of the funnel when people are looking for funding. That’s really what you’re trying to do. When you start, you’re going to see the deal flow that’s been picked over.
[19:04] Let’s say you’re a dentist, and you’ve got, whatever, $10 million in your bank account. You say, “I want to put $1 million towards angel investing, because I’m bored and being a dentist sucks.” Perfectly reasonable thing to do. Why not put 10 percent of your net worth, if you want to, into something fun and interesting, intellectually stimulating?
[19:24] You decide you’re going to go do this. The first year, people don’t know you. They don’t know what value you provide. You’re going to YC Demo Day. You have no idea that Y Combinator has rigged the game and everybody who is a great company is already funded, because they let all their friends cherry pick the best deals. You’re seeing the bottom 20 percent of the class that’s now 120 people.
[19:46] What you don’t understand is you’re the sucker at the table. If you’re at the poker table and you can’t tell who you’re better than and who the fish is, you’re the fish. That’s, inevitably, how everybody starts. What you have to do is try to slowly move yourself up. You make investments slowly. You do one a quarter. You do $5k or $3k in an investment on AngelList for a year. You join five syndicates, you do $3k each time.
[20:17] You pick 10 companies. Now you’ve only put $30k to work, but you’ve got 10 companies. You know what? It’s the same as putting $100k into each. It could be $3 million or it could be $30k. That’s the magic of AngelList, or other platforms that allow you to do micro-investments. Then you ask to meet with the founder and you talk to them.
[20:32] Guess what? You just took yourself from being the sucker at the table to aligning yourself with one of the best investors at the table, one of the best poker players, and you’re playing their cards. If you’re investing in what I’m investing in, you’re drafting off of everything I’ve done in my career.
[20:47] Then you get to go meet with those companies, and you have access to them because you’re an investor. They will meet with you. You meet with them and say, “How’s it going?” You listen and you learn.
Tyler: [20:55] Let’s pause a second. That’s important. You’re basically giving people a playbook for how they can level up as an investor.
Jason: [21:01] There’s this huge hack that’s occurred because of what Naval built and the team over at AngelList, and other folks who are doing crowdfunding, that you can skip the line and get to the best deals. Eventually, you’re going to want to be able to originate your own deals. Having a brand and having something of value to offer is what you need to curate in yourself.
[21:25] If you’re a dentist, cleaning people’s teeth is not going to cut the mustard. Over time, you might build a network. You might know 10 other dentists who also want to put $25k into crazy ideas. You might start your own syndicate. You just might have met, in the course of those first 30, $3k investments of $100k, and you still have $900k in dry power in this example.
[21:47] You did 33 investments for $3k each, you’ve still got the 90 percent not in play. You’ve still got the 33 investments. You go meet with those people, you figure out which 10 are the best, and you give them $75k each. Now, guess what? Your chances of winning have gone through the roof because you’re doing the work. You can’t expect to not do the work and get the outcome.
[22:09] This idea that you can randomly place money and win the World Series of Poker. Yes, it does happen. Some random people have won the World Series of Poker. It’s a game of skill, even though there’s a lot of luck involved in it. Angel investing, very similar to poker, where you’re playing against other people, you can increase your chances.
[22:27] If I’m a world-class poker player and you’re a great poker player, I might have a two percent advantage over you in every hand, or one percent, 51 to 49. Doesn’t seem like a big advantage, but if we’re playing for five hours and we’re playing 20 hands an hour, we get into three or four hands an hour, we’re talking about 30 hands of poker. That advantage is going to become more pronounced, isn’t it?
Tyler: [22:46] I want to push on something you said. I imagine that if, call it 1,000 dentists across America back your syndicate tomorrow, and every one of them emails you and says, “Hey, I want to meet with whatever the last company you invested in,” that would be something you would not be happy about.
Jason: [23:02] No. I’m fine with it.
Tyler: [23:03] You’re fine with that?
Jason: [23:04] Yeah, because here’s the thing. There’s a natural cap. There’s only 99 people who can be in any syndicate. What I always tell people who are raising money is treat every investor like they’re going to be your next lead. Here’s the thing, if somebody can write a $3k check, they can write a $30k check. If somebody can write a $30k check, they can probably write a $300,000 check.
[23:23] This is probably true in 95 percent of the cases. They’re all accredited investors. They have to have some amount of millions, some hundreds of thousands a year. If you cherish all of them and you treat them all the same, if you’re a startup and you have 75 people in the syndicate, I recommend asking all of them to go get coffee.
[23:42] If you do two coffees a day, which you’re doing anyway, you’re going to get that done in a month or two. You know what? You’re going to be running your company for five years. You get those coffees done, this could be magical for you. You could wind up finding in there the dentist, or the person who inherited a bunch of money, or who’s a real estate person who’s now dabbling in angel investing. They might lead the next round for $250k.
[24:03] Your best investor is sometimes your existing investor. This is what’s so magical to me about the syndicate and why sophisticated founders are starting to understand the value of it. In my syndicate is Brad Fels, Sian Bannister, other famous people. Those people do a large percentage of my deals for a small amount of money. Now they know you and they can write bigger checks.
[24:30] I want those people to meet with them. I’m surprised they don’t that often. Probably out of 10 companies, maybe half of them take the time to reach out to the individual syndicate members. Of the syndicate members, maybe 10 percent reach out to the founders. Should be 100 percent, in my mind.
Tyler: [24:48] If you have the dentist that wants to get into this, that wants to go from the fish at the table to the player, your recommendation for them would be to be part of that 10 percent, be proactive, start getting involved?
Jason: [24:58] For sure.
Tyler: [25:00] When they get to that stage and they start getting involved, I assume you want them to add value or show intelligence or do something that sets them apart from the crowd. What would be your recommendation for that person?
Jason: [25:11] Generally being a set of empathetic ears. Some people don’t understand how lonely it is to be a founder. I’ve spent the majority of my time as a founder. It’s pretty lonely. Having somebody to shoot the shit with and say, “You know what? Things are really fucked up right now. It’s scary for me. I don’t know if we’re going to make it.”
[25:33] Having the investor go, “Yeah, I know that. When I invested in you, I know that the odds are against you, but I still believe in you. Tell me, what are the things that are top of mind that are causing you the most anxiety?” Let the person talk. Look them in the eyes and listen. That act alone has been proven in psychology many times over to relieve people’s stress, to make people feel better.
[25:59] The whole premise of talk therapy or L Ron Hubbard’s adaptation of Freud’s talk therapy, auditing, is all the same core concept in psychology, which is, if people feel listened to by another human being, it will make them feel better.
[26:15] The more they feel listened to about the things that cause them the most anxiety, they become desensitized to it and maybe they can deal with it, whether it’s PTSD from going to war or being involved in a terrorist attack or something, God forbid, or going to work every day and having it be horrible, knowing you’re going to fail or that the chances are you’re going to fail.
[26:35] You can accomplish it by being a nice human being and buying them a cup of coffee or buying them a nice dinner and saying, “I believe in you.” Just that. The reason I’m so successful at this is, is because I am so empathetic with the founders. I’ve been through it. I know how lonely it is. I make all of them make me a promise when I invest.
[26:53] I say to them, “Two things I’m really looking for. One, when the shit hits the fan, and it will, and you can’t talk to your board if you have a board, and you can’t talk to your employees, because one group would fire you and the other group would quit, I want you to call me. I don’t care what time it is. Just text me, I’ll step out and I’ll give you a call.
[27:11] “When it’s the worst, when the car is totally flipped and you’re on the side of the road, that’s when I want the call. Call me first. I’m a specialist. I can help in that. I’m a fixer. Second, when you fail, because you’re going to fail at some point in your life, and this thing goes belly up, when you have your next idea, I want to be the first call.”
[27:29] Watching Travis have two companies, the first failed. The second did OK, solid, he made a little bit of money. I was in pole position for the third company he did. That’s what I’ve done with all of my friends. I have Josh Williams from Gowalla. I invested in that company. I invested in his next company, Last Guide. It’s been pushed and pushed in terms of return.
[27:49] I’ve lost a little bit of money, maybe, on the two companies. Josh Williams is supremely talented. I told him that. I said, “When you get your third company, whether it’s a year from now or ten, I just want to be the first phone call.”
Tyler: [27:59] You keep betting on founders you know.
Jason: [28:02] I’m playing the long game. If three out of four startups fail, if somebody who’s really good at it tries four times, they’re going to get better and better and better, they’re going to hit. That’s my belief. Most people get up from the table and have a loser’s mentality to the gambling that we do. There’s a lot of people who are poker players who lose 50 grand in a night and they quit poker.
[28:24] If you lose 50 grand, you have to come back the next night and be an animal and win it back. You’ve got to be able to ride out the losing sessions to get to the winning sessions and go on your streak again. Entrepreneurship is like that a lot.
Tyler: [28:37] Who was the empathetic ear early in your career? Who were the people who were really impactful early on for you?
Jason: [28:45] I was always lucky in that I had people who were very kind to me when I was broke. Esther Dyson and Tim O’Reilly would let me into their conferences. John Brockman, who is now my book agent, would allow me to come to his elite dinners for Edge.org. The Billionaires’ Dinner, in fact, he let me come to. Five percent of the people who go to TED are able to go this Billionaires’ Dinner that he throws.
[29:11] You go in there and it’s Larry Page and Jeff Bezos and Bill Gates and me. Zuckerberg, when he had four campuses. It’s a really special dinner. People call it the Billionaires’ Dinner, but it’s basically Brockman’s clients and people who like science. I was always able to have those people be very nice to me and allow me to participate in stuff. I always feel very good about that.
[29:32] Sequoia has been incredibly, relentlessly supportive of me, even though Mahala, which is now inside, hasn’t done well. It did really well for a while, we were the 104th largest site in the United States and were profitable, on a $10 million run rate with Google Ad Sense alone, before Google killed us. Even after it got killed and different bad things have happened, they’ve been relentlessly supportive.
[29:57] We hit the Uber investment and now I’m relentlessly supportive of them. I got lucky there, too, to have Sequoia Capital in my corner. The thing about the great entrepreneurs, angel investors, or anybody who does well is they’re going to be rough around the edges.
[30:18] One of the things that people make a mistake is they might write off founders who have an edge, who maybe have sharp elbows, who argue about things that seemingly don’t matter, who can be abrasive or obnoxious or arrogant or whatever word you want to use. Difficult is probably the best overarching word. It’s the difficult people who take on difficult challenges in the world and actually make progress.
[30:48] You don’t want the appeasing people who are super nice and cave on every point. Sometimes you need people who can mix it up. That was always me. That’s what I look for in founders. I like founders who can mix it up a little bit. At least I know that if a fight breaks out, they have me and I have them.
[31:10] You ever have a guy in your crew, a bar fight breaks out and they run? You’re like, “I can’t have this guy on my crew anymore. If the shit goes down, this person does not have my back.” Then you have other guys, you’re like, “Listen, if shit goes down, at least I know we’re going to get our ass kicked together. We’re going to go down fighting. We’ll go down swinging.”
[31:26] I’m looking for that warrior mentality. I see that a lot in the women I invest in, as well. It’s a great moment in time here. I’m using this warrior metaphor. That doesn’t just mean men. When I say “Samurai,” I don’t limit that by gender. I have some women in my portfolio who are just difficult and hard to be in business with at times. They’re hard to work for at times. They’re certainly hard to compete against, at times. They fight. It’s a really great moment in time, because anybody can get into this entrepreneur thing.
[32:10] That’s special. 20 years ago, this was not fully democratized. You needed a couple million bucks to get going. You needed to have gone to Stanford or Harvard business school to be a VC, and now look. A kid from Brooklyn, who’s dad was a bartender, mom was a nurse, is now the most sought after angel investor on the planet.
[32:30] I’m number one. I’m not going to pretend I’m not. Chris Sacca and Marc Andreessen don’t angel invest anymore. Ron Conway is very busy, I know he’s running for political office or whatever. The three or four people in front of me stopped angel investing. Guess what? I’m number one now. Until you guys get back on the court and start angel investing, I’m number one, and I’m going to remain number one for a long time.
Tyler: [32:51] I get the sense from that, it’s fairly obvious that you like to win.
Jason: [32:55] Yeah, I am into the winning. Who wants to lose? Losing sucks. I want to win. You know what? That’s why I attract a certain type of founder. I attract the founders who understand that this is a zero sum game. It’s a war, it’s a fight, it’s a battle, it’s a struggle, and it sucks more days than it’s great.
[33:18] If you want to believe it’s not a zero-sum game, and it’s kumbaya, we can all win together, and big blue ocean, you know what? You’re fucking deluding yourself. It’s just not the reality of the world. The reality is the people with the most skills, who work the hardest, win.
[33:32] If you one to believe some other narrative, that somebody’s holding you back, the patriarchy, this archy or that archy, sexism, or ageism, or all this other stuff is holding you back, that’s fine.
[33:42] There’s tons of racists, there’s tons of ageists, there’s tons of assholes in the world, but the truth is, as powerful and sinister as those forces that are against people are, the power of entrepreneurship, and the ability to acquire skills quickly in the world today is unprecedented.
[34:02] You can go and teach yourself any of these tools. Growth hacking, marketing, developer, product designer. All this shit is available online, for free. Then you can just get a couple of angel investors together, or just save your money. It costs 10k, 25k to make a prototype today. 5k.
[34:20] You can hire somebody in India or Sao Paolo who is as good as designer is anybody here in San Francisco, and they work for 40 bucks an hour instead of 400. You can put together a mockup that is so beautiful, that when you send it to me, or some other angel investor, or Ciena, or Gil Penchina, or any of these people, they look at it and go, “That has potential. Let’s get going. Let’s get you in an incubator, and let’s start winning.”
[34:43] It is an amazing moment in time and history, and people don’t. There’s a group of people who understand that the rules have changed, and the playing field has been opened more than it’s ever been.
[34:54] I would never have been allowed into the venture capital community 20 years ago. In fact, they would actively work to keep somebody like me out. They don’t want a blunt, rabble-rousing, sharp elbowed kid from Brooklyn inside the halls of a lot of these VC firms.
[35:08] They wanted their fraternity mates from Harvard business school or Stanford in there. You know what? It’s all been democratized now. I’ve got my own fund, I’ve got one the largest and most active angel syndicates. I can write 500k checks, I can write a million dollar check, 250k checks.
[35:22] I’ve got my own incubator, I’m originating the deals. The whole shift of power is moved. It’s been democratized. It’s insane how amazingly open the system is now. People are looking at it going, “I’m not winning. Why am I not as Mark Zuckerberg yet?” It’s like, “Let’s go look at your skills.” That’s what I always tell people. You’re not where you want to be? Sure, let’s talk about your skills.
Tyler: [35:49] How do people take advantage of the opening? If somebody wants to become the number one angel investor, and try to beat you at your own game, or the next Mark Zuckerberg.
Jason: [35:58] Get on the court. Let’s go, pick up a basketball.
Tyler: [36:01] What does that actually look like? Step by step.
Jason: [36:05] Founders are what founders do. Angels do what they do. Angels write checks. Until you start writing checks, you’re not an angel. When you start writing checks, even small ones, a $1,000 check is the same as $10,000, is the same as $100,000.
[36:20] You write 10 $1,000 checks, you’re in the game, and your learning. You write no checks, you’re not in the game, you’re not learning. If you’re a founder, to start building a product, and you release it and you get feedback, even if it sucks. Even if you lose those $10,000 on the side, you’re learning.
[36:36] You’re either creating or waiting, that’s it. I can’t tell you the number of people I see who are just waiting for somebody to tell him, “It’s OK to start.” What the fuck are you waiting for? The system’s open. People have a…the biggest problem in today’s world, everybody’s so paralyzed. They’re paralyzed.
[36:56] If you’re rich, and you’re flying private, or you’re flying first class, and you’re spending $10,000 on first-class tickets, or something like that, and you’re staying in hotel rooms for $1,500 a night or something, write 10 $1,000 checks, do a “Staycation” and go to Santa Barbara for once, or something. Get in the game. What are you waiting for?
[37:19] If you lose it, you’ll learn something, and it’s the same thing with being an entrepreneur. Listen, your first product is going to suck, but you’ll learn something, and then you iterate. It really is about relentlessness. When I’m picking the people to invest in, I’m looking for people who are relentless and resourceful. What does that mean?
[37:36] I want to know that you’re not going to give up when you hit a hurdle, because business is about doing 10 tests, and nine of them, you get your ass kicked and you fail the test, but the one, all of a sudden you find the light switch in the dark room.
[37:49] That’s really what it’s about. I can’t tell you how many companies I’ve invested in, and they’re like, “It’s dark, it’s dark, it’s dark.” They’re feeling around in this dark room, and all of the sudden, somebody’s hand hits the wall, and it’s the light switch, and they flick it on. You ever have that happen?
Tyler: [38:04] Sure.
Jason: [38:05] That’s entrepreneurship. You’re like, “Oh my God, it’s never going to not be dark.” Then you put the light on and you’re like, “Oh, we’re here.” It just happens that quickly. The person who gives up is the person who loses.
Tyler: [38:19] There’s a lot of long-term thinking in your strategy, from what I’m hearing. There’s a lot of, “I want this.”
Jason: [38:24] I have a plan.
Tyler: [38:25] You took 10 or 15 years to get to the company’s your building now, the people you’re investing in. You’re looking for their fourth company, not necessarily their first.
Jason: [38:34] Yeah, I’ve got a plan.
Tyler: [38:35] Why the emphasis on long-term thinking? What is your plan?
Jason: [38:39] I have a plan. Any time you’re going to do something, you should have a plan, and my plan was to be the number one angel investor in the world, and then to be the number one angel investor of all time. Right now, the way to judge that is to look at what founders say.
[38:54] If you want to optimize for what founders say, you need to be relentlessly supportive, and probably the most value to them. I just made a list of all the things that I could do that would be valuable to founders, and I started doing them. Then I asked founders, which one of those things was valuable? Then I did more of that.
Tyler: [39:10] When did you make this list?
Jason: [39:11] Four or five years ago, when I was starting to angel investor. I said to myself, “Listen, I know everybody. I know a lot of people from being a journalist, but I’m not making any fucking money.” I’m broke. I had sold my last company for three million dollars, so I shouldn’t say that, but I was relatively broke compared to my friends who were super, super affluent.
[39:29] I was saying to myself, “I need to hit a home run.” How do you hit a home run in this town? Either you have the 1 in 1,000 chance, 1 in 500 chance of building that great company. It’s hard. Even if it’s 1 in 20, it’s hard. You have to start 20 companies to hit it. Let’s say it’s 1 in 20.
[39:49] Or, you could invest in 60 and have three win. It’s just clear to me at the age of 40, when I started angel investing, this would be a great strategy for me. I actually had enough money to live off of. It was a privileged position after 25 years of being an entrepreneur.
[40:05] I said, “Listen, let me start making some bets here, and let’s try to, let me see if I can hit something.” What are my odds of hitting something? I started thinking that through. Then, obviously when you, it was very surreal when I had Travis on “This Week in Startups,” and I said, “This is month 18 of Uber. I think this could be a billion dollar business.”
[40:30] Because he was going to move to a second city. He was going to go to Chicago, or New York, after San Francisco. He goes, “You think this could be a billion dollar company?” It’s on the podcast, you can look it up, Travis Kalanick.
[40:43] He goes, “I think this could be a billion dollar company, too.” I think that’s a pretty funny thing to watch now, given what’s happened, but I said to myself, “I have to be the most value-added.” I have to be the most value added. Forget about returns, put that aside for a second. I just have to be super valuable to the founders.
[41:00] Now, I look at every single investment idea, and I say, “Am I doing the most I can for that person? Am I helping them the most? Would that person tell another founder that I am the most helpful angel in their portfolio?” I’m there most helpful investor, and I tell people, “My goal is to be your most helpful investor. Whether I own 10 or 20 bips in your company, or 10 percent of your company.”
[41:22] Now, I start to own 10, 20 percent of a company. Back then, I owned 25 bips in a company, or 10 bips in a company, 50 bips in a company. I have a bigger position, now, in a lot of these companies, and more responsibility, but I say the same thing to everybody.
[41:36] “I want to be your best investor. Let me know. Let me know. Am I the best investor? How can I help more?” I think, probably if you went through 100 of the people I’ve invested in, probably half of them would say I’m their number one, and the other half would say I’m their number two or number three investor.
[41:53] That’s really what you’re going for, if you really want to be successful with this. How helpful can you be?
Tyler: [41:57] Why is focusing on being helpful better than focusing on financial performance?
Jason: [42:01] Because financial performance will come. It’s a portfolio strategy. If 7 out of 10 fail, 8 out of 10 fail, what you’re trying to do is figure out what those 2 out of 3. Let’s say 2 or 3 out of 10 don’t fail. You want to quickly figure out who those 2 out of 3 are, and then take your 25k investment and make a 100k investment in those 3.
[42:20] Then you figure out, let’s say you’ve done 100, and you have 4 of them that are really breaking out, you want to figure out which those 4 are, so you can put 250k into those. On a name basis, 7 out of 10 of your investments fail. Say you put 10k into each, that’s 70k gone.
[42:35] Then the last 3, let’s say you put 100k in each. Now, you have 300 active, and you put 100 into the first 10. 7 failed, so you have 330k of your 400k is still in play. You see what I did there? You do 10k in 10, 70 goes away, 30,000 is still active.
[42:55] You put 100k in each, now you’ve got 330k still active. Then, 2 of those sell off and you get your money back, fine, you’ve got 110 back. Great, you have 220 back of your 400 committed. Then, you put half a million into that one this really breaking out, and that half a million goes 20, 30, 50x.
[43:13] Holy shit, now you’ve got a $10 million or $25 million return on your hand, and you’ve played the game properly. You’re doubling down, and then you’re going all-in.
Tyler: [43:20] Let’s pause there for a second. I want to reflect on that, that’s another example of you sharing your playbook, and walking people through the specifics of how to invest across different rounds, and how to de-risk their investment, or at least the approach you take to do that. That’s fantastic.
Jason: [43:36] Yeah, just like poker. When you get pocket aces, or ace, king, or 10, jack suit, or whatever it is, you make an exploratory bet. When the flop comes and your 10, jack is met with ace, king, queen, you’re like, “Oh my God, these donkeys probably have ace, queen and ace, king. They’re going to be batting like maniacs, and I have the stone cold nuts right now.”
[43:54] Fantastic. Let those monkeys bet, and then I’ll just shove it all in. Listen, you can get your heart broken. The board can pair or something, but I’ll stop the metaphor there, because people are starting to get lost in it, but the fact is, you have to look at the name basis, which is on a name basis, your percentage failure, and on a dollar basis, your percentage failure.
Tyler: [44:14] This is why I think a lot of people say, “Pro rata is where the money is made.”
Jason: [44:19] For sure. I wouldn’t do a deal without pro rata, now. Not only do I now get pro rata, I get extra rights. I want to talk about that right now, but when you start to become one of the top angels, you can start to extract additional value.
Tyler: [44:30] Talk about that. What are some of the extra rights?
Jason: [44:32] You’ll find out when you get there. You’ll find out when you get there, guys. I can extract extra rights. I can have better rights than the typical investor. I can get more for my dollar, I can have more rights down the road, I could have options of board seats, or board observer seats, more information than you, or other people because people perceive me as somebody of value.
[44:53] It’s not predatory stuff. It’s more like, I can set myself up for future success, because I’ve earned it. I couldn’t do that maybe 10 years ago, or five years ago, but now I can because people know, “Oh, if Jason invests, it’s a pretty good lead indicator.”
[45:08] Right now, as I told one VC who was busting my chops, I said to him, a very famous VC, who I sent somebody to have a meeting with, and he didn’t meet with them. I said, “You know what? If you didn’t meet with them when I send them, I’m not sending them anymore, but don’t worry, I might not hit my fifth Unicorn.” Which was my way of saying, “Hey, stupid.”
Tyler: [45:33] Take a meeting.
Jason: [45:33] Do you really want to risk that? Do you think there’s any chance I don’t hit another unicorn? If I’m investing in 50 companies a year, and I made it public that I want to be the greatest angel investor of all time, am I really the guy you want to put an associate on the person I sent to them?
[45:49] I don’t send people to him anymore. There’s a little bit of sharp elbows in this business, that’s part of the fun of it.
Tyler: [45:57] There’s this kind of “Co-opetition,” right? There’s a little bit of, “Hey, we’re all friends sitting around the table.”
Jason: [46:03] No, that’s bullshit.
Tyler: [46:04] At the same time, there is a ton of sharp elbows going on behind the scenes.
Jason: [46:06] It’s complete bullshit. This industry is super hypocritical. Being from Brooklyn, I can look at it and be like, “Wow, this would not fly where I’m from.” People will say one thing to you, and do something behind your back. With me, if I’m going to stab you, it’s not going to be in the back. It’s going to be in your heart, and you’re going to see it coming.
[46:22] I’m not going to backstab anybody. If we’re going to go to work, it’s going to be straight up, face-to-face. A lot of people here will try to screw you on the back end. I’ve had it happen, right now, three times. Three times, in my entire investing career, I’ve had people hit me with an elbow.
Tyler: [46:37] What, try to squash you down, or…?
Jason: [46:38] One time, I was the first investor in a company, and they were very involved with my conferences and everything. Then they told the founder of the company, this one VC firm told the founder that they had failed, and that they needed to do an inside round with that VC, and that if they went to any other VCs, those VCs would laugh at them and never invest in them again, because the performance was so bad.
[47:02] I said to the founder, I was like, “Do you think if you went to a VC, and it wasn’t working now, but in 12 months it was working gangbusters, they would not invest?” They’re like, “Well, they kind of said that that would be what happened, but now that you say it, it doesn’t make sense to me.”
[47:18] I’m like, “Well, why did they tell you that?” They said, “Well, I kind of felt bullied by them to take the round.” I was like, “Well, why didn’t you call me?” They were like, “They told me the permits were so bad, to not tell anybody, and we would just get this done quickly.”
[47:31] Then I called the VC and I was like, “What the fuck? I would have participated in this round. What’s going on?” They’re like, “We’ll make it up for you in the next deal.” I said, “No, open up the round again, I want to invest in the same terms as you.” And he wouldn’t do it.
[47:43] I said, “You know what? I will never do business with you again. I will never send you another company, and if any founder or other investor asks me what I think of you, I will tell that story.” He said, “You can do that.” I said, “I am doing it. I’m doing it right now.”
[48:00] You know what? This was two years ago. I’ve never done a deal with that person. I never will do a deal with that person, until that person makes it right. In terms of that company, I told the founder. I was like, “Listen, I’m still in your corner, but it’s hard for me to be enthusiastic about this company. Why don’t you buy my shares back, and you can take me off the cap table? You don’t need to have me involved anymore.”
[48:21] Here’s the thing. Why should I be involved, if I’m not respected? Look, I’m passionate about this. I want to help, and then you do a covert round? That’s nasty, in my mind. When that happened, I was like, “God.” Then I had it happen again, where I had some rights, and then a VC was like, “We’re going to wipe out your rights when we do this next round, just wanted to let you know, no hard feelings.”
[48:47] I was like, “What?” They’re like, “Yeah, we can do that, because otherwise we’re not going to do the round. You don’t really have much of a choice, and you have to suck it up.”
[48:56] I said, “OK, I will suck it up. I’m not going to block the founder from doing this next round with you. I will never send you a deal. You will never speak at any of my conferences. You’ll never come at this weekend’s startups, and if anybody asked me about doing business with you, I will tell the story.”
[49:14] The person was like, “That’s fine. That’s your right.” I was like, “OK.” I hung up the phone. Twenty four hours later, I got an email. “I’ve rethought our conversation, Jason, and I would like to extend you, to extend your rights. I think I understand your position, but here’s the thing.
[49:28] The big VCs, they have big stacks of chips. If they are going to make the next bet, and it’s much bigger than yours, they can do whatever they want. You have to tell the founders when you’re investing, “Hey, be careful. This was what could happen.”
[49:43] Later, the VCs will ask you to screw your previous investors, and the next investors will ask you to screw the previous investors. You have to have integrity, as a founder, to not screw the people who supported you early. These founders, some of them are first-time founders.
[49:57] They don’t know that they can stand up to them, and that if they do stand up to them, these VCs who are trying to pull this bullshit will fold.
Tyler: [50:04] That’s true. Entrepreneurs don’t always know the power they have. They feel like VCs hold most of the power.
Jason: [50:10] They’ll fold, because they realize that the world doesn’t need them anymore. The world doesn’t need half of the VCs that are out there. Two-thirds of them are not good at their jobs, based on the returns. The third that are great, they don’t pull this bullshit. The two-thirds that are not good are the ones who are petty, and not good at their jobs, so they pull this kind of nonsense, and they try to screw other people.
[50:33] The founders can stand up to them, but as a new angel investor, you’re going to have to build up a little reserve here, and you start to have the high ground. I have the high ground now, because I have a media platform that gives me power. It’s kind of hard to fuck with me.
[50:49] You can, but there will be at least a ramification to it, which is that I can say, “I’m not going to do business with you again.” You know what? Everyone changes their tune. Almost universally, people change their tune. Even the one who didn’t change their tune was like, “I’ll make it up to you. We really respect you.”
[51:02] I was like, “If you respect me, why are you trying to screw me?” Once you stand up for yourself, and then people know you’re not going to be pushed around, then things change. That’s changing. It used to be that angels never got pro rata, and then I came out publicly, a couple years ago and said, “If you don’t give me pro rata, you don’t respect me, I’m out. I’m not going to be in your company, I’m not investing.”
[51:24] Then I told a couple of other angels, “Take the same position.” You know what? Because four or five of us have taken the same position, no pro rata, no early-stage investing, you need to protect us so that we can invest in the next round of startups. Why would you do this to us? Now it’s become a movement.
Tyler: [51:40] You’re good at that. That’s not a skill that all investors have, but you’re good at cutting through the bullshit, for lack of a better word, and trying to protect your place in the investment, your place in the chain.
Jason: [51:54] That’s the thing about this industry. I have to say, this industry, a lot of times, there are people in this industry who, I don’t think they have the morality, or ethics, or north star, or teamwork approach that they should have. Personally, that’s really why I love the angel investing space, is because in the angel investing space, it is by default collaborative.
[52:16] None of us can get these companies over the finish line. Not Gil, not me, not Ciena, none of us. We need to work together, because we don’t have the chip stacks to do it, and we’re better when we’re working on it together. With the VCs, they have too many chips, and they actually need to get other people out for them to win.
[52:34] That’s what they perceive, and they just need to maximize their percentage ownership, and it creates this very weird moment in time where people are willing to backstab each other. Then they go to these parties, it’s really disgusting to me, to be honest.
[52:46] They act like they don’t screw each other over, that it’s all cool. It’s not how I was raised. It’s not in my DNA to sit there and screw other people, and then go see them and be cordial with them.
Tyler: [52:57] You are a bit of a street fighter. You’re at least willing to stand up for what you think is right.
Jason: [53:03] I’ll stand up for what I think is right. I’ll have the conversation with anybody candidly, and I’ll fight that way for founders.
[53:10] What founders know is that when stuff hits the fan…I’ve had this happen a couple of times in the last year where founders were out of money, the investors in the current company wouldn’t step up, and I’m like, “I’ll step up a little bit. Let’s get these other guys to step up.” The other guys step and they wouldn’t, and I said, “OK.”
[53:23] I emailed everybody and said, “If you are all not willing to step up and I am, we’re going to recapitalize the company, and some other group of people will take advantage of this, and you guys will have a small amount of money, but why are you guys not standing up?
[53:33] “I know you all have the money. If you don’t believe in the company, then we should shut it down or sell it, but what is this weird position where you won’t continue to support the company when you have the chips to do so?”
[53:44] You know what? I’ve told a couple of founders, “You have to go to your existing investor base and say, ‘I need everybody to do at least 50 percent of their initial investment in this round,’ or, ‘I need 25 percent from you in this round so I can go to the next group of investor and say, “Seven out of seven of my angels are in.”’“
[54:01] Even if we’re only in for $10K each, or $5K each, man, it makes it so much easier for the founder to go into that next room and say, “100 percent of my existing investors are in.” It’s huge.
Tyler: [54:12] Does an angel investor have to be a street fighter? Do they have to be able to have sharp elbows in these deals?
Jason: [54:19] I don’t think you need to have the sharp elbows. I do think it will come up at some point that somebody will try to jump you. Somebody will try to stab you in the back. Somebody will try to…
[54:28] You know what? The crazy thing about it is, in a lot of times when this happens, it’s inconsequential, like the company’s not even doing that well, like you don’t even have this nonsense. It’s like, “OK.” It’s weird, but I do think you need to have your wits about you and you have to protect yourself.
[54:50] You can actually run these tests with the founder. “Hey, I need to have pro rata. I know I’m a small investor, but I really need to have pro rata because my visa says I have to double down on my winners.”
[55:00] If they say to you, “Yeah, I can’t do it,” then you have to think to yourself, “Well maybe they don’t appreciate you as an angel, and you’re not providing enough value, or maybe this isn’t the deal for you. Move on to the next one,” because if you can’t double down on your winners, you’re just losing half of your returns probably. Literally, you might have half as big returns.
Tyler: [55:18] The real large money is made in doubling down, and tripling down, and quadrupling down on the winner.
Jason: [55:25] Yeah, and what’s really cool now is, let’s say, you hit some big deal and you don’t have the amount of money to do your pro rata. All my pro rata goes into one pool, Calacanis Controlled Entities, so if I personally invest, my fund invests, or AngelList invests. That is one entity.
[55:47] Let’s say those three people, who all say, “Yeah, we pass on it.” I still control that pro rata as Calacanis Entites, so I can go to another group of investors and say, “By the way, all my existing investors who had pro rata with me, they didn’t take it. Now I have $10 million in pro rata, and this huge thing that’s become the next Facebook.”
[56:10] “Who would like to have it, and I would like 30 percent carry on it?” It’s essentially like I’m getting $3 million of that $10 million, or whatever the increase is, and those other investors are getting access to that really great deal.
Tyler: [56:21] This is very normal now, with SPVs, and it’s becoming really easy to do.
Jason: [56:24] Yeah, special purpose vehicle.
Tyler: [56:25] Yes, right, Special Purpose Vehicles. SPVs are like little funds that have been created just to invest in one company, one deal in one company. They happened 10 or 15 years ago, in the kind of large VC world, when a VC had a mega-hit on their hands and wanted to get more capital, they’d go back to their LPs, and raise that money, and invest it in an SPV, or, also called a sidecar fund.
[56:52] What you’re talking about, is these are getting much more common.
Jason: [56:55] Yeah. You can basically fire up a special purpose vehicle. I haven’t done a bunch of it. Every AngelList deal is an SPV, but I haven’t done a lot of these pro rata ones yet, but my pro ratas are starting to happen now, and it’s pretty clear, the writing’s on the wall that a lot of people in the AngelList syndicate don’t take it.
[57:09] Probably 10 percent or 20 percent of it’s taken, so I get the rest. This is going to be yum-yum for me. I tell them, “I am taking the pro rata. You might want to take it.” I give them every opportunity, but if not, yum-yum.
Tyler: [57:25] Why don’t people take it?
Jason: [57:26] People are making a mistake. That they’re like, “I’ve placed a bet, and I placed my bet, and I’ll see how my bet turns out.” Well, if you’ve placed a bet, let’s say you could bet on the Warriors winning the championship this year, and you placed a bet when they were 0–0.
[57:44] Then, somebody told you, “By the way, on the same odds, you can double down on your bet after 10 games, 20 games, 30 games, or 40 games, and every 10 games until they hit 80, you can double your bet.” OK, they’re at 20 now, 20–0. Yeah, you’ll double your bet. 30–0, double your bet. It’s completely unfair.
Tyler: [58:02] But it’s not exactly the same odds. There are different valuations, different terms…
Jason: [58:07] True, they could be a little bit higher. Yes, the metaphor is not perfect, but at least you know that this company has continued to win. They’re continuing to win, and you have data, because you have, if you’ve done your deals correctly, you have access to the data. You get monthly reports.
[58:21] I always ask for monthly reports. Again, when I talked before about having special rights, I might get deeper rights into the data than most investors, because of my position, because I’m more helpful. I say, “I need to see the data and you can trust me, because I have a big reputation issue.” If I were to leak information about Uber, it would be the end of my career.“
[58:40] “If I were to leak information about Thumbtack, it would be the end of my career, so you can trust me with that. I have more to lose by leaking your data than you do, actually.” [laughs] Doubling and tripling down is something you’ve just got to get more comfortable with. If you look at the investment, and you say, “Thumbtack’s going up again. Is this Thumbtack investment better than the other opportunities I have in my portfolio?”
[59:04] Probably, the answer is yes. People just need to think that through, and they have to do, what you would call, in poker, bankroll management. If you’re a high stakes poker player, let’s say you have a bankroll of $100,000, but you don’t go play in a buy-in game that’s a $200, $400 game of no limit, or whatever, and it’s a $50k buy-in, because you can buy-in one more time.
[59:27] You get two buy-ins. It’s not enough to cover variance. If you have $1 million to invest in this scenario, you’re not going to invest four times $250k. You’re going to invest 20 times $10k, $200k, then you’ll do another, whichever of those win, you’re going to put $50k in five of them. Then, whichever two win, you’re going to put the quarter of a million dollars into each of those.
[59:49] Have a strategy for how you deploy that capital, with the first being the first 25 percent of your chip stack being exploratory, the next 25 percent being double down, and the last 50 percent…I’m just picking percentages, here, but it seems pretty realistic. That last half is just whoof, all-in.
Tyler: [60:08] This is common, you normally hear, or even people that are raising funds want to save 50 percent for follow-on, or in some cases 66 percent, if they’re ultra early-stage, like you are. I want to talk about something. You keep coming back to poker metaphors.
[60:24] This is not an uncommon thing on the show, probably half the people we’ve talked to self-identify as poker players or poker junkies. Why is there such an overlap between angel investor and poker player?
Jason: [60:35] It’s a couple of things. One, you’re dealing with partial information and trying to make decisions. You have to make a lot of decisions under pressure with money, exactly like investing. You’re under pressure, there’s time constraint, and you don’t have complete information. If you can have a slight edge in some way, you can outperform everybody else.
[60:58] It’s the same as investing. Also, deception, intimidation, reading people, other things come to play in it, strategy. What we do, as angel investors, there’s a lot of luck involved, and then there’s increasing your luck. As I like to tell people, I’m just a guy who got lucky seven times and counting. Literally, I counted the number of times I’ve had significant luck, that resulted in financial gain.
[61:29] It’s like, seven times. That’s not bad in a 25 year career, and you know what? Now, I know how to increase it, which is have 50 investments a year. I know that since I’m top of the food chain, in terms of deal flow, my odds today are least 10 times better than they were five years ago, because I have a methodology, I have more resources, I have a team.
[61:55] I’ve got a lot more…and, I’ve got a reputation that’s increased, in terms of adding value. Five years later, I’m doing 5 to 10 times as many deals, and, on top of doing 10 times as many deals, I’m 10 times better at it. This is massive leverage. That’s one of the wonderful things that happens when you get into this game, if you can take a 10 year approach to it.
[62:21] If you’re going to do it, you’ve got to take a 10 year approach. You’ve got to have a bankroll, you’ve got to have a strategy, you’ve got to be patient in the beginning, and learn. You don’t want to just place a lot of bets, because there’s also a cyclical nature to all of this. The market peaks and bottoms, and all kinds of stuff.
[62:37] Everybody thinks, “Oh, my God. It’s going to crash now,” but, we could have a 20 year run. Just like there could be a run that could end every 7, 5 to 8 years, there could also be a 20 year run in the middle of that, and that would be your whole life, and your whole investing career, so you have to be in the game.
[62:54] You have to be intelligent about how you invest and take your time. If you do that, and you’re passionate about it, and especially if you’re doing it in one of the top markets, which is the reason I live here now, is because I couldn’t do it in LA, it wasn’t possible to do it anywhere other than here.
Tyler: [63:13] Why is that?
Jason: [63:14] Just the number of companies, and the amount of time you spend. Remember, I said before, my two rules are, I don’t need to know if the idea is going to win, I need to know if the person’s a winner.
[63:23] My second, which isn’t the rule that matters in this case, but the second rule is the one that matters, which is your success is going to be correlated with as much time as you spend with founders. Founders you’ve invested in, or not.
[63:32] If you’re in LA, you have a Snapchat, or a Whisper, or a Nasty Gal, or a Makr, every other year, or every year, maybe one a year, and up here you have one a month, or one every week. Probably one every week, actually.
Tyler: [63:47] You were in LA when you got started. You were in LA when you did Thumbtack.
Jason: [63:49] I was in LA, but I was coming up here for two days a week. I was coming up here for two days a week and it was exhausting. Now that I’m up here seven days a week, casual things, like, “I’m going to have dinner, do you want to join us?” I ask four people and two say yes. I get leverage.
[64:05] Somebody brings somebody with them to dinner, or I’m at the Battery, and in between meetings, somebody walks up and says, “Hey, can I tell you about my startup?” Literally, my Uber driver says, “Hey, I’ve got a startup idea. Can I tell you about it?” Literally happened to me twice in the last week. Two different Uber drivers told me about their startup.
[64:21] You know what? Don’t discount anybody. That’s the thing to remember. That awkward kid from Harvard created a company that’s going to be worth a trillion dollars. You just gave away $45 billion. Who thought he was going to be the guy?
Tyler: [64:36] This is back to your point about rough around the edges. It’s often hard to see what folks look like early on.
Jason: [64:40] It’s hard to imagine somebody rougher around the edges than Zuckerberg in the early days. He literally was involved in 15 lawsuits, 12 of which were completely valid and he was in the wrong. He got a $20 million fine by the FTC and a 20-year audit because of the insane stuff they did with [inaudible 64:00] and all this stuff.
[64:56] Listen to him debate if it was valid or not, but the fact is, with the exception of two or three bogus lawsuits, the rest were him screwing over his friends and moving assets around. He did a lot of crazy stuff in the beginning. Now, he’s evolved and, obviously, is an ubermensch, giving away $45 billion.
[65:14] It shows you how cynical the world is. Guy gives away $45 billion, he gives away 95 percent of his net worth, and people are upset in the way he’s doing it. They’re like, “You didn’t throw the money off the side of a building, that’s the way I want you to do it.”
[65:26] He said, “Well, I want to put it in an LLC and I want to do it in an intelligent fashion. I want to be able to invest in for-profit companies that are doing stuff and maybe do some political stuff.” People are like, “You bastard!” What does the guy have to do to get any kind of high five for giving away $45 billion at the age of whatever he is? He’s a kid still. He’s 30 something. He just had his first kid.
[65:48] If it’s me and I had that money, I’d be like, “I’m not giving away anything. I’m in empire-building mode. Talk to me when I’m 70.” That’s what I told everybody. Sure, I’ll take the giving pleasure. Whatever. My charity right now is giving my time and my money to startups to see if I can make some other, bigger ones. Sure, I’ll give it all away when I’m 70 or something and I’m out of the game and I’m retired.
[66:07] I’m not giving it away now. I need the chips to invest. This kid’s giving away $45 billion. I’m so impressed by him. I wasn’t very impressed by him in the beginning, to be honest. He was rough around the edges. He was doing all kinds of nefarious things with users and how he flipped the settings. It was not put together in the most ethical, moral fashion, in my mind, the way they kept switching the rules around on users.
[66:33] Now, it’s super impressive.
Tyler: [66:36] The same thing is true of people in companies that think you can do most things wrong, as long as you do the right things right.
Jason: [66:42] People evolve. That’s the other thing that is super special about our industry. You can have people who are rough around the edges. I was, he was. I’m not anywhere near him. Travis, obviously, is pretty indefatigable in his approach to winning, which would be a nice way of saying you don’t want to compete against a guy like that.
[67:04] Talk about me being a rabid competitor, this is a whole different level of singular desire to win. He’s even become so polished. Tonight, I’m so proud of Travis and the team over at Uber. They’re holding this huge benefit tonight, raising millions of dollars for charity. They’re employing all these veterans and getting all these people coming back from wars their jobs and helping them get back on their feet.
[67:27] They’re really doing a lot of awesome stuff in the world. There’s a lot of haters out there and a lot of people who attack people. When you look, net, net, net, at our industry and what we’re doing, and I talked about some of the rough elbows and all that stuff, one of the great, magical things about this position of being an angel investor specifically is really talented people tell you where the world is going.
[67:52] Then you get to be part of it. You get to help them launch the rocket. It’s what I call the launch festival. My company is Launch Fund. There’s nothing more special than when that rocket gets built and then somebody says, “Three, two, one,” and boom. You can be part of that. That’s really neat. I’m going to go to this Uber thing tonight and I’m one of the, whatever, 10 people who believed in them first.
[68:20] When I see Travis or when I see Marco, for the people who are listening interested in being investors, it’s such a warm feeling, putting the money aside, a warm feeling of gratitude and joy at, “Hey, we all tried to make something happen, and, yeah, you did most of the work and we just wrote checks, but it was fun to be there when it was two people or three people and now it’s this.”
[68:54] It is such a rush and feeling of joy and contentment, that it’s addicting. We talked before about, “Hey, do you want to win?” I want to win, but I don’t want to win to hold up the trophy.
[69:04] I want to win because when you’re all back in the locker room later and you’re sitting there having a cup of tea or a coffee the next day at brunch, the ticker tape’s gone or the IPO’s happened, when you’re sitting there and it’s quiet, you’re having the coffee, you’re like, “That was special. That was really special. We did something there, didn’t we? The world changed in some way.”
[69:29] It’s winning, but it’s this content feeling afterwards that you all collaborated on something important in the world. That’s, to me, the rush. It’s the after party after the after party. The brunch after the after party. You’re just sitting there going, “Man, I remember that meeting.” In that meeting, you said, “This could be in a hundred cities around the world.”
[69:51] Or, “If we got this right, it’s a small chance, but if we get it right, this could be a billion-dollar company.” All of a sudden, it’s like, “Wow, Wealthfront is doing incredible, or Waze.com.” All these different companies. It’s mind-blowing to me. It’s such a great feeling. It’s the post-winning decompression moment. The brunch after the ticker tape parade is over. You’re way beyond the financial stuff. It’s all great.
[70:22] If you want to be happy in life, nothing is more satisfying than a hard-fought win. That, to me, is why I still do it. I put myself on a 10 year plan, I’m halfway there. I wonder if this is a 20 year plan and I’m 25 percent of the way there. I’m so jazzed about the 14 companies that are in my incubator right now. I love spending time with them.
[70:49] I can’t wait until they graduate and people see them at the Launch Festival March 2nd, 3rd, and 4th, here in San Francisco. Little plug at the end there.
Tyler: [laughs] [70:58] Did you know you wanted to be here when you started doing the Scouts program in Sequoia? Was that more exploratory? Did you fall into this as you got here?
Jason: [71:06] Yeah. It was exploratory, for sure. They were trying to convince me to do it. I was like, “Maybe I’ll do it.” The thing that really set me off was these angel forums back in the day were charging people 5k to go. That actually made my blood boil. I was like, “Keiretsu Forum is charging 5k or 10k to go meet with investors?”
[71:27] Some of my friends had done it. I read this story. I said, “This is bullshit.” I started Open Angel Forum, which was just a dinner party. I had one last night at my house.
Tyler: [71:35] That was after your initial Scouts stuff, though, right?
Jason: [71:38] No. It was part of it. Uber and Thumbtack and Backupify and Signpost, all of those were company style seeds that were at the Open Angel Forum. Open Angel Forum was literally just 10 angels getting together and having hamburgers. That’s something that somebody who’s listening here could do.
[71:58] If you’re that dentist or whatever, you could actually have five other investors over your house, have three companies tell you about what they’re doing, you could each decide to put $10K in each, and you could go and see if it works. Buy some beers and some burgers.
Tyler: [72:13] You don’t think angel groups are obsolete?
Jason: [72:16] I think the evil ones.
Jason: [72:19] I, basically, slaughtered them. I just barbecued them, very badly. They were running these huge scams, where a bunch of lawyers, accountants, and headhunters would come, pretend they were angel investors, then they would build these boards together of people to review the companies. They were really reviewing them to sell them services, and then they would charge them to come, on top of it.
[72:39] These lawyers, accountants, and headhunters, these nefarious, real scumbags would charge $5,000. What they were really doing was evaluating you as a customer, and then they were charging you for services. It was insane.
[72:54] Once that came out, everybody started talking about it, but when you’re an entrepreneur, you’re desperate. Somebody says, “Hey, will you pitch to 10 angels?” You’re like, “Sure,” and they’re like, “$5,000.” You’re like, “Well, if I meet one angel, it pays for itself times five. OK. I’ll do it.” Sure, you’re desperate. You don’t know any better.
[73:12] Angel groups that are actually active angels, so in all of my events, I would just say, “What are your last three investments, and give me the dates, and give me the names of the founders?” The people who were lawyers, accountants who were trying to sneak in, headhunters, they’d be like, “Oh, yeah. I’m an investor in these three companies that you haven’t heard of.” I’ll be like, “OK, well, I haven’t heard of them. [laughs] Send me three and the dates,” and I wouldn’t let them come.
[73:32] They got really upset, “Well, we’re angel investors.” I’m like, “Yeah, but you’re also an attorney and a lawyer, or you’re a headhunter,” and they’d be like, “Well, I got stock in this, because I discounted my fees.” I’d say, “Not exactly cash, so sorry,” and I wouldn’t let them in.
[73:45] It infuriated people, but, as you can tell by this interview, I don’t really give a shit [laughs] all that much if I infuriate some people. All I care about is the work, right? The work is what matters. If you’re willing to do the work, it’s the greatest job in the world, man.
[73:58] I can’t think of anything that I would rather do than this. I’m hard pressed. Maybe if I was like the coach of the Knicks. if I could coach the Knicks, that probably a slightly better job than I have right now.
Tyler: [74:11] I want to go back to that point in the scouts. How did you learn to do this well? Did you have a mentor? Did you have people that you bounced things off of?
Jason: [74:19] Rule of both and Michael Moritz and the guy at Sequoia were always very good at helping me understand how they worked. They shared a lot of lessons with me about their thinking about things. When I talked before about, “Hey, some founders are not easy to get along with,” that was something that I learned from them. They had [inaudible 74:40] , PayPal. They had a lot of intense people who they’ve worked with over the years, Steve Jobs at Apple, Cisco, whatever.
[74:48] I think they’ve worked with big personalities, and I learned that directly from them. When you’re a founder, yourself, you have a huge advantage, because you’ve been on the other side of the table, so I’ve been on both sides.
Tyler: [75:01] One of the things that I think is different from the advice I’m hearing from you, then, for example, things Naval has said publicly. Naval said, “Hey, don’t ever work with somebody that you don’t like. It’s a long game, so why set yourself up for a lot of pain.” Is that advice different than work with people that might be hard to work with?
Jason: [75:21] We’re probably pretty close on that. Here’s the thing. If you really hate working with somebody, that’s a big statement. If you’re having violent debates with somebody over things, but you can still laugh about it, and have a drink, that’s OK. If you really don’t like working with somebody, life is short.
[75:43] Here’s the thing about Naval, he’s a more introverted and life is short kind of guy. I’m more of a win at all costs kind of guy, slightly different approaches to life. He’s won by building this platform and supporting everybody by building all these tools and community.
[76:08] I’ve won by doing what I do and building my community. It’s a slightly different approach, but I think his point is life is short. If somebody truly is an asshole, yeah, you don’t need to work with them. I agree with that.
[76:26] What I’m talking about more, is when you start to see that the person is being difficult about things here or there, maybe they’re not super polished, or their presentation has a misspelling error in it, be careful not to discount people. There’s a long list of reasons why somebody will fail, and why the idea will fail. People are generally more awkward than they are not, especially early in their careers.
[76:54] Bill Gurley and the folks at Benchmark have the saying that really resonated with me, where they say, “They don’t like to focus on all the things that could go wrong. They think about what could go right.” I’ve always inherently thought that. I’ve never said it as eloquently. Don’t obsess over what could go wrong, obsess over what could go right.
[77:13] If the majority fail, and your odds of winning are based on your ability to spur a lot of bets and have one of them hit, you got to really stay positive about your 10 percent chance, which is why Hans Solo said, “Never tell me the odds.” If you know the odds, it’s like, “Well, this is insane. What the hell are we going into an asteroid field? We might as well give up.” A lot of the great companies were made by people who were too naïve to say no to the opportunity.
[77:41] I, honestly, believe without Travis, there is no Uber. Garrett, obviously, came up with the idea, but Travis had that unique personality, that he could wake up in the morning to 17 different politicians or lawsuits trying to stop him, then 100,000 drivers and customers thrilled with him, then, three or four press people trying to “gotcha” journalism, and be able to keep it together.
[78:08] You have to have a certain armor and certain indefatigableness that you cannot stop. He’s just an unstoppable force. I’ve seen people get crushed by the 50th thing on his list that’s annoying, and the 49 things in front of it, bounce off of him. I don’t think I would’ve been able to run Uber and deal with, at the peak times of peak municipality trying to stop him, incumbents trying to stop him.
[78:45] Airbnb is another one. Can you imagine Brian waking up every day, I’m not investing in their company unfortunately, but I do respect the fact that they have to deal with so much nonsense, constantly.
[78:58] People are like, “Oh my God, something bad happened, something nefarious happened in a bed and breakfast.” It’s like, “Do you know that every bad thing that happened last night, eight out of ten happened in a hotel room? Somebody was murdered. Somebody OD’d. Somebody, whatever happened in the lobby.”
[79:19] People die in the real world, and all of a sudden, we’re ascribing death and horrible things that happened in the real world to Volvo? We don’t sit here and be all day like, “Oh my God, somebody robbed a bank in Volvo. The terrorists drove off in a Volvo. Oh my God, this Volvo.”
[79:38] A Ford Explorer was used in this horrible San Bernardino thing. Press are not obsessed about the Ford Explorer, but if they had stayed in the Airbnb, the whole narrative would’ve been, “The terrorists used an Airbnb to carry out this horrible plan,” and it’s like, “Really?” The Craigslist killer, that’s like calling the Son of Sam, the subway killer, because he took the subway to kill people. No, it’s an insane murderer. It’s a serial killer. You don’t need to name him after the subway line he took. It had nothing to do with it. It’s completely immaterial.
Tyler: [80:15] People are always going to be scared of what’s new and what’s different. That’s always going to be true. That’s going to be true of the entrepreneur that has to deal with this 20-years from now.
Jason: [80:22] Probably, yeah.
Tyler: [80:23] Who competes with you as an angel investor? Who do you worry about coming in and becoming number one?
Jason: [80:28] I don’t worry about it at all. One of the great things that happens is people get so rich, that the idea of getting up in the morning. Chris Sacca is a better investor than I am, and he’s got better returns. He started five years before I did. I had Chris on my podcast just yesterday. We’re very good friends right now, but he’s not out there, relentlessly, investing in 50 companies a year.
[80:52] The fact that he’s doing, a little bit later stage, typically, not having him, means I move up a slot. Sort of like when Jordan and Kobe retire, everybody else moves up one of in the power rankings. It’s pretty cool. I don’t really worry about it all that much. I’ve already won, to a certain extent.
[81:15] What I worry about is am I doing enough for the companies, and am I building a great team? To the people who work for me, are they doing the best they can do, I knew like my chief of staff, my executive assistant, my producer on my podcast, the people who do my partnerships? People see me with this crazy output, but they don’t realize I have Luke doing all my partnerships. When they see the IBM, the Samsung, and all these people, I have somebody who does all those partnerships for me, and those partnerships really push me forward.
[81:48] Bryce is my chief of staff. I can’t negotiate and get 50 deals done a year. He’s doing, literally, five hours per deal of working with 50 companies. 250 hours a year of just getting the paperwork done, every year. It’s, literally, 10 weeks of paperwork.
[82:05] Jackie is the producer of This Week in Startups. It used to be I picked all the people on the show. Now, she picks two out of three, and I pick one out of three. Even the one out of three that I pick, I just text her like, “This person might be interesting,” and then, she gets them.
[82:18] Really, my role in This Week in Startups, which is now booming and doing better than ever, it does a million dollars a year in revenues, $100,000 per episode is huge. I don’t want to sound like Trump. I can take credit for being the host, but I can’t take credit for being the producer. She has taken the show to where it is today. That’s what I worry about is do I have enough of those people around me.
[82:40] Listen, I can’t be more successful than I am, now, as an angel without that team. I need that team. If I’m the LeBron in this situation, the Michael Jordan, or the Kobe Bryant, I need people around me who can score, and when I sit on the bench, they can be actively doing stuff. I need people who make it fun for me to come to work every day.
[83:02] I think I’m probably about 70 percent of the way there with assembling my team. There’s probably about two or three positions I need to fill, but when I have those filled, then I think, you’re going to really see me turn it on.
[83:14] People are like, “Wow, you’re really doing well.” It’s like, “OK, just wait. It’s going to be a big 2016 for us, because we’re really figuring it out.” We had 150 people apply to the first incubator, 350 to the next, this time we had 1000. We have a much better program than Y Combinator.
Tyler: [83:31] Are you going to be doing this 20-years from now?
Jason: [83:33] I hope so.
Tyler: [83:34] Seed-stage investing, still?
Jason: [83:35] I hope. Yeah, I think so. I do think I’ll still be doing it, God willing. Hopefully, I’m still here. I do think, right now, we did two classes, and, by our third class, we have a better program than Y Combinator. Anybody who went through both programs would say ours is better.
Tyler: [83:56] Has somebody gone through both programs?
Jason: [83:57] Unfortunately, not. One company got accepted to both, this year, and I encouraged them to do both, and Y Combinator discouraged them from doing both. I said, “Do both,” because I really wanted to have that. I don’t think Y Combinator wanted to have that piece of information out there, [laughs] if I found out who could actually tell you which one was better.
Tyler: [84:14] Did they do yours or YC?
Jason: [84:16] They wound up doing YC. They had a previous relationship. I don’t expect to win every company nor do I, but once they did that to me, I was like, “Hmm?” Sam and I are friends, Sam Altman, I’d like to think we’re friends. We’re competitors, to a certain extent, for these companies, the best ones, but he’s at a huge disadvantage, in that, they have to do 120 companies, now, it’s so big. I do 7 or 14.
[84:42] They have 25 partners. The top two or three partners, I would say, we’re on the same level, myself, Sam, Paul Buchheit. There’s a group there that we’re kind of peers, probably in our ability.
[84:56] After that, they’re probably working on a merging talent for their partnership. When you have 120 companies, if you’re one of 120, how much of Paul Graham or Sam’s time are you getting, or Paul Buchheit’s? You’re not getting any, or very little. In my program, you’re getting 50 hours with me. It’s a big difference, I think. They don’t have the festival, This Week In Startups, the syndicate and all this other stuff I have.
[85:21] I have so much in terms of a media platform that they don’t have to offer these companies. That allows me to make my company go a little bit harder. Nobody’s been able to compete with them. I’m the first person who really is going to, this year, give them a run for their money in 2016.
Tyler: [85:38] Why is there a need to compete there? You talk about seed stages being a collaborative part, you don’t have to have sharp elbows.
Jason: [85:45] Most people are going to go to one incubator. The best companies go to one and done. I do think some will do two. If they do two, it’s probably because they needed a little bit more help and they didn’t get their future rounds done. The top half of the YC class will do one and done. My class will do one and done.
[86:05] I see a lot of 500 startups companies or PCH or some of the other ones, they prepare them for half the battle and then they wind up going to YC after or they wind up going to another place after. Some of the programs are specialized. People might hop between two or three of them. We are in competition for the same pool of companies.
[86:29] I have to make it clear that we have the better program and why. I’m the up and comer and they’re the incumbent.
Tyler: [86:36] Incubator is not a multiplayer game. It’s a one and done game. Angels might be multiplayer.
Jason: [86:42] Angel’s a multiplayer game. You can have 10 people invested in the angel round, or, if you do a syndicate, you have 10 people and one syndicate with 75 people, so you’ll have net-net 85 investors. Bento has 150 unique investors, because they did FundersClub and they did MicroVentures and they did my AngelList syndicate type products.
[87:02] They wound up with 175 investors. It’s pretty cool to have that many people on your side. That’s going to be a big trend, people doing multiple syndicates. I do a syndicate, then they do Gil’s syndicate, then they do one on MicroVentures or Crowdfunder or FundersClub, which are alike. I don’t think those are platforms like AngelList. They’re more like single syndicates.
[87:26] That’s where it will be much more collaborative. I’m looking to do more of that. If my next 14 companies that come out of the incubator, if I could syndicate every one of them with another syndicate, I would. I’m actually looking to get other syndicates to come in and split the 99. You can split the 99 investors. I take 50, you take 50, and we have two pools of capital and we make the minimum $3k or $4k.
[87:56] The $1k people maybe can’t get in, or they might get one out of four deals, but we get more people involved. It really is interesting how we can fund a lot more than we have been. We’re funding more.
Tyler: [88:08] Is there a risk in the ecosystem of that? Getting too many deals, getting too much capital?
Jason: [88:14] We already have way too much capital in the system right now. It’s really a big issue. There’s too many startups. They’re getting through the angel phase. There was a series a crunch. It’s hard to get [inaudible 88:30] around that that has come to the seed stage. There’s a lot of companies now that can’t get their seed round done, or they need to do a seed plus, plus plus, seed one, two, three.
[88:35] They raised $750, now they need to do $1.5, then they’re going to need to do $2. Then they’ll be ready for the ray. That’s a big trend. That’s why I brought the Open Angel Forum back. On Wednesday night, I had five companies present. The five companies all had massive traction. They’re the round before the A round.
[88:52] I’m trying to get more people who can do $200k, $250, and get five people, six people together who can do $250 in a round, to do a $1.5 million round. It’s starting to look more like what A rounds used to look like. It wasn’t uncommon for there to be a $1.5 to $3 million A round. Companies, the goal posts have moved. You have to be much better now.
[89:16] It’s much different. What used to get you an A round, now gets you an angel round. What used to get you a seed round now might get you an angel round. What used to get you a seed round doesn’t get you into the incubator. My incubator, majority of the companies have their products complete and have some level of traction. One or two of them have revenue.
[89:39] I have one that has a half million dollar run rate. One has a $200k annual run rate. They’re starting to have $10k, $20k in revenue coming in. That’s what used to get your A round out. “Oh, you’ve got $10k, $20k in revenue? The product’s done? Your early clients are on? You’ve got your first 10 clients? Great. Let’s talk about an A round.”
Tyler: [89:59] That’s because capital needs have come down so much. You can do a lot with a little.
Jason: [90:03] That’s precisely what’s happened. When a lot of people can do a lot with a little, now you’ve got a lot more selection. The VCs, they just lay back. They wait. “Great meeting. Awesome. You have $20k in monthly reoccurring revenue? Let’s talk when you hit your next milestone. It’s not a fit right now, but we’re so impressed. We want to keep the dialogue open.”
[90:21] When you hear, “Keep the dialogue open,” that means, “We’re not going to invest, but if you double it, we’ll have another meeting.” They say, “Six months ago, we would have invested, but now that you have 40, we actually have a lot of people with 40. We really need you to get to more like 80. You need to be at $1 million a year run rate to get an A.”
[90:38] It used to be, you had a half million dollar run rate, you can get an A. Now it’s like, “I kind of need you to have more like a $2 million a year run rate.” Can you imagine? At a certain point, we don’t need the VCs. You’re going to see this routing around VCs thing start to happen.
Tyler: [90:56] Similarly, VCs have become later stage rounds. An A, now, is what used to be a B or a C.
Jason: [91:01] The thing is, they have so much to put to work that it’s impossible for them, if they have this much money to put to work, it’s getting harder and harder for them to put it to work. That’s the key issue. They can’t put it to work. If they need to put $10 million in, you need to have a $20 million break.
Tyler: [91:20] I feel like we could talk for another hour.
Jason: [91:22] We could. We’ve talked for an hour and a half, or two.
Tyler: [91:23] Maybe we should do a V2 at some point. Thank you, you’ve been really, really generous with your time.
Jason: [91:30] Of course. If people listening are considering being an angel investor, highly recommend getting on AngelList and joining 10 syndicates. You don’t have to invest. You can opt out. That’s one of the secrets they don’t talk about. I don’t think they want to talk about it. In every case, even the pre-funded ones, you have an opt-out period.
[91:49] Sign up for 10 pre-funded. Literally opt out for the first six months. You have to man the controls. You have seven days to opt out. I suggest you just sign up for everybody and opt out of everything. Then start placing bets after you learn a little bit.
Tyler: [92:06] Start to see their thesis, how they defend the deal.
Jason: [92:09] For sure. In mine, I don’t force people to fund. I’ve never kicked anybody out. I kicked one person out, but they were doing some misogynistic, crazy stuff at some conference in London. Putting that aside, an insane person doing insane things, we’ve never kicked somebody out for not investing in a company. It’s a really great way to just learn. It’s really about learning.
[92:42] If you like collaborative sports and you like gambling and the outside chance of an oversized return, it is the perfect place to do it. You just have to have a theory going in. The biggest mistake is coming in and putting your whole bankroll to work in the first three months. Take your time. Just take your time.
Tyler: [93:01] It’s a long term game.
Jason: [93:02] Yeah. Literally make a five year plan, then assess after five years of doing it. That’s my best advice. Make a five year plan. You can always change it. You can get six months in and say, “You know what? I love this. I’m going to double down.” Or you can say, “This is annoying having these entrepreneurs call me and ask for more money every six months. I’m out. I want to do something easier.”
Tyler: [93:21] Who are the people that shouldn’t invest? Who are the people listening this that you should tell them to run away right now?
Jason: [93:26] If you’re annoying and think you know better than the founders and you’re a control freak, do not do it. You have to get comfortable with this concept that you don’t have control of the company or the destiny of the company.
[93:41] Your role is to put a little bit of money in and hope for the best. If you can’t deal with bad news and you’re an obsessive person that wants to talk about every decision, don’t do it.
[93:50] You have to take a portfolio approach. I had somebody who invested in a company who was a new angel on AngelList. They found out afterwards that the two founders were not technical co-founders. They had read that Paul Graham and Y Combinator only do technical co-founders. I don’t know if that’s even true anymore. They’re like, “I did it, I funded it, but I found out afterwards, so can you pull that back?”
[94:10] I said, “You can call the founders. You can explain to them that you want to pull it back. They’ll let you, I’m sure. If they don’t let you, I’ll buy it from you. You have to have that conversation with the founders.” He was like, “I thought you would have the same position as me.” Travis didn’t write the code for Uber. Marco didn’t write code for Thumbtack. I do not have this same thing, which is pretty obvious.
[94:35] You put $1,500 in this company. Do you really want your reputation as an angel to be you put $1,500 in and then you became pissy about it? You have to remain cool and calm in the face of loss and be classy. If you can’t remain classy in the face of defeat and chalk it up to bad luck and move on, it’s not the place for you.
[95:00] You have a reputation. You have to be classy in defeat. You have to be a mensch. “It didn’t work out. We’ll get them next time.”
Tyler: [95:10] That is star-rate advice and a good place to end. For people that want to learn more, where do they find you online?
Jason: [95:17] Pretty simple. I’m Jason on Twitter. That’s J-A-S –my center joke — O-N. On Instagram, I’m J-A-S-O-N. I’m Jason on both those services. I’m Angel.co/Jason.
Tyler: [95:35] Trifecta.
Jason: [95:36] There you go. If only I had YouTube.com/Jason. I’m trying to get that. I don’t own Facebook.com/Jason, YouTube.com/Jason. I want to get the other couple Jasons.
[95:46] [background music]
Tyler: [95:47] Best of luck for that.
Jason: [95:47] I have Jason.tumblr.com.
Tyler: [95:49] Calacanis.com.
Jason: [95:51] I have Calacanis.com. I want to get Jason.com. I don’t know who owns that.
Tyler: [95:54] Project for another day.
Jason: [95:55] Another day.
Tyler: [95:56] Thank you so much for your time.
Jason: [95:57] All right. Cheers. Bye.
Tyler: [95:57] Cheers.
Originally published at blog.angel.co on March 17, 2016.