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Top 5 Questions Jason Calacanis Gets About Angel Investing | Dose 026 - YouTube
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Hey everybody welcome to
the Dreamit Dose.
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I'm Jason Calacanis.
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As you may know I'm
an angel investor,
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and entrepreneur, and podcaster
here in the Silicon Valley.
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And I run what is the largest
angel syndicate in the world.
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You can see that
at thesyndicate.
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com.
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And I'm pretty familiar with
how angel investing works.
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You may have read my book
"Angel", or come to my
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class angel.university.
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And so let's get
right into it.
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I'm going to give
you some advice about
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angel investors specifically.
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A question I get a
lot is, what motivates angel
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investors?
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Great question.
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We see angel investors
from a range of backgrounds.
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One very common angel
investor archetype is,
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people who were former founders
who sold their company who did
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well and they want to
pay it forward.
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And so what
motivates that person?
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Well obviously in angel
investing there is a
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potential financial reward.
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But there are many places to
get a financial reward.
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And these people have already,
in all likelihood,
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become independently wealthy.
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So sure they might want
incremental wealth and they
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might want to invest
their money wisely.
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But the truth is affiliation,
being affiliated with
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other winning teams,
is critically
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important for them.
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And they might also want to
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meet new founders and give
them their advice.
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And that's a reward in
and of itself to be helpful
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to others.
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So you're going to see that
with the founder class.
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Then you might see retirees
come into angel investing.
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And you know what,
they might be bored.
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They might be home
and they might be bored.
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They've accumulated a lot of
wealth but they still
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want that action, right.
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They want to place those bets.
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And so they may want to have
that rush of working with you
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to try to change
the world against all odds.
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So there's a lot of different
reasons that motivate people.
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Some people do it
for status, right.
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There's a lot of status games
going on in the world.
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People might want the status of
having angel investor on
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their LinkedIn profile.
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So there's a number
of different motivations.
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What is the best way to attract
angel investors in 2020?
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The easiest way, is to
have a chart.
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If you have a chart where
you're growing 20 percent
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month over month.
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If you send that chart,
"The Chart", to an angel
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investor they are
going to reply.
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So if they see your users going
from 1000 this month,
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to 2500 next month, to
5000 the next month they
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might dig deeper.
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Then they see revenue growth.
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Oh you went from 10000 this
month to 14000 the next month.
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40 percent month
over month growth.
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And then you do
20 percent the next month,
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15 in the next month, and you
averaged something in the
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20 percent range.
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They love that.
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Another thing that will attract
an investor is if you have
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previously had success.
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So if you previously
sold your company, and you got
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a return for investors,
that's also a massive checkbox
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in terms of credibility.
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So when you email
somebody and say, "I sold my
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company Google for 15 million
dollars after three years.
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I'm now starting my next
company", in their mind
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what they're thinking is oh I
wonder if this time they'll add
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a zero to the exit price?
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So if you've had previous
success you want to make sure
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you take credit for that.
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If you have current success you
want to make sure you take
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credit for that.
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What if you have
no success right now?
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Well, maybe you should only
email angels who know you and
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you have a reputation with and
you should bootstrap your way
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to getting your product out.
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If you just have an idea,
I think it's a terrible time to
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go to angels.
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If you have a prototype,
it's an ok time to come but
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you're probably going to
have limited success.
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It's when you have a couple of
customers using the product
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that
you've differentiated yourself.
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90 percent the people coming at
angel investors have not gotten
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their product to market.
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You do not want
to be in that bucket.
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You want to get your
product to market even if it's
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just an MVP,
a minimum viable product,
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so that you in the credibility
race are far ahead of
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that 90 percent.
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You want to be
in that top 10 percent.
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And then of that top 10 percent
the people who get to the point
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of monetizing their users well
that's going to be another 10
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percent drop off, right.
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90 percent of people never
get to that.
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So it's 1 percent, out
of the people who have ideas,
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who maybe ever got a product to
market and have some basic
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traction in terms of revenue.
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So that is my best advice.
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Why do angels do
deals or not do deals?
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Yeah this is an important one.
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People will look at edge cases
and make them the norm without
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having complete information.
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So you will see a company like
Clubhouse raise 10 million
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dollars on a 100
million dollar valuation.
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And you don't know
the backstory there,
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so you say, "Well I
should be able to do that.
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I'll go get
10 million dollars".
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But you might not
realize is, those founders were
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entrepreneurs in
residence at Benchmark,
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and they had a track record,
and they had personal
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relationship the VC's, and a
marketplace broke out where
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people were bidding
against each other.
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So this is an exception
of an exception of exception.
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This is an outlier.
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Outliers are not what you
should base your strategy on.
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That's like saying, "I'm going
to win this game by throwing a
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100 yard pass from one
end zone to the other.
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That's how I'm
gonna win the game."
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That is not a strategy.
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Angels will do the deal because
they see traction and they see
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you credibly making your
company better and
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better every month.
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So what you want to do
is take a one year approach to
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working with investors.
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Maybe even a two or three year
approach when you're working
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with venture capitalists
and seed funds.
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But with angels take
a year approach.
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You're introduced to them and
they see your product.
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Maybe you go to an accelerator
and you raise 150K
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in seed investing.
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You offer them.
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They say they're
not interested.
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Then you get your
product to market.
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You ask them, "Hey, when would
you be interested investing?"
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They say, "Oh you know,
when you get to 10000 a month
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in revenue." You get to eight
thousand a month in revenue.
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You say, "Hey, we're about
to cross 10k.
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Would you like to get together
in the next couple
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of weeks?" Boom, now you've
shown that you're
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not going away, that you
remember you made
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contact with them, and that
you're playing the long game.
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Investing is about
the long game.
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I tell angels when I'm trained
them how to angel invest don't
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make rash decisions.
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Get to know the company.
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Get to know the founder
over a year.
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And you will probably
have if the company
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is successful, three, four,
five, six times in
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which you can invest.
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So take your time.
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You should also take your
time with angels.
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And they will not do a deal
because you don't have enough
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credibility with them yet.
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So build up your credibility
over time and play
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the long game.
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And you can do that by sending
monthly updates to people who
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passed on investing with you.
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That's my best piece
of advice there.
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Another question.
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How do angel investors make
money in a deal?
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There are three ways that
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angels get liquidity
in a company.
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Number one,
there's a secondary sale.
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In other words, the company
gets to a billion dollar
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valuation and some
large investor says, "I would
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like to own even more
of the company.
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Are there any angel investors
who would like to cash in their
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chips?" That's
the secondary market.
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You saw that happen with Uber
when Masayoshi Son made a
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tender offer to employees of
the company and
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early investors.
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I was able to take advantage of
that and sell him some shares
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in the company.
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The second way is the company
gets bought by a
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bigger company.
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So when a
company gets acquired,
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like YouTube did for 1.6
Billion, all the angels
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get their money back.
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The third way is an IPO.
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So Uber went IPO.
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I had sold some shares when
Uber had the secondary offering
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and I obviously sold some
shares when the
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company went public.
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And I still hold some shares.
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So that鈥檚 how people get their liquidity.
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And then obviously SPAC鈥檚 are happening now.
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So we saw Desktop Metal,
something we were an early
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angel investor in, they went
public through a SPAC.
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So just another way
of getting public, the Special
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Purpose
Acquisition Corporation.
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But those are the three ways.
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And angels expect to have 80
percent of their deals
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go to zero.
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They're used to
investing in 20,
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30, 40 companies in order to
have a chance at one outlier.
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It's those 1 in 10, 1
in 20, 1 in 30 that
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define the portfolio.
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So understand that as well.
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At what stage of their company
should a founder start to
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fundraise for an angel round?
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Very simply if you have
had previous success, and you
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have credibility from that,
you can raise from
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just an idea.
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You have an idea on paper.
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You can just go out
and say, "Hey, I have
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a new idea.
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Anybody want put money in?"
Then there's another group of
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people who might be able to
convince their friends and
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family and people who are
associates to take a
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flyer on them.
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And then there are
people who maybe don't
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have those networks,
right.
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And they are going to
need to take a different path.
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They're going to need to
bootstrap and prove some
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credibility through building
products with their
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own skills.
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If you are like me and you did
not come from a rich family,
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you're going to have to prove
it some other way.
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The way I proved it when I
launched my first magazine in
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the 90s was I made
a photocopy magazine.
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It was literally a photocopy.
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16 pages.
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It cost me maybe $1500 to
produce that first episode
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of the zine.
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I put those costs on
my credit card.
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And then when I showed
up to investors, and when I
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showed up to advertisers,
I had credibility.
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I had a 16 page photocopy zine
in my hands and I could say
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look at this.
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I did something in the world.
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And then people were
attracted to that.
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That is a huge attractor.
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People who are in motion.
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People who are creating.
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So be one of those people.
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And don't wait, create!
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So you can
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scrape and scrap and you know
bootstrap your way into having
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a very modest MVP and
that will unlock a lot
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with angel investors.
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So I would, only if you're part
of the no credibility group,
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the newcomers, the neophytes,
you're gonna want to put
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something down on paper.
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You're gonna want to have some
thing created in the world.
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Be part of the
group that's making,
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not waiting!
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All right.
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So to wrap up.
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The best way to attract angels
is to have a chart that goes up
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into the right.
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To build something that is
credible in the world.
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To have skills, right.
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And you can add skills you can
go on YouTube and learn
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anything these days.
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And, angels are motivated by
affiliation and being
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part of something.
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Some of them affiliated
by the status of being
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an angel investor.
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Some people just love doing
good in the world.
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Some people it's
a combination.
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And you really shouldn't start
trying to raise an angel round
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until you have
made something.
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Again, make an MVP,
make something.
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And even if you're like,
"Oh well, I can't make
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something because I'm trying to
make a vertical takeoff and
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landing vehicle."
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You certainly could make a
prototype that is the size of a
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desk you know for 1000
or 2000 dollars.
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You could make CAD drawings and
make a 3D printed version
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of it.
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You could make something.
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So start making stuff and start
having people look at
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what you made.
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That will draw people in and
that will separate you from the
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people who are talkers.
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You'll go from being
a talker to a walker.
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All right.
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I hope this has been helpful.
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