Angel Investing 101 with JC

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#41 (long-ish post)

BIG shoutout to the person who’s been reading all the articles. I can see my analytics and at least one person is opening every link of every post. I appreciate you! If you’re the one, hit my line for your reward. Do you know someone who’d appreciate this content? Ask them to subscribe here!

Had an amazing opportunity last night to talk to some entrepreneurs building a product in the health financing space—think a credit platform for medical bills. Obviously, made for the African market. Excited to see what these guys come up with. 

Anyway, I’m always doing research on significant players in the space. Came across this Quora (where you can find answers to literally anything) board on uncle Jason. I think he’s one of the best and more prolific angel investors out there and I’m a big fan of This Week in Startups and Angel podcast. Also, if you have the chance, get his book and read it. I’ll be getting my copy pretty soon. Questions below: 

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In how many early-stage startups should an 80m USD VC fund invest in?

The goal of an $80M fund would be to return 2–5x “cash on cash.” If this fund had two partners and returned $160m, they would have $80m in profits x 20% = $16m in carry.

In order to do that, you could do 40 seed investments of $500k for $20m, and put the remaining $60m into the top 8 companies ($5–10m each). 

That would be very manageable, as you would need to meet with 1-2,000 founders to get to 40 seed investments (500-1,000 meetings each over two years = 5-10 a week).

At Launch.co, we are targeting 50 incubator investments a year and 50 syndicate investments. We like to operate in the goldilocks zone: if you have a Series B process going that’s likely “too hot,” and if you just have an idea or a prototype, that’s probably “too cold,”

Just right for us is having a product done and some traction ($5–100k a month or 5,000 DAU growing at 5% w/o/w).

hope this helps… best jason@calacanis.com

How do angel investors react to portfolio co's that lose their money?

My goal is to invest in ideas that most folks don't understand and think have a slim chance of working because if those ideas do work they, by definition, are long shots that pay off in a major way.

So, seven or eight out of 10 investments will be a donut -- zero returned dollars.

As an angel you have to get used to donuts. 

If a founder works hard and keeps investors up-to-date with monthly updates there is generally no issue -- everyone moves on.

The frustrating thing is when a company tells you they shut down four months ago -- but didn't tell you! That literally happened to me 2 out of 150 times!

That's really bad form... Obviously. You would never invest in someone like that again because it just shows they don't take the business seriously.

Also, if a founder doesn't make an effort to return capital that's in really bad form. If you raised $500,000 and get investors back $250,000 they will appreciate it because they can redeploy their investment and, perhaps, make it back. Always fight to get something back for your investors if possible.

Finally, another behavior that is in "bad form" that I sadly see from time to time  is not shutting down the company properly (I.e. Doing the legal work, severance, etc). That can lead to folks pinging the investors about the shut down.

How do angels and VCs gauge the potential of founders?

I ask folks a ton of questions and I listen deeply to their answers.

Are they full of sh@#$t? Are they whip smart? Did they listen to the question?

I also look at how quickly they learn... the number one skill of founders is adding new skills in my mind. So, when if a founder had never done email marketing, how quickly did they become an expert on it? If they had never given a keynote at a conference, did they learn how to do that by studying the greats?

People are dynamic, so I look for constant self-improvement.

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📰🗞Article List— What I’m reading (10 articles a day x 7 days x 4 weeks x 12 months = 3360 articles a year). Building the scope of my knowledge. 

Opera Mini becomes the first browser to introduce offline file sharing: Dropbox for emerging markets? JK. But very solid for Opera. Their compression algorithms remind me of Pied Piper in Silicon Valley—the tv show. 

These are the top Y Combinator companies of all time, based on valuation: Number 59 was a shocker—WePay went through YC? 7 people I asked weren’t aware of this. S/o to Flutterwave for being on the list too. As per this list, Flutterwave is valued at between 100m and 500m based on my rough math. Good for them.

SA fintech startup Yoco launches new card machine, opens access to wider market: Struggling to see how Yoco would expand into the broader African payments space. Got a competitor for them out of West Africa. Will se how these wars play out. 

Nigerian Banks Tried, But 'Not All' Made New Loans Threshold: This is a sound move, but if they don’t take care, haphazard lending would just lead to banks losing quite some money. Maybe these banks should partner with Mines or Carbon to push out loans? Credit is definitely a necessity but if you don’t have data to back who’s a solid borrower and who isn’t, NPLs are just going to look nasty.  

Cellulant’s Mula rebrands to Tingg; Launches Africa’s first payments Super App: “Africa’s first payments super app”—I love the sound of that. Cellulant has set the pace for a long time. Loved reading about them in the “How we made it in Africa” book. The journey (17 years!) definitely has been worth it. Mosquito claps to Ken and Bolaji. Must read. 

Thales to support Ghana's financial inclusion drive: E-zwich definitely needs some innovation happening around there. Need more channels opened upcountry, especially with the merchant network there. 

Future of Genetically Modified Babies May Lie in Putin's Hands: Black Mirror in real life. 

WeWork Is Weighing the Sale of Its Stake in the Wing: Fire sales 🔥🔥🔥 about to happen quick! 

African Free Trade Stumbles With Nigerian Blockade of Benin: Top Nigeria trade negotiator passes and now this? 🙃

Everything you need to know about the North African startup landscape: We don’t talk much about what’s happening up north. Get a summary right here. 

14 Questions to Ask Yourself Again and Again: Introspection is a very key activity that needs to happen daily. Sometimes, cut all the noise, sit back and reflect on your life. Think! 

Workspace provider Industrious cites different path in avoiding WeWork's woes: On this episode of “We’re smarter than WeWork”

Airbnb Leans Toward Direct Listing Over Traditional IPO: As they should. Following in the steps of Spotify et al. 

New app claims it can identify venture capitalists using facial recognition: Dumbest thing I heard. And Black Mirror, hello? Anyway, not solving a problem. unless I’m just not seeing it. But watch the founders go on to raise some silly amount of money, while companies building ecosystems here can’t raise 1m$. Anyway, next. 

🎧🎧Podcast— What I’m listening to (1 podcast episode a day x 7 days x 4 weeks x 12 months = 336 podcast episodes). Broadening my experiences through others’ stories. 

Acquired: New episode out on Sequoia Capital. For the uninitiated, Sequoia is the firm responsible for building companies with current market caps of >3T$. All started with one guy called Don Valentine. I have 4 pages of notes from this episode. Might share. 

📚📚Book— 1 Chapter a day  x 7 days x 4 weeks x 12 months = 336 chapters. Most books have 10-12 chapters, so 1 year = 28 to 33 books. And my book list is nearing 1000 books. Send help 🌚

A More Beautiful Question: Want to know how to ask better questions? And understand why this is the best (and only) skill you need to have? Follow me and Jeph in reading this. 

Twitter screenshot of the day 

Fake StartUp Progress:

• Winning awards

• Conferences

• Pitch competitions that have nothing to do with your industry

• Press announcements

• Networking events

• Excess funder twitter activity

• Meeting famous people

• Optimizing BS Metrics

-@benji_fernandes 

Sent to me by big bro Gamor. We had a little debate on who the true entrepreneurs are in Africa and whether or not this tweet applies to them. For those who are still wondering, the market queen selling a container full of tomatoes and a bunch of other products is the real entrepreneur. She does none of the above but is one moving the economy with her positive cash flow, not the tech entrepreneur building a “Uber for xx”. This is Africa. Debate to be continued. 🙃

Remember folks: “Until the lion learns to write, every story will glorify the hunter.”