Serving Donuts
and other ways to lose money quickly
#15 *longish post, sorry*
I mentioned I follow my uncle Jason Calacanis quite religiously. Someone asked him: “How do angel investors react to portfolio companies that lose their money?” As an angel investor, you should know you’re taking the most amount of risk on any entrepreneur. But then again, high risk, high reward, so if it bangs, you’re most likely to be the biggest winner (depending on how subsequent fundraising rounds go, of course). But angel investing is not easy…basically, it’s high-stakes gambling. Why be an angel investor? Because that’s the only way the ecosystem will grow. No tech ecosystem became great from corporates/ governments investing in startups. From AI Superpowers: “…[Guo] didn’t want to only throw money at one incubator. He wanted to understand what really made Silicon Valley tick. Guo began peppering me with questions about my time in the valley during the 1990s. I explained how many of the area’s early entrepreneurs went on to become angel investors and mentors, how geographic proximity and tightly woven social networks gave birth to a self-sustaining venture capital ecosystem that made smart bets on big ideas.” This is how it is done. Money has to be re-invested, not stuck in offshore accounts and uninhabited apartments (*ahem* Ghanaian big men).
Saw this and thought it was pretty interesting and focused. And very true:
Pre-seed: bet on the entrepreneur
Seed: Bet on the team
Series A: Bet on the traction
Series B: Bet on the revenue
Series C: Bet on the unit economics
If you’re an angel, this is good advice: “Identify founders you want to be in biz with for decades & “Secure” your allocation by committing earlier than anyone else would.”
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Jason’s answer below:
“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.”
Article List— What I’m reading
Serena Williams, Usain Bolt invest in YC-backed endurance startup: “Mango seed raise for a startup I think could do pretty well. I think this is a smart idea. Cross-selling is probably where they’re going to make the most money.”
Vista brings in $16B for colossal tech fund: “Uncle Robert doing his damn thing! Got one of the strongest returns in the game and giving the most recent Morehouse grads a clean slate.”
A Breakthrough for A.I. Technology: Passing an 8th-Grade Science Test: “This thing is getting jokey. Read my post on Artificial Intelligence and let’s know your thoughts on whether humans will be around in 100 years or robots will be treating us the same way we treat ants.”
After Breakneck Expansion, WeWork Stumbles as It Nears I.P.O.: “Like I said yesterday, short WeCompany when it’s listed. These people are jokers. And read my WeEnron post oo 😬. Adam is not Steve. Or Jeff.
Robert Mugabe, Zimbabwe’s First Post-Independence Leader, Dead At 95: “No one is immortal. And this man didn’t even die in Africa? After shouting for x number of years, you never built a solid healthcare system in Zim that could treat you. What a man. Smh..”
The mystery of market size in Nigeria: “Had to read this article again to fully understand where businesses should focus when pushing consumer-focused products in Africa. Consulting with a company that focuses on marketing to bottom the pyramid. Very good information here.”
Podcast— What I’m listening to
Angel: Looks like this is an uncle Jason post. Want to know how angel investors think? Listen to him here.
Book—What I’m reading x2. My book list is nearing 1000 books. Send help 🌚
Still on Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future. First chapter done. Haven’t learned anything new about my president since I read the Wait But Why post but still getting excited by reading. Tony Fadell’s review goes: “This thrilling book will make you want to start a car company, build spaceships, and go to Mars. Then you get disappointed because you realize you’re not Elon Musk.” That’s powerful.
Remember folks: “Until the lion learns to write, every story will glorify the hunter.”
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