This Week in Startups - Critical cyber attacks of the last decade + How Jason Calacanis grew the Launch Fund: Angel S6 E7 | E1393

Episode Date: February 25, 2022

Molly interviews Jason about raising "LAUNCH Fund I." This season of Angel is focused on the nitty-gritty details of raising and running a first-time fund (22:47). Jason shares everything from getting his first check to his biggest mistakes. But first, we discuss the biggest cybersecurity hacks of the last decade and potential risks going forward (1:32).  (00:00) Jason and Molly intro the show, cybersecurity and Russia invading Ukraine, Molly interviews the OG Angel (01:32) Cybersecurity and Russia’s military invasion of Ukraine (12:40) LinkedIn Jobs - Go to https://linkedIn.com/angel and post your first job for free. (15:06) TikTok’s not secure, Florida water treatment plant hacked last year (17:27) Hiring “bounty hackers” for defense (21:33) Ourcrowd - Check out the deal of the week at https://ourcrowd.com/twist (22:47) Molly interviews the original Angel, Jason (36:52) Embroker - Get an extra 10% off insurance for your business at https://Embroker.com/twist (38:18) Jason tells Molly what didn’t work out with his first LAUNCH fund (48:14) When Jason knew the fund model would work (58:48) How his role as changed as the fund has scaled FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood Mentioned in the episode NotPetya: https://www.wired.com/story/notpetya-cyberattack-ukraine-russia-code-crashed-the-world/ Colonial Pipeline: https://www.bloomberg.com/news/articles/2021-06-04/hackers-breached-colonial-pipeline-using-compromised-password Solar Winds: https://www.npr.org/2021/04/16/985439655/a-worst-nightmare-cyberattack-the-untold-story-of-the-solarwinds-hack

All right, everybody, we have a great episode of Angel with a surprise guest today. Jason. Oh, that's me. Very cool. Yes, Molly interviewed me about raising my first fund 10 years ago or so, the launch fund won, which had a lot of great companies in it. But first, we're going to talk about some of the biggest cybersecurity hacks of the last decade because Putin has invaded the Ukraine, sadly, and he is threatening and saber-rattling

that he will be cyber hacking and cyber-tacking. and cyber attacking some of the other countries, possibly in NATO, which includes us. Shields up, everybody. It's going to be a great show. Stick with us. Season 6 of Angel is brought to you by LinkedIn Jobs. A business is only as strong as its people, and every hire matters. Post your job for free at LinkedIn.com slash Angel.

Our crowd helps you invest in early pre-IPO companies alongside professional Vee. If you're interested in investing, you can join Our Crowd for free at O-U-R-C-R-O-W-D.com slash angel. That's our crowd.com slash angel. And Broker's startup insurance program helps startup secure the most important types of insurance at a lower cost with less hassle. Save up to 20% off of traditional insurance today at imbroker.com slash twist. While you're there, get an extra temperate. sent off using offer code twist. All right, Molly.

It's been a lot of talk about cyber warfare because, as of the taping of this episode, Russia has started military and in military invasion, there's no easy way to say it, of the Ukraine. And we thought we would pause for a minute here on this weekend startups and talk about cybersecurity. Yeah, the background here is that cybersecurity experts are warning American businesses that they need to go, what they call Shield Zone. up right now, be prepared for the very high likelihood. Because, you know, upon the invasion of Ukraine, Vladimir Putin made it very clear, issued this really terrifying statement, right, where he

essentially said, anybody who interferes from the outside should be prepared to suffer consequences, the kind you've never seen throughout your history. All decisions, all relevant decisions have been made here. Now, a lot of people are interpreting that to mean that he is threatening nuclear war. It seems pretty... It actually seems more likely that what he means is we will unleash cyber warfare and attack critical infrastructure at a level that you've never seen before. There have been a lot of major hacks throughout the years and we're going to go through some of them that have originated in Russia. And there have been a lot of what appeared to be to cybersecurity professionals intrusion attempts, like testing, basically, of things like power plants, things like water. systems. So like critical infrastructure that can be really, really damaging. And the reason this is so

important is because of NATO. So NATO's Article 5 is the principle of collective defense in the NATO founding treaty, which says if one of our member countries is attacked, we all have to respond and now includes cyber warfare. Oh, really? I did not know that. I learned something on the show today. I know. So if something like the colonial pipeline and the solar winds of the two, I remember the names of, but I need a refresher on what exactly happened in those so I can be a little more educated as to what could happen. Like before we even get to what could happen from the hacks, worst case scenario is, and it's highly likely. America or some other country tries to intervene here with sanctions or some other intervention. Russia launches a cyber warfare attack against one of those

countries, let's be honest, most likely us, that triggers Article 5. Ethan, the Nody is correct. And boom, we have World War III. Theoretically World War III. And the cyber attacks themselves can be unbelievably damaging. Right. Like beyond anything, I think we can really imagine. So we have a little, yeah, we have a little So maybe not as idle a threat as it seems. And certainly I don't think he's threatening nuclear, which I saw the mainstream media on all sides was like, oh my God,

he's going to drop nukes. It seems unlikely that Putin would gain from dropping nukes. He's obviously going to gain from what he's doing now in terms of the minor excursion to date. And let's hope it stays minor. But, and it really pray for the people of the UK. Well,

I mean, it's not a full scale carpet bombing and 190,000 troops have crossed the border. What tanks are literally rolling in tanks? I'm just talking about, the death toll. You know, like, I'm just hoping that the death toll stays very low. And, you know, I mean, if we looked at this like some of the excursions we had in the Middle East, shock and awe type situation where, you know, 100,000 people died. That's what I'm hoping this, you know,

doesn't get to. But, you know, that's just a hope. And we're obviously praying for the people of the Ukraine and for this to be resolved. But let's talk about the colonial pipeline. I remember that. this had something to do with stopping basically the flow of gas, right? I mean, this was a ransomware attack. But looking back at these three largest hacks, colonial pipeline is, of course, the most recent that. That was the one in April 2021, where hackers came in apparently through Bloomberg's VPN, its virtual private network account. They took control of the pipeline and did this, you know, ransomware, which if you're not

familiar is where somebody takes control of a network or a system and says, we're not going to let it go until you pay us. In this case, they wanted $4.4 million. Apparently, the hackers were an affiliate of a Russia-linked cybercrime group known as Darkside. And yeah, it turned the gas off. Hmm. And that was this, I remember this was a southeastern United States. This was in May of 2021. And it halted operations. They wanted like 75 bitcoins. And on, receipt, they restored the system. On June 7th,

the Department of Justice announced it had recovered 63.7 of the Bitcoins, approximately 2.3 million from the ransom payment. So I guess paying in Bitcoin is not as anonymous or foolproof for terrorist organizations. And this was the criminal hacking group Darkside were responsible.

That was a bad one. Yeah. Then there was not Petia, which was... Petia. I don't know this one. That was the terrible one. That was the one that affected Mersk, the shipping giant. They got into Merck, the pharmaceutical giant, FedEx, the food construction companies, Mondalese.

This was massive, a massive ransomware attack. I think each one of these companies, the ransomware inflicted more than nine figures of damages. And it did that, it affected them all at once. This was from this Russian hacker group known as Sandworm. And it was in 2016. and they got through this Ukrainian software company called Linkos Group, which is kind of like a quick inner, a turbo tax, and then got access to all of these dozens of major companies.

It was huge. The White House said the impact of that were $10 billion in total, at least. Mersk in particular. I mean, that was bonkers. They essentially had to shut down shipping, because all the information they needed to run the business was frozen until they paid up.

Crazy. There was that one. And there was the one by North Korea where they hacked Sony. That was just embarrassing. So that wasn't as big of a cyber hack that we would expect here. Although the embarrassing ones are,

I guess. They're bad too. Yeah, I mean, they're bad too. They create a lot of headlines, but they don't shut off oil or shut down critical systems. Too. Like, sometimes they're just a proof of concept, like does our tool work.

And we'll see. And then of course, solar winds, because that's the one I remember the name of, but I don't remember what happened. Yeah, Solar Winds was like that huge deal right before the pandemic and then everybody immediately forgot about it because it was super huge. I believe also meant to, yes, Russian in origin. This was a big hack on government systems. It included businesses also, but so SolarWinds is a company that develops software for businesses to manage their network's systems and IT and infrastructure. They got into that. Solar winds had over 33,000 public and private sector customers, including almost all Fortune 500 companies and government agencies. And as more information came out

about this, you started to realize that they had hit Department of Justice, State, Treasury, crazy, commerce, energy. I think even Homeland Security, like they got into everything and just had, and this is what is so scary about this exact moment, where, this threat is coming from Putin, because we have yet to even see the impact of what Russian agents were able to gather during the solar winds hack. They were just hanging out in these systems getting unfettered access to nuclear secrets, top-level communications, top-secret information for months before this was detected. Right. And so I guess we need to know, or you would think after solar winds and these other exploits,

we would have had our government go to critical infrastructure, pipelines, electricity, water supplies, and think about those. And I guess the question is, at what point do we start looking at these attacks in a more serious way? And responding to them in a more serious way. I don't know the answer to that. But, you know, do you respond with? a physical attack to a cyber attack, or can you only respond with a cyber attack? I don't know what is proportional response in this case, but let's hope that this doesn't come to pass.

I think that we imposed sanctions as a result of solar winds, or there was certainly pressure to do that. I'm about to stray into previous administration politics, which I'd rather not. It's always fraud. There was not a, you know, there was not considered to be a proportional response to the solar winds hack at the time. But there is a lot of question about the U.S. cybersecurity posture because we do have this kind of deterrence posture, but not, it's more like prevention as opposed to response. And so there's a sense that we need to get a lot more aggressive. And also, we're just not staffed up. Like, we don't have enough cybersecurity professionals in the U.S. government at all.

It always seems that this happens through third-party software because Solar Winds was not just like a code name. That's an actual software company. Yep. That was hacked. And so when these things happen, you know, it's usually Microsoft software or SolarWind software or VMware. Somebody is not plugging their holes. And this is where I think paying bounties, probably the best thing we can do, is to generously pay bounties

to people who find hacks and use open source software where it's open kimono and you're going to see everything inside so you can defend against these issues, right? And that's where open source has got such a huge advantage.

Yes, everybody can see everything, but what that means is the holes are plugged in real time and fast. Yeah, it's also why, yeah, if you're a startup, be prepared to clear these hurdles, right? be prepared to be put through a very rigorous process, especially if you're going after government contracts. But yeah, you don't want to be the, what was it in that big target hack that resulted in

all that identity theft? They got in through the HVAC system. What? I yeah, yeah. We also don't need to put everything on the internet, you know? Yeah. Like, we're not, I mean, when it, when it comes to this particular war, like, there's essentially a ground war happening in Ukraine, but, but we're not, I don't think a hundred, we're not at all prepared from a cyber. security perspective for the fact that this is a completely different kind of warfare. Yeah. Well, imagine. And it's going to probably expand in that way. It's a new year, but for some businesses, it's harder than ever to find and hire qualified people. I know this. Oh, my God, and it's so true for small businesses. And that's where LinkedIn jobs comes in. They make it easier

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which is, for me, that's the thing that makes me go absolutely crazy when I get too many people applying for the job who are not qualified. A great screening question just solves that problem. If you're hiring somebody to work in podcasting as but one example, you could say, tell us what are your three favorite podcasts and why? or what do you think makes a great podcast in one sentence or less? You know, you ask a question like that, and you really get a feel of how dynamic somebody is and if they're serious.

And you want those serious candidates, and those serious candidates are on LinkedIn just like you are. The tools are so simple to use. They let you quickly filter and prioritize who you want to interview so that you can really have that efficiency. Sometimes it's not that you can't find people. It's that you can't find the great people. And the great people are on LinkedIn.

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And here's what I want you to do. I want you to post your first job there for free. LinkedIn.com slash angel. LinkedIn.com slash A-N-G-E-L. Once again, LinkedIn.com slash angel to post your job. for free. Terms and conditions, of course, apply because they're giving you something for free. Let me take you through a scenario, Molly. China invades Taiwan. And then they take TikTok and they know the location and they have access to your camera roll and they take, I don't know, God forbid,

the children or the spouses of specific people in our government. They hack them. They hack their private photos. They hack their private conversations, their email all through the tick TikTok app. Sounds crazy. It sounds like a conspiracy theorist. I know everybody loves TikTok and it's highly entertaining. That is a massive threat to our country because as we just explained, it's usually some third-party piece of software that then compromises the rest of the network. Guess what? There's tens of millions of Americans who have opted in to sharing their camera role and their phone and the microphone. You all clicked, location okay, camera okay, camera okay, you know, audio okay with a Chinese piece of spyware known as TikTok that we allow in this country.

I know I sound like a kook. We have to ban TikTok. Let some American companies copy the format like Zuck did with Snapchat. Ban that. It'll go to these new apps. American companies will own it and the Chinese will not have access to 50 million Americans' phones. In other words, all Americans. You know the location of every important politician if they're with a child who has TikTok on their phone by proxy.

You know where they go to dinner. You know where they hang out. You know their home locations. I'm sounding like a crazy conspiracy theorist, but this is maddening that we're allowing this level of access to a Chinese company given China's propensity to spy. I mean, I'll definitely give you that one. I will say the one that's a lot scarier is like last year almost exactly this time

when somebody hacked the water treatment plant in Florida and like poisoned it, like set that, you know, or attempted to set the, levels of sodium hydroxide. What? To a hundred times the normal level. A hundred times. Yeah, yeah. And they have testing.

Here's something. They have testing on those plants, right? They're testing the water constantly. So if somebody did do that, I'm thinking we'd catch it. I mean, that right? Like, how confident do you feel about that with every water treatment plant in America that now they've put online and they've automated a whole bunch of it and they've just tried to like walk away?

Here's what we should do. The United States government should put $100 million into a fund. And they should give out prices to the best hackers in the country who make the government aware. In other words, a bounty program, but make it not just a bounty program, make it like these people are the greatest, you know, celebrities, you know, athletes in the world. And just pay them a million dollars each year to break into. really are as a warrior, right? You need to set them up as our Captain America. Yes, they're Navy SEALs.

They're the Navy SEALs of the next generation of warfare without a doubt. Yes. Like they really are. The next wars are going to be fought. They're either going to be the last war ever because they're nuclear. Yeah. But most likely it's going to involve like cybersecurity and cyber attacks at a massive scale and we're still fighting the old war.

I mean, this was like the thing that really upset me about Aaron Schwartz. For those of you don't know, he was just a really nice kid who. I had met at some conferences. He might have been part of Y Combinator. I think he was out of Y Combinator company. He was at MIT. And he was a hacker in the good sense of the word. You know, like to do stuff.

And he was given the title of co-founder of Reddit after the formation of Not a Bug, which was a merger of Schwartz's project with the company that Alexis O'Hannon and Steve Huffman created that you know as Reddit. Anyway, he wanted to, make research free. So he broke into, and I'm using air quotes here,

a closet at MIT and put a hard drive and a laptop or something. And he just recorded all the papers and documents. And he just wanted to have access to all this literature. He wasn't like stealing credit cards. He was like literally stealing papers. And they came down on him so hard. The police J-Store was, yeah. And he wanted the academic journals from J-Store, which if you were in any kind of, yeah, if you're in any kind, it's just really depressing, but he killed himself, long story short, because he was under so much pressure by the feds. And this is somebody who could have been an asset. You could have, instead of giving him a million dollars in fines and harassing him and, you know, for stealing academic papers, you should have offered him a goddamn job, you morons.

this is the kind of person you court who has unlimited upside in finding exploits, etc. It would be like taking somebody who makes a new sniper rifle from a 3D printed gun. Do you put them in jail or do you tell them like how would you like to be in the sniper program?

We could use your skills. Like when Professor X found Wolverine he didn't shun him he said let me train you. And so with these mutants and I mean it in the best sense of the word, man, we need to just get him on the payroll because that's what Putin does.

Putin finds these folks, and he's like, you're hired. Let's take that approach. Pay them well. Make them white hats. I mean, imagine, if that had happened, imagine how much more ready we could be and he would still be alive.

And he would still be alive. That's an appalling story. It's like one of those just horrible stories that I just, I wanted to only bring it up because he's not necessarily like the world's greatest hacker. I'm not saying that. But just as an example of how the government treats people who do even the modest amount of hacking, you could channel that energy. Clearly had energy to figure out solutions to problems. Just channel it. And let's protect our country. And man, like, you know how many secrets Putin has? All this money shifting around. We could hack, if we could hack his accounts and find Putin's Bitcoin and Ethereum and have He's, you know, Putin's got all that stuff locked up somewhere. Let's turn him upside down before he does us. It's time for another R crowd deal of the week. Right now, you can join our crowd's investment in Future Family. According to the deal memo, future family, provides millions of families with access to affordable treatment through

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Just sign up for free and read all those deal memos for free and get smart. All right. You know that on the Angel series here, we've been interviewing first-time fund managers for Angel Season 6. We've had an incredible season so far. great guests like Mac the VC, Paige Doherty, David Rosenthal, Monique Woodard, to name a few. But producer Nick had a great idea, which is now that there's another person here to do some talking and question asking. We should interview the original Angel, Jason, about raising the first launch fund, which was called launch fund one.

Jason, evidently, we're going to do a little bit of origin story here. I love it. started thinking about raising launch fund won all the way back in March 2013. But we have to give credit here to Jason Bestie, David Sacks, at the 2013 launch festival, who apparently in this 63-second clip had the idea. In closing, you've had a pretty good run here at the launch conference. And we were talking backstage and you had this incredible idea. Let's hear it.

Well, I mean, the reality is there's so much interesting stuff going on out there. I mean, in the demo pit, on stage here. I mean, there's more than, you know, any human can keep track of, except for you, I think. You're like the only one that can keep track of all this activity. So I said to you is, you know, why don't you pick, say, the top five of these launch conference startups every year, and I'll invest, you know, I'll make an angel investment, say, like, $50,000 each. So we'll do a $250,000, a little mini fund. And you just pick the winners, and I'm behind them.

Wow. Big round of applause. You've just seen the formation on stage of the launch fund, I guess, we'll call it. Yeah. So now every... And just, you know,

we'll give the launch conference a 20% carry like a VC would take. So if you pick the winner, you pick well, the money will go into the conference. Yeah. If we had done that with Yammer, probably like a $30 million company

that would have been a $30 bagger. Is that what you were about to say? You can remember the whole conversation now. you're like, oh yeah, that time. Yeah, it's coming back to me. I remember nothing until I see it and then it all starts to fill in. But yeah, that was kind of the origin story there. I mean, first of all, also, if you are not, if you did not see this on video,

you got to go find it because the suit, the three-piece suit that Jason is rocking a spectacular. Producers note, this is also the last time David Sacks gave Jason credit for anything, a remarkable moment, really. That's hilarious, yes. But, I mean, this is so interesting because I, I have asked people how launch fund came about. And this is roughly the answer every time was just that people were like,

Jason's really good at this. And so his rich friends wanted to give them their money to invest on their behalf. Yeah, basically. I mean, what happened was I, as a startup advocate and former journalist had a network. Some friends of mine were starting companies. One was like investing in electric car company.

Another one was creating a poker company. And they were like, another one was creating Twitter. And they said like, hey, do you know anybody? who, you know, might want to invest in this. And I was like, oh, yeah, Fred Wilson, oh, this person on Sequoio, this person here. And I would just forward founders around for free. You know, it wasn't like taking care of anything.

And I thought Angel investing was stupid because I was like, I'm going to bet on myself. I'll throw all my money into what I'm doing and be focused, which is a theory, you know, like, it's a good thesis, actually, as an entrepreneur. If you're in your prime entrepreneurial years, I do think focus matters. And that's when Ruloff came to me and then Sacks. And they were like, hey, you know,

Rulof kind of said, hey, here's some money to invest from the Scouts program and then... Remind everybody who Rulaf is in case they just got here, because you do pick up a new fan every day. Yeah, Rulof Botha is, when I met him, was the CFO of PayPal who had become like a new, you know, junior partner at Sequoia, along with Alfred Lynn, who had been working at Zappos. And so they were kind of the young guns there. And they created the Scouts program, which was like, here's 2550K. And in those days, 50K into a $5 million company was 1%. Because that's what the valuations were. So my thesis was, hey, let's do 100 investments or so and raise 10 million, and I'll take a 20% carry and no fees, just illegal fees. So I didn't take any fees. And I just did it like as a side hustle while I was running other companies. And, you know, of course, that fund hit Com and Robin Hood and, you know, a bunch of other unicorns.

And it did very well. It will historically do very well. And I just passed the hat at poker and a bunch of friends said, yeah, put me down for 50, put me down for 100. and then one friend who was doing that introduced me and he said, you know,

our mutual billionaire friend who's retired now, he actually allocates, do you want an introduction and he just emailed them and this was like the big moment for me. I was collecting 50K checks and that person said,

yeah, we'll put $5 million in. And they took half the fund. And that LPs so with someone would say which one it is, but you know, that was like a more formal kind of thing and,

you know, it just spirals like, Now you don't know where your luck's going to happen. So you can be collected, these 50K checks. And then somebody's like, yeah, that fund manager seems smart. Let's bet on, you know, them. And that's what happened to me. And I closed up to 10 really quick.

I deployed it over, I think, three years. And then we did launch fund two. And we're wrapping up launch fund three. And we generally don't talk about, you know, future funds. But, you know, one, two, three, there's a number that comes after three. Before five. So theoretically, if I did raise another fund, it would be launched fund for. Let's unpack some chunks of that.

So you close $3 million immediately from close friends. It sounds like I've known most of the LPs for over 10 years, got this large investor. And then on September 24th, 2013 is essentially the announce. You send this email to the big list, which is what? The list of like all of your connections and everybody you've ever known. Yeah, I mean, basically I had a big list, which was, yeah, and just said, hey, over the next five years, We'll invest 100 to 250K and 50 to 100 startups. I think we did over 100.

But it was just like my first fund, like a little experiment, which we heard from a lot of people today, like, you know, learning the game. And, you know, there were some mistakes there and there were some brilliant things. And there were things I would change and have changed since then. So you said, I'm super excited that I've closed my first formal angel investing fund, the launch fund one. Additionally, I've started one of the first angelist syndicates, more on that below. So it was really this kind of dual structure from the start.

start. It sounds like a fund on the one side. And by the way, I met someone here at this conference that I'm at in Arizona who was like, I mean, I've met several big Jason fans, but one in particular was like, I really appreciate the way that Jason helped democratize this industry by having a fund that also launches alongside the syndicate. So talk a little bit about the decision to do that. So, you know, one of my theories at that point in time is that I'd say yes to things. because, yeah, I was just trying to get something going, you know, and the times in my life where I just said yes to something and took that leap of faith, you know, good things happened.

And there's a long list of things I said yes to, like probably three or four a year that resulted in nothing. But one of them was Naval had shown me syndicates, and he taught me how SPVs work. And when I was putting 50K in Launch Fund 1 and to come, he said, you know, you could share that with the syndicate. So I shared it with, you know, 150, people who are on the syndicate, I think $328,000 came in. So I was like, wait a second, I'm putting

50K in from the fund. And now it's exploding 6x plus, you know, 6.5x in additional investment. So I was like, wait a second, that's kind of like I have a $10 million fund plus a $60 million fund if it were to happen on every deal like that. No, it didn't happen on every deal like that. But it becomes a magnifier and it lets more people in. And then I said, hey, there was a lot of questions, well, how do you determine how much you're going to put, you know, if you have a small allocation, how much goes to the fund, how much goes to the syndicate? Then the syndicate on their side, we're like, well, what companies get syndicated, the ones that are bad or the good ones? And I said, okay, I'm going to come up with some, you know, rules of the road here. And

the first rule of the road is the fund gets 100% of deals. So there's no syndication of a deal that the fund's not in. Period, full stop. So anybody who's an LP, they're the highest class of, you know, commitment. So they have access to 100% of deals. And when we reach what our goals are in here, it's, you know, put 100K, 250K into a company. When we hit our goal, if there's any allocation left, we will offer the founder to syndicate. And we'll offer every founder we invest in to syndicate. And it's up to them. We can't put a gun to their head and say, you have to syndicate your company. Some people don't want to do that process. Some people do. Some people have allocation left over. Some people don't. And so about 50% of companies that we

offer it to choose to do it. If you're a syndicate member, you have access to about half of the deals we do. The other half, either choose to not do a syndicate or they don't have the allocation available because their round is oversubscribed. So why else might, I can understand choosing not to do the syndicate because you don't have the allocation available and you don't want to dilute, but what are other reasons that founders might decide not to do the syndicate? They may not want to do the rigorous process, which we require. which is it can take, you know, four to six weeks. You have to write a deal memo.

We require that people do a webinar. And so some founders might not want to write the deal memo, and they might not want to host a webinar and actually talk to, you know, at the time it was 300. Now it's 9,500 syndicate members. And so you're sharing your information with a wider group of people, and you're getting a large group of people. Some people see that as a huge benefit because you're upping the profile of your company.

But some people don't want to go through the six-week process, right? They just want to close quickly and they have other sources of funding. Other people look at and go, wait a second, I'm going to get 150 people. And J-Cal is going to go from owning 1% of my company to 5, which is what happened in Com. I like Jason. And that's great. More money for us and one person on the cap table. And then all those people who are in the syndicate than act as advocates.

So there was a founder who was talking about like the mob nature of what we do and like all these VCs investing in one company. and then not in others, and then they've picked aside. Well, when you get 150 people who are high net worth individuals who have now put on average $7,000 each, that's kind of our average six or $7,000 per contributor in the syndicate, they're voting with their dollars to support you. So when you send them an update and you're like, I need a CFO or I need an introduction to Disney

or does anybody have an experience with a patent attorney that's affordable or I'm going to Miami and I'm looking to meet people in the finance industry? you're going to get people hitting the reply key. So instead of having 10 investors on your cap table, you've got 10 plus 150 sub-investors on one item on the cap table, the SPV, special purpose vehicle, you know, Jason Syndicate, who can help you. So you can literally 15x the number of investors in your company.

And that's what you're seeing with equity crowdfunding as well on Republican seed invest. People are raising money from their customers so they get them to be more loyal, right? If you could have invested in DoorDash or Uber Eats or Postmates, whichever one you chose to invest in as a consumer, you would use that one, right? Yeah. So it's a way of building, I think, consensus around your idea and your startup.

Well, it's also interesting because it allows launch in many ways. Like, it allows us to offer a lot of services, right? You have all these firms, like big BC firms who are hiring a ton of people, building out big huge departments, like adding a lot of headcount and payroll so that they can be service providers in addition to investors. And it sounds like you've sort of, also figured out a way to just like have that included for free.

Yeah. Okay, so launch fund one, by the way, of course, when you did this, you were also the original like media slash fund manager. And now everyone is trying to figure out that same model. I mean, it is interesting that you didn't want to become an angel because you wanted to focus on being an entrepreneur. Then you became an angel. You write in the book that you did not want to be a venture capitalist and have a fun because

your idea of hell was being in a bunch of media. meetings where everybody also had to build consensus. Now you're like on a third fund. The funds are getting more established. Like are you finding that you're having to have you now made the third accidental transition into a thing you didn't want to do? Yeah. I mean, I enjoy what we do immensely.

And scaling it has been fun. And we keep meeting great companies that we want to be in business. And so yeah, we're scaling it. I think we'll, you know, double the amount we invest roughly. every year or so. We're not forcing ourselves to do that, but I think we can intelligently scale it. And I just enjoy doing it. So, and I feel like we're very good at it. And the democratization of it is really the thing that gets me most excited. And we just closed our largest syndicate deal ever $6 million. I think, you know, we were averaging 200 to 300K for the first couple of years per deal.

So that means one deal now is the size of roughly probably the first 20 deals we did. And so scale is coming to this, people said syndicates would never work. People said equity crowdfunding would never work. People said microfunds would never work. You know, it's, I think innovation in venture capital, you know, everybody's like, this can't work and then it inevitably does. I'm interested to see how far we can take it. And that's part of why you're here as well. It's like, hey, if I was the, you know, if I pioneered this idea of like being a media personality, journalist and investing and using those two skill sets, you know, you're the second one here. And, you know, you're the second one here. And, You know, it's possible there could be two more Mollys and two more Jasons here at some point who are doing what we're doing, which is using our chops in journalism and media to find great companies, to analyze great companies.

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Stupid. And right. So that meant that outside of legal and accounting fees, the fund was supported entirely by the media company is my understanding that at some point that caused some problems. Well, I mean, it's just. dumb. Like there's nobody who's investing in a venture fund who's not used to paying two and a half percent in fees. And that fees would have given me $250k a year, which would have been able to hire a couple of people, support staff. And that would have been better for me,

for our investments and ultimately for our LPs. I thought I was like kind of doing this favor to folks, but I don't think it actually was a favor. I think it was a mistake. And I think when you're raising these funds, having the ability to have management fees, which come out of the returns, by the way, It's not like they give you these fees and you just, you know, get to spend it like it's a lottery ticket or, you know, gambling winnings. It comes out of your gain. So if you were to return $20 million on this $10 million and you took 20% of you get $4 million, if you had taken $250K a year for, let's say, four years, you'd have to give that million dollars back. So you would net $3 million in carry instead of four, right? You understand that.

I mean, I do. I'm also kind of surprised by that. Like, it just sort of feels like you're being, no matter what you're doing a service. It seems like you'd only have to give it back if you lost. money. Well, the idea is we're going to give you some of the fees now ahead of time to run it, and we'll just take it out of, you know, the gains. So it's just a way for the funds. So all the more reason that not charging those fees didn't really make a lot of sense. It didn't make a lot of sense. It was just a dumb decision on my part. There are people who are like, oh my God,

the fee structures, the fee structures. You'll hear that once in a while. The truth is, it comes out of the GP carry, ultimately, and it gives you the ability to invest. So what Andreessen Horowitz did as a concept was they said, we're only going to hire a bunch of, you know, I hate to say it, white rich guys who, you know, had SaaS companies to be our partners who are independently wealthy, so they don't need to take a big salary. And then we can put that money towards a marketing department and HR department. That's how it was told to me by, you know, people inside of that company.

They would only hire rich people to be VC's there. And if you look at the group of people, it was like, oh, yeah, this person worked at Microsoft, made a fortune, this person had startups, etc. And you give them credibility, right? They're all winners. So it wasn't exactly a bad thing. But yeah, the fees really helped. And then we were the first to add a fee to every syndicate deal.

Because then what we realized what syndicates were, we got 150 people who invested in Com or whatever it was, Com was less. But on average, I think we're having 125 or 150 people per deal. They want support. In what happened to all these syndicates was they had no support staff. So then you get to 20 syndicates. It's all fine and good. and then people start asking your questions.

Where's my K1? How's the company doing? I haven't gotten an update. What's my tax treatment? I'm from, can I change the name of my trust? You know, how do I do this? And all of a sudden, the more deals you do, the more painful your life becomes. We did the opposite.

We said any syndicate deal we do, I think we started with like a 5K fee. And I think we have a 5 and a 10K fee. So we take 5,000 out of the money invested. So it doesn't affect the founder in any way for deals. under 500, I think we charge 10K for up to a million, and then over a million we charge 15. So it's basically 1%. What does that 1% buy you? A support staff.

Who can answer the phone and call people back? So, like, if you went to a hotel, you're like, this is a beautiful room. Oh, my God, this is the most amazing view. This is the greatest hotel ever. And then you called the front desk and nobody picked up. You'd be like, well, this is the worst experience I've ever had in my life. You can't get room service. I can't get ice.

There's no concierge. Like, what kind of hotel are you running here? So we added that. And so I think that was Angelus's big mistake because they didn't put any kind of fee structure on top of it. So lots of learnings. And then also the other kind of big aspect of what we do at launch is the accelerator and all of the curriculum. So there's the incubator, the accelerator, like what made you do decide to do that and roll events into, you know, this whole kind of operation? I mean, it's always been, it seems like simultaneously a media operation and investing arm.

and also a lot of education that's free. Yeah. So what I started to realize was, you know, the launch festival, you know, before I was called TechCrunch 50 and I was partners with that guy. Then we broke up and that was the greatest thing that ever happened. Right. I forgot about that. Yeah.

I was kind of tied to a guy who's, you know, let's just say, you know, his way of doing business was not the way I can like to conduct myself. Didn't work out. It was just causing all kinds of problems. And it was the greatest thing ever because, Once I got that sack of potatoes off my back, I was able to run really fast. It was like a load of bricks. The goodwill and the joy increased.

So I think picking partners, if you pick one who's really cynical and dark, things trend to a dark place. And it was really the best thing that ever happened, or in the moment it was pretty messy. And then when I controlled the conference, I could do things like make it free for everybody. And then eventually we gave all the demo pit tables away for free. And I think the largest one here in San Francisco hit 15,000. and then we did the two years in Australia before the COVID, and I want to bring it back next year.

And the concept was very simple. I came up with 50 companies launching, giving them three minutes each, coaching them on how to pitch. We didn't require it, but we said, hey, we'll like to invest. And then the reason we did the accelerator was so many of the companies could not clear market with investors.

That's what we heard over and over again. But we looked at them and we were like, this is going to clear market with investors in six or 12 months. And we could really support them. So we came up with the accessibility. Accelerator concept, the launch accelerator. We originally called it an incubator, and then we were like, we're really accelerating, not incubating.

Incubating means like somebody has an idea and you hatch it. Accelerating means they've already got an MVP and maybe a couple customers, and we accelerate what they need to do, add customers and get capital in the door from investors. So we did it as an experiment. We've now done 24 classes, and, you know, it's a better product than Ycombinator's product for the founders, for sure. But we're not trying to scale it in a really, major way because I kind of feel like if you go from 7 to 14 to 21 in a class,

it's just, it's not fun for me. It's not magical. So we started to look at all those events and said, if we can remove any fees and make them bigger, that will increase our deal flow. And now we're sitting in a place where, you know, the reason I was very successful early on was my deal flow. Now the deal flow is actually a burden. We have so much deal flow. And this is the burden of success in venture, and one I'm still trying to figure out how to get around, and you see me doing it every day with building processes here at launch and the syndicate. How do you scale when you have too many people contacting you? You need people, and then everybody wants the celebrity, right? And that's the problem of being a celebrity investor.

If I don't meet with somebody, maybe they feel, oh, Jason doesn't care. And I just really am honest with people. I'm like, we're doing 50 meetings a week or something in that range as a called from 500 people coming in, you know, or whatever, hundreds of people, I'm probably like 200 qualified people contacting us. It could be hundreds in a week. There's no way for me to humanly do it. So, but if somebody does say like, I'm really, like it happens once in a while, you probably have been privy to this. Like, I thought I was meeting with Jason. And I met with this person. I'm like, oh, well, we want to make sure it's a fit for you with that introductory meeting so you just understand the firm before you get on the phone with me. So your conversation with me, if it does get to that point, it's a fit for you. fit for you and then, you know, my team feels it's a fit for us. We don't waste your time and we can start our conversation just about your business because you know everything about us and how we operate and you've already opted into what we do. The process is, as best as I can tell, what we do in investing in capital allocating is a process that needs to change based on market conditions, your goals and what founders need and you just got to constantly look at it and refine it,

right? I'm really a process person now. How big an evolution is that for you? I don't I feel like the way you said that was like a big admission, like my name is Jason, I'm a process person now. Well, you know, it's like you go from, you know, when you go from being a bounty hunter like BobaFat, you know, and you're just like, I can just capture anybody I need, just send me on a mission. And then all of a sudden you're like, you know, I need a tribe if I'm going to, you know, get to the next level. And it's hard and people are going to try to kill you in the streets and some people might stab you in the back. Yeah. At some point, you need a tribe, I think. And, you know, you see it all. also in professional sports, right? You have somebody like Michael Jordan or you have somebody like LeBron James

and they try to put the whole team on their back and score 40 points. And great, you know, they get to the finals or they get to the playoffs and then they get in the playoffs and they realize, you know, in a seven-game series, you're going to need to have your Clay Thompson, you're going to need to have your Draymond. It's not just about stuff, right? Yeah. And really, I think breakout success, you know, only happens with a team. And so that's what these little funds, you'll see, you know, someone like Mac,

will not be defined by these small funds will be defined by the three or four people he can put around him, right, over time. And that's why I really enjoyed this series. It's looking at these nascent funds and watching them figure it out and kind of cool series. I like this season of Angel.

It's been very interesting for me. It is super interesting, obviously. It couldn't be better timing for me either. But when did you know, like, this is, you know, questions from producers, when did the fund start to work? Like, when, what was the moment when you were, you know,

there's obviously the part where maybe, ran out a little money because of the fees thing. But then there's the part where you were like, oh, dude, this is going to work. Yeah. This is happening. Or did you have that feeling all along? Because people were like,

take my money and invest it for me. Yeah. I mean, one of the things that was an interesting signal that things were going to work was when people started asking to buy my positions and companies. So the secondary market, which was just getting started, you know, after Facebook started selling secondary shares,

when people kept asking, me, hey, you know, Uber's at $5 billion. Can I buy your Uber shares or, you know, you want to sell your thumbtack shares or your Robin Hood launched, hey, you know, do you want to sell your Robin Hood shares? And then you start seeing the up rounds that occur. And that's when you start to realize, huh, you hit something. But I think more than anything, Com was the one. For me, that is super rewarding. And watching Com just send their monthly updates, they were really good about sending them. And the best companies typically are. You just started to see the revenue numbers keep going up and the subscriber accounts going up. And then when Apple went from

charging for an app, 10 bucks one time to a subscription model, all of a sudden their revenue kind of went up into the right. And it was like, okay, I was just watching their cash balance increase with every update. And I'm like, you guys don't need to raise money. When are you raising money again? They're like, what would we do with it? And I'm like, great question. Like, this business is so profitable. And they went from a $5 million round. And then they email me one day And they're like, hey, we're going to convert these notes or whatever. And the notes had been sitting out for a little while, had a little bit of interest on it. And I was like, yeah, whatever.

I'm supportive. And I'm like, what's the valuation? Like, $250 million. And they're like, would you like to sell some of your shares? I'll sell a little bit. And lock in 50X? Yeah, sure. And so that was a really big win for me.

And then personally, what I was very proud of with that one, and I think this is where you start to get good as an investor is, when you hit a non-consensus bet and it really works out, that really does make you, it's like calling somebody's bluff and poker. You made a bet, but most other investors passed. Exactly. That's what my consensus is a great definition. I mean, I know what the word means. I'm just making absolutely sure that. Yeah, no, I mean, that's literally. We're translating here for new people. The perfect, you gave it the perfect definition. Like, you made the bet and nobody else

would, when nobody else would. And I think subsequently the team at Com told me they had met with 40 investors and they all said no and we were the only yes. And then they further told me they were going to shut the company down if I didn't come through. with the money. So that really like, open your heart up a little bit. And you're just like, oh, wow, fascinating. Like, I really actually, you know, I played a part here. You know, with Uber. At one point, I was at a party with Travis, I don't think I've ever told this story. And somebody

was like, you're the luckiest bastard ever, Calacanis. You don't. And Travis said, I'm going to stop you right there. Jason was critical in the success of Uber. And he supported me when I had my previous company and he supported founders for 10 years, the fact that he did so well on Uber is the culmination of a decade of him supporting founders. And he brought us three of our first five investors, not just himself. And it was a very also a heartwarming moment for me, too, because, you know, people were like, oh, you got lucky. And it's like, well, of course, there's luck involved here. But there's also process and there is also intentionality. And so it's a good question of like, when did I actually think I was good at this?

I mean, I knew I was good at it from day one because I had referred my friends, you know, to other VC firms and they went on to build multi-billion dollar companies. So I knew I would be good at it very quickly just because of my deal flow. And also as a journalist, you know this, like you kind of get a second sentence

when somebody's bullshitting you or their media trained. You and I ran into this on a recent episode when, you know, the Gold Club founder was like, that's a great question, Jason. Let me tell you our origin story. And I was like, no, no. No, don't want the origin story. or he wants you to tell me about margins.

Let's get this like on track here. You know, we can get to the origin story. And then, of course, he snuck it in, but I was like, well done. I know. Then you got to respect it at that point. Yeah, I guess like, okay, fine. I'll give you your moment here about your origin story. I was talking to your, our mutual coworker, Mike Savino.

Yeah. You know, asking for his advice too. And his basic advice, and I wonder if you shared the same thing is like, listen, And if you want to be a VC, watch 100 pitches. Watch 100. And after 100 pitches, you'll be like, okay, I see the pattern here. How many pitches in are you? Just to me.

Okay, so let's see. It's week seven, and I've had no fewer than five a week. So 35. Great. Awesome. And so now you're starting to see the signaling and what you got excited about before and then the valuation and you start building this mental model. Okay, this company has a million dollars in revenue.

They want a $100 million valuation. This person has $500. They want a $20 million valuation. This person has two employees. This has 10. This person has pilot customers. This person has a Kickstarter customers. This person has real customers.

This is a SaaS business model. This is a one-time hardware purchase. You start to build this mental model of all 35 companies and which ones, you know, check off enough boxes to make it a good bet. And, you know, that's what I told to you in the beginning was just take your time, you know. It's very, you get very excited when you first start. I don't know how to do that. It's hard not to be enthusiastic. You've probably noticed.

Founders self-select for charisma. Yes. And so once you realize that, that these are incredibly charismatic people who will do 100 meetings to get one investor, you realize like, okay, I'm the 100th pitch. They really know how to sell this thing. And then you have to say, okay, I got the sales pitch.

What's the reality of this business? You know, let's talk to some customers. Let's, you know, look at the actual books and the business model, right? You start to really understand things. Well, let's do a little lightning round of fund manager, as producer Nick is calling him, fund manager commandments, because this is, you know, a series about people who are raising their first funds. You went through this and a lot of, with, you know, great success and some difficulty.

If you have some major pieces of advice, whether it's structural, tactical or theoretical, like, I don't know, top five it. I think having a base, a wide base of LPs is important, right? because you want to build a base so you're not dependent on anyone. Like we had one big one. It was 50% of the fund. We took it,

but over time, we wanted to have a wider group, so we're not dependent on anyone. And that's good. I think it's just good hygiene. I think making the capital calls not annoying. Like we were doing capital calls

like I saw Sequoia doing, which was you take the money down because your returns start from when you take the money down. So if you took the whole $10 million, and you deployed, you know, 2.5 million a year, you would have taken $7.5 million down in that first year and sat on it for between two, three, and four years,

which means you're starting the clock on your IRL, your rate of return every year. So you're basically handicapping yourself. So what funds will do is when you're in a fund from a Sequoia or a Founders Fund, they'll send you a capital call and they'll put that money to work. They don't let money sit there. But when you have a $10 million fund,

and the average person is putting in $50, and you do 12 calls of $4,000 each, people can find that a little annoying because they're like, okay, now I've got to do another wire of $4 million, another wire of $4 million. So, you know, you can, we now tell people,

hey, here's what to expect in terms of capital calls. We're going to do a 25%, a 25%, a 25%, you can kind of make it a little less arduous. That's like a little minor issue. Taking your time is important, and then concentration.

You know, you have to double down on your winner. So the big criticism I got when I started talking to the big LPs, the top funds in the world was, oh, wow, it's great that you found these companies, but you're an idiot for not continuing to invest in them. And you need to own 5 or 10% or 15% of one of these big winners to truly be great at what you do, not 50 basis points.

And so we started that process of with the syndicate and with our funds trying to get to 10% ownership in the winners. And, you know, 5% in com, 2% in superhuman, turned into, you know, 12% or 5% or 6% in density, 12% in grin. We started to get these bigger ownership positions. And then also, you know, being on the board and being supportive there and having proper governance and having a seat at the table is critically important. If you can't, if you're not on the board, even as an observer or a formal board member, you might not even know this around coming. You will not know how good the company is doing.

You're going to be constantly behind those people on the board. Those investors who are on the board have the poll position to get in the next round and you will find out about the next round and it will probably be closed. And so then you're going to be fighting retroactively to try to get your pro rata or try to get super pro rata. When we're on the boards of these companies, we've said many times to founders, hey, this is going really well.

What's your funding plan? They're like, yeah, you know, in six to 12 months, we'll do it. And we'll say, okay, last round was 10 million. I think the company's worth 20. Would you like us to put a million dollars in at 20 and we'll buy 5% more of the company and you don't have to go on a funding tour?

You don't have to make a deck. We'll just do it. And they're like, okay. So that's a real advantage, I think, if, you know, if you're, do take the time to take board seats and participate in governance, which is arduous and painful at times and time-consuming. But I think that's part of the magic is getting to that 10 to 15% ownership. And I think having a strategy of how you're going to be a multi-fund manager over time and maybe setting

some goals for that and thinking really about your Goldilocks zone. So another commandment, where can you be at the most value and, you know, really doubling down on that? And then if you find there's a certain type of founder, a certain type of sector, a certain geo where you have an advantage. You want a pressure advantage. So if you're really good at, you know, the seed stage or the accelerator stage, you really want to pressure advantage and see how far you can push that,

which is what YC is doing. YC is not creating a Series A fund. They're not creating a syndicate, a equity crowdfunding site. They're like, we're the best that is, you know, doing this accelerator. Let's double the size of the accelerator every year until we get to, you know, a thousand companies a year.

So it's good to have, focus. I'm going to give the Notties two questions because they're loving this unfettered access to the J-Cal. There are many more good questions in there, but there's a great question from, obviously, Bob G., which I think you talked about just a little bit, I know, right? Which is, you know, what was hard about scaling the investment team? And a similar, actually, I'm going to ask them both at once because Bob G was basically like, what were some of the issues you ran into as you were scaling your investment team? And then related, what are some of the things that you loved doing during the first fund

that you now don't get to do today because of that scaling? Yeah, you know, I was the first, I'll take the second one first, I was the first line of, and the only person meeting with companies. So, you know, I was just doing a ton of meetings every week, and I don't do a ton of the first meetings anymore because it's just not an efficient use of my time. Yeah. Because so many of them, you know, I'd say the overwhelming majority of people

were going to meet with, they're too early for us. So we have other products for them like Founder University, the 12-week program or the two-day program, or even the launch accelerator. So, you know, when you're scaling these things, you need to be, you know, kind of ruthless with your time. And so I do miss that a little bit. It's a very joyful process. It's really great. And, you know, saying no is kind of hard. So, you know, I don't miss saying no to founders.

I always had a problem with that. but I always tried to be constructive, so it wasn't the worst, but I kind of believe in everything. I'm so optimistic. I believe everybody can learn and evolve. And in terms of building the team, you know, I think I did a pretty good job of that. I looked at the things I hated doing where that were really time consuming and did not make me want to go to work in the morning. Like legal issues, accounting issues, you know, these kind of things can really build up.

And there are some people's brains who are really good at, you know, ripping through the spreadsheet and keeping track of things and doing that. That's just not my brain as much. I think I'm a little more of a creative and artist type. And communication is my sort of superpower. So I just started ruthlessly saying, hey, Ashley, Heidi, Laura, just different people on the team. I want you to do this and really empowering people to make decisions. In fact, even with the accelerator, I said, you know, I really want to get to the point where I'm not the person accepting the accelerator companies.

I'm not the person accepting people into founding a university. I used to do those acceptances. Now I'm just like, if we're making 100K bad on an accelerator company, the team can make that bad and do that diligence. And I'll meet the company when they're in the accelerator. That's fine with me, you know? Again, we're trying to get to that 10% ownership, which is going to take, you know, over time a couple of million dollars of investment.

And so it's better I spend my time there. So, you know, it's – and I like developing talent. You know, that's been also fun for me. So explaining to people how to do calls, you know, and that's why I wrote the book. So I think that's a superpower too as being up to train people on how to do this job.

And I enjoy it get immense pleasure out of that. Jason Calacanis, the original angel. Oh, there it is. Rounding out. Thanks for having me on my podcast. This has been an amazing episode about me. Thanks, Jason. Thanks for coming down.

I appreciate you coming on the pond. Don't forget to upload that audio. Okay. Oh, wait. That's me. Great job interviewing me. Congratulations to all the people who were on this season as well,

raising their first funds. I hope this, you know, me sharing what I learned is helpful to them as well. Great job. You're giving me the hard question. Hey, everyone. Producer Nick here. I want to tell you about the SaaS Syndicate. If you're a founder of a SaaS company with a product and market, our investment team wants

to talk to you. Head over to the syndicate.com slash SaaS, S-A-A-A-S to apply to raise from the SaaS syndicate. And you can join Jason's syndicate of over 9,000 accredited investors at the syndicate.com. Producer Justin here, know a cool startup? Check out openscouting.com, where anyone can refer a startup to our investment team here at launch, even if you don't know the founder. If you're the first to flag a company for us and we decide to invest, you'll get 5K in cash or 10% of our carry.

Hey, everybody, producer Rachel here. Are you an early stage startup that has product and market, some traction, and are looking to raise at least $500,000? Apply today to remote demo day for your chance to pitch to over 9,000 investors in Jason's Syndicate. Submit your application at Remote Demoday.com. Our next event is on April 27th. And if you want to learn how to invest in startups from the world's greatest angel investor, and no, we're not talking about Chris Saka, then head to Angel. University to apply. The four-hour workshop costs $300 and all proceeds are donated to charity. To date, we've donated

over $175,000 to various charities and you can see the full list at angel.com university slash charity.