This Week in Startups - E985: #AskJason! Recognizing great founders as an investor, dealing with a lack of updates, raising capital through crowdfunding, the ideal makeup of today’s founder, how Angel Investing has changed since the release of “Angel”, standing out in slow-to-adapt markets

Episode Date: October 9, 2019

1:00 Jason intros #AskJason and today's questions 1:47 How to differentiate a great founder from an okay one? - Darius 7:40 Dealing with the lack of updates as a syndicate Angel Investor? - Said 15:54 Bomani calls in and asks Jason about raising through crowdfunding 22:20 What will the new ideal makeup of a founder be after recent events (WeWork, JUUL, etc.)? - Patty 28:29 Peter calls in and asks Jason how Angel Investing changed since "Angel" was released 44:43 Alexandra calls in and asks Jason how to stand out in a slow-to-adapt market

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com slash twist that's c a lm dot com slash twist apply for the next launch accelerator cohort applications are due October 14th learn more and apply at launch accelerator dot co Hey, everybody, hey, everybody. Welcome to this week in Startups on today's Ask Jason. I'm going to answer six amazing questions from our incredible listeners. What indicators are there of a great founder so you can make an investment? That was a great question. Maybe should I use crowdfunding as a source of raising capital, equity crowdfunding, dealing with the absence of investor updates.

That's one for Angels. That's very frustrating. What is the changing makeup of an ideal founder, especially in today's turbulent times? And how has Angel Investing changed since I released my book? I'm going to give you that answer and more on This Week in Startups today. It's an all-ask-Jason episode. You're going to love all six of these questions. And I think you're going to like the answers too.

Stick with us. All right. Our next question is from Darius. He is part of our Patreon. If you want to go to Patreon and do a search for This Week in Startups, you too can get your question answered first and guaranteed, unless it's really a bad question, here on This Week in Startup. Darius asks me, what are the top differentiators between founders of unicorn companies and the zombie companies?

Traits you can detect from the early days. This is a great question. Great job, Darius. So what I'll say is I find that the founders at the early stage who are obsessed with their product, have great craftsmanship in the product. and have product velocity tend to have a better shot at winning than those that do not have an obsession with their product, do not have craftsmanship in it, and do not have product velocity. So I'm going to break down this product piece a little bit here and give you some examples

because examples always matter. So an example would be when I first saw Uber, Travis was showing it to me and the taxi, it was called Uber Taxi at the time. And the first thing he said to me is it's going to be called Uber. Uber.com. It's not going to be called taxi because you're not actually getting a taxi, right? So there was this sort of, he almost preempted the discussion around, we're not going to call a taxi. We know that's the bad name, but he just had to get some domain started. Also, on the map, instead of the car facing the right direction, they only had one icon of a cab. And it would be moving down

the street as if it was spinning out or drifting in Tokyo drift. And you're like, why? And he's like, Listen, we're trying to figure out with the GPS how to make the phone. This is iPhone 3G back then. We're going to try to make that cab face the right direction. So we're going to have like five different versions of the cab and icons, right? That's a level of detail that you don't often see from a founder. Additionally, the founders who are customer obsessed, customer focused, tend to win more often.

So we're seeing like a focus on product, which naturally means. means you're focused on the customer, right? The product is what the customer experiences, right? So here we go. Customer is experiencing something called Thumbtack. You may have remembered Thumbtack, one of the unicorns we've invested in. And Marco, when he was showing me the product, it was originally more like a directory than fill out a form and a dossier, then get quotes back of who might be a great service provider. It was originally like a directory, almost like a Yelp. And in the Yelp-like version of Thumbtack, the 1.0, which he pivoted away from, okay, pivoted, away from it. In that first version, he had a little icon that was like a driver's license and a

house. And I was like, what are those on the website? Because this is pre-web, really. And you hover over them. And when you would hover over them, it said, we have the driver's license on file for this service provider. And we know their address. Why is that important? Well, what he said to me was, if you invite somebody to come to your house to clean the gutters or to do the lawn work or clean the pool or fix your cabinets, you might want to know that you've done a background check on them, where they live, and that you've got a driver's license, the person's not going to come murder your family, or rob your house, right? And so that's a level of customer focus and understanding that you don't always see. It's very hard to fake a deep knowledge of the

customer and an ability to make the product improve week after week. That's called product velocity. when you're talking to a founder and the product hasn't changed and you're in week three of talking to them, you might want to think to yourself, what's going on here? Why isn't the product improving? And what you might uncover is that they don't have any developers or product people on the team. It's just a bunch of idea people, business people. In other words, people with no skills. Well, that's not what you want to invest in. You want to invest in people with skills. People who know how to make great product. People who know how to make great technology. If the product has zero velocity, the chances of it becoming a zombie are almost certain. That's why we call them zombie companies, because they're just dragging along, and you ask them,

hey, what's changing the product? And they go, uh-huh. That's why you want that product velocity. Now, finally, the founders that I see who really build the unicorn companies, the meaningful companies, they're defiant. they believe something needs to exist in the world, that the world needs to change in some way, and they are going to get it done with or without you, the investor. And you're either going to be along for the ride or you're not. So, defiant without a focus on product, without a focus on customers, is just delusion.

Okay? There's nothing there. It's just an empty can making a lot of noise. But if you have somebody who's defiant with skills to make a great product and deep customer knowledge, boy, do they have a chance to do something meaningful in the world. So that's what I want you to look at. Look at that product, understanding, knowledge, velocity, detail craftsmanship, and ask them questions. Hey, how does the product work?

Walk me through it. And then ask them, ask them, hey, what's going on with this? And if they say, that's on the bug tracker, it's going to be fixed next week, then you check, hey, next week, did it get fixed? You're in no rush. Get to know the product. to know the product velocity, get to know the founder, maybe even talk to the customers. This is a lost art. I want you to talk to at least three customers before you invest in a company. And defiant alone is an empty can making a lot of noise. But defiant with those skills

and with that customer focus means a chance at being a unicorn. Okay, great question, Darius. Okay, next up is Saheed. He is a Patreon member. You can go to Patreon and do a search for this week in startups and throw us two bucks and you get yourself a bunch of content. You get an ad-free version of the show if you don't like ads. And you get to go jump the line, jump the fence, and get to the front of the line with Ask Jason. So here we go. Saeed asks, how do I deal with the absence of updates when investing through a syndicate? Specifically on Angelist.

So when you're an angel investor, you want to get updates from your companies and sometimes they don't update you. This is incredibly frustrating. And for the first hundred deals I did, I was pulling my hair out. Oh my God, what's going on with this investment? And when the founders were in trouble, many of them elected to not send an update. And the reason they weren't sending updates was because the company was failing. Now think about that for a second. Your company's failing.

You have investors who have more experience than you typically, and they have more money to keep funding you. And instead of talking to them about your problems, you ignore your problems, you ignore your investors who can help solve them. And you hope that things will get better. so the next month you can send an update that has a chart that's going up to the right. It's the exact wrong dynamic you want to have with founders. So what we did was we put in our contracts in something called a side letter. A side letter is just an agreement that's outside of the normal scope of the investment documents. And our side letter says you'll send 10 updates a month with the following information in them.

Revenue, burn, your revenue spend, and you take those two numbers and you combine them, you wind up getting your, your burn, how much cash is in the bank at the end of the month, how many months of runway that would be with that month's burn, yada, yada. And they can then give you a little commentary about it. If you don't have that agreement in place, you're going to be chasing founders. The founders you're chasing are likely failing. So to your original question, I don't think you should bother haranguing founders who don't want to send them. You should just not fund those founders anymore. You should just pass on investing in them. And you should just make an agreement with future founders that they will do this. And if you're investing a tiny amount of money, like two or three, four thousand dollars,

maybe you don't have the ability to put any kind of pressure on them in the negotiation to do this. But if you're putting in 25 or 50K, you obviously do. And then here's a way to actually solve it in a non-confrontational way, because this can become like a daddy or mommy's checking in on you, you know, toxic kind of relationship thing. And it has that happened for me. me in the past with this one dipshit company from Y Combinator that refused to give updates to the syndicate that I convinced, we're not convinced, I shared the deal with them. And so they, you know, a lot of people will look at my investing and want to follow me. So I'm not convincing them.

They're convincing themselves, obviously. I can't put a gun to anybody's head. But I feel a little bit of responsibility. And they wouldn't send updates. And I was like, gosh, your business is failing. You're going sideways. And you won't update anybody. Why?

And they're like, well, because we don't have to. And I was like, oh, my God. That's the most Y Combinator entitled nonsense. I've ever heard. Putting that aside, we have a tracker internally. The tracker has the months of the year. Somebody does email us in June. We send an email in July. Hey, we didn't get June. Is it in the spam folder? Or what email did you send it to or did we miss it? You know, non-accusatory. Then July, they missed July and we email them in August. Hey, we didn't get June or July. Haven't heard from you. Would love an update on our investment. Not accusatory. Just would love an update on our

investment in company name. Now you get to, okay, no update in August. You're three months in and it's September. Here's how you handle it. No more asking for updates. Hey, Jane. Hey, Nick. I would love to get an update on our investment in Acme company. Which of the following dates works for coffee, lunch, or a quick Zoom phone call, go-to meeting, whatever. And you just put the three dates in there. would love to know how I might be able to help. And so what you're doing is giving them permission to not write an update, but to do a phone call. And that shows that you're willing to put a little time in as well.

But it's very easy to just pop off an email back and forth. Where's my update? Ba, blah, blah, back and forth. And it gets toxic real quick because people who are under pressure like these founders are might snap. They might think you're being annoying. They might think that you're overly obsessed with them and their performance, and you only put in 5K.

So leave the past companies in terms of haranguing them. Assume, you know, like 70, 80% of these companies fail, but you'll make it up on the winners. And then start engaging people in productive dialogue over a cup of coffee, the old cup of Joe. Can I buy you a cup of Joe? Can I take you to lunch or dinner? How about a quick phone call? And how can I help? Right.

And I watch some of these, you know, syndicate members. And someone get a little frisky. I'll be honest. someone get a little obnoxious, and I understand it because it is frustrating to get no update if you are an investor. But let's take a different tact. Let's be not accusatory. Let's come at these founders, knowing they're under pressure, knowing they're probably got a huge fear of failure,

and that you are okay with failure. You just are not okay with failure without having a chance to help, right? Think about that for a second. Everybody's big fear is failure. In fact, if you're the angel investor, your fear is losing your money. You're acting out of fear. That's why the tension's up a little bit, right? I can feel it in your question.

And that's what they're feeling. They're scared too. So you're both scared. But you're both in the same boat. So you might as well be working together to get back to shore and not have this turn into a cannibalistic situation out at sea. Work together. See if you can find some fish, some fresh water.

You saw the movie Castaway. Let's collaborate, okay? And the way to collaborate is not to be accusatory. be helpful. Hey, I'm sure you're super busy. I know you're under a lot of stress. Was hoping I might be able to help. Can we do a quick call? So now you're given that little permission. Quick call. Can I take you for a quick bite to eat? Can I buy you dinner? Ah, you're offering something up. Hey, I'll buy you dinner. And that's what founders really want. I always tell people founders like kids. They spell love T IME. So just offer a little bit of that T IME and see what

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slash twist. Okay. Let's get back to this episode. All right, let's take a live call from Beaumani. Bomani. Are you there? Yes, I am, Jason. Where are you calling from? I'm calling from San Francisco. Okay. We're in San Francisco. Let's get a little more detailed here. The tender line, I take it? Okay. The lovely tender line. Colin from Nopa in San Francisco, north of the tan handle for the listeners.

No problem with that. Okay. If you're in the tender line, I suggest you run. Quick, get out of there. Okay. You have a question for me. You are new to the show, long time to the show? Yes, new to the show.

Thanks for having me on. Okay. What's your question? Sure, Jason. My question for you is, what are your thoughts around crowdfunding from sites such as Indiegogo, Republic, Start Engine, as a mechanism to raise capital. And what are the things you would advise founders as far as things to consider before committing to some of these sites?

Okay, great question. Now, we should start by saying one of these sites, Indiegogo, has, I believe, they're foot in two different types of funding. There's equity crowdfunding where you're getting money from 100% of Americans, anybody can participate, accredited investors and non-accredit investors, basically rich people and people who are not rich yet. Sure. And they also do, like Kickstarter does, a Kickstarter-type functionality where you can order a product in advance. But you're asking specifically about equity crowdfunding, correct? Correct. Great.

So there's a couple of different ways to raise money for your company. company. One of them is to go to venture capitalists. They are moving downstream. They want companies with $3 million in revenue now, or maybe founders who've taken a company public. So where would founders who haven't sold a company for a lot of money or don't have millions of dollars in revenue? Where would they get funding? Seed funds and angels and accelerators, which is where I operate. Accelerators put $100,000 in for 6%. Seed funds will put in $250K to a million for anywhere from 10 to 20%, let's say. And then there are these new concepts, which is equity crowdfunding.

I actually did this for Inside.com. Equity crowd, and I did it through Seed Invest, which wasn't on your list, but I think they're the number one. I only know about Republic and Seed Invest. Both of those have pretty solid deal flow, and they run really tight ships over there. I know both of the founders, and I think they both do a great job. Indiegogo, I don't know anything about their equity crowdfunding and how they that's going in Start Engine. I've seen some of their deal flow. It's a little bit hit or miss, I think, in my mind, but it's been a while. So I won't comment on that one. But I can tell you

this is a little more complicated. There's a little bit of red tape. You have to publish financials. You have to have reviews of this. And you're doing a lot of work for small checks. It can work and it can drive, I would say on average, low hundreds of thousands of dollars in investment. So, If you want a bunch of civilians to put in $100, $250, $500, $1,000, and be involved in your company, it's a great idea. Of course, it's a lot of work because that means you're collecting a lot of checks, and that's why these sites exist is to bring all that money together. So keep your expectations low as to the number of dollars that will come in and expect that it's going to be a lot of work. The reason I did it for Inside was because I thought it would be.

very cool to have the people who read our newsletters invest in the company. We had a big email list. So if you were a music festival, if you were a restaurant with a large number of email addresses, if you were a niche product or piece of software that had 10,000 customers paying 10 bucks a month or 10,000 customers who had the free product, they might very much enjoy investing in your company. So I think that's the magic of it. I think that's the future of it. Imagine, if you will, a company like LinkedIn or Uber allowing people who were non-accredited investors who worked in, let's say, in LinkedIn's case, HR and hiring. Well, they knew that that product would be successful.

So, but they might not have the ability to write a $50,000 check, but they might easily write a 500. An Airbnb host might say, you know what, I'm going to take 10 nights a year that I rent my place for $200. I'm going to put that $2,000 towards being an investor at Airbnb. be. That's the magic of it. Now, it takes 10 years for those things to play out, and they just started in the last two years. So there is not a lot of track record here, but I am, in fact, bullish on the space. I do think it's going to work. I do think it's the future of investing. If you choose to do it, like syndicates, which I was the first on Angel List, and now we moved it to the Syndicate.com.

We have our own sort of mini platform going. It's not really a competitor to Angel List. It's just one syndicate, but with a little bit of software behind it now, we were the first ever do that, and we did it in a company calledcom.com. That was the first syndicate, which turned out pretty good. It's the highest performing whenever. It's a unicorn. And at the beginning of syndicates, which are only for accredited investors, people said, this is too complicated, it's too much time, it's too much work. Well, it wasn't. And it worked out great. And now it's a standard in Silicon Valley. It's a standard around the world to run a syndicate. And no founders are afraid of it. I predict in another five to 10 years we'll have many people doing equity crowdfunding on these

platforms. Do you have any follow-up questions? Great. That's exciting. Yeah, that's really exciting, Jason. I'm glad to get your insight and thoughts on these sites and how powerful they can be, especially if it's a B to C company and some of the users love the product and want to continue to see it grow and be successful. Okay. Well, good luck with your company and good luck with your fundraising. I would start with Republic and Seed Invest. Those are the two I know the founders of. So I'd start there.

It costs a little bit of money to do this, but actually those companies don't make a ton of money from this. I think they're going to make their money from having a little equity piece in your company. So I think there's a good alignment, right? So good luck with it. And keep watching. Thanks so much. All right. Awesome.

Thanks, Jason. Cheers. All right. We got another question. This one from Patty. She wrote us with so many founders being let go recently. We work, I think would be there, Jewel. what will the new look of an ideal founder be from an investor's point of view?

This is a great question, Patty, very, very prescient, very of the moment. Well, I can tell you what it won't look like. Entitlement. And smoking weed on planes. Smoke in the weed on your G650. That error is over. Hard stop. Hard stop.

No more 650, no more weed on the 650, okay? Both. Ixne on the 650 and Ixnet. I mean, can you imagine we were. CEO, all that bad behavior, it just adds up. Now, if the company was performing extremely well, we wouldn't be talking about any of these issues. If you want to have a G650, if you want to fly private, if you want to buy everybody lunch, you better be Google. You better be Facebook. Nobody's talking about Zuckerberg spending something like $5 or $10 million a year on security.

They have a fleet of jets at Google. You ever hear about the Google Jets? You haven't heard about the Google Jets in a long time. You know why? Because of money printing machine. Shareholders don't care if you're printing about perks if you're printing money. Listen, if Bezos wants another jet and he wants Amazon to pay for it, Google wants another three jets, go for it. They want to bring in the Neiman Ranch, New York Strip. They want to go with a Miyazaki Wagu. I don't care. Print me money. Got the money printing machine, you're good. But if you're WeWork and you're renting $600 desks for $300 and you got all this arbitrage going on, man, come on. Come on.

And this guy's walking around barefoot in front of Pete's Tavern. Come on. You can't be walking barefoot in New York. This guy's deranged. I'm sorry. Summer camp? Summer camp? This guy's running a summer camp.

He's going to be a first trillionaire. I mean, I'm an insanely driven narcissistic person. You guys listen to the pod. Listen, I'm not walking barefoot in Manhattan. I don't have a G650, and I'm not saying I'm going to be the next trillionaire when I rent desks for a living. This kind of behavior is nuts.

Barefoot in New York. Do you know how many people have puked in front of Pete Stavard? There's so much gum on the street. Gumb's the least of your worries. Do you know how I used to walk my bulldog past Pete Stavard? You know what Toro did in front of Pete Stavard? I want to tell you, man. You've seen it Bulldog with diarrhea?

It's not pretty, guys. Not pretty. Listen, I just got to just put a dot in it. Whenever things get frothy, which is what we're at, we're in a frothy market, whenever people get super excited because companies like Uber are making over $10 billion a year, people get a little ahead of their skis, Airbnb, these, companies are amazing. And then a couple companies slip in and people

get a little delusional. They suspend disbelief and you get a theranos or a we work on the margins. What I encourage you to do and what I think is going to happen in the investment community is that the ideal founder is focused on unit economics. That's it. Profitability. It's just a return

to profitability. At the end of the day, there's something called a price earnings ratio. Not a priced barefoot ratio or a priced per ride ratio. At the end of the day, it's price to earnings, P.E. ratio. So when I go on CNBC, those old school cats, they just want to know about the P. And they're going to be plowing a bunch of money. And they don't want to hear some story about growth. They don't want to hear some story about

disruption. At the end of the day, they want to hear about the price earnings. And that's it. Price to earnings. Price to earnings. They want to know that it's a profitable concern. If your concern is not profitable, you need to get concerned with your profitability. That's it. Get concerned with that profitability. The world's changed. There used to be just a handful of vendors, but now with new technologies, vendors are developing and delivering products fast. We call a product velocity in the business, and there's much more competition.

So you've got to be on your game. To win, you need to put your customers at the center of everything you do. And the Gainsight Customer Cloud can help you do that. Gainsight PX helps you understand how users interact with your product. And here is my CMO Press doing it, looking at our active users, looking at the sessions, and he applies a bunch of filters to look at the activity and growth and which of these users are active. And he uses this product feature to tag and track the different product elements to figure out

what features they're using and maybe where they stall and when they stop using the product, as well as, of course, where they're spending most of their time. Gainsight has a suite of products, obviously, and Gainsight CDP is where they capture and segment customer data. This is to drive tailored engagement. And then there's Gainesite CS, which is your customer success managers tool where they can get all that aggregated data and optimize customer support. There's Gainsight R.O., which is renewal and expansion.

That's a critical part of all of these SaaS products. You need to get renewals and you need to land and expand. We all know that. And there's Gainesite CX, which is the feedback platform that generates deeper insights about your customers so you can improve their happiness. So here is your call to action. The Gainsight customer cloud is the only solution that provides everything you need to turn customers into your biggest growth engine. So discover how your company can benefit from the Gainsight customer cloud by using Gainsight.com slash twist today. G-A-I-N-S-I-G-H-T-H-T-T-T-com.

slash twist. Gainsight.com slash twist. Go there now and check it out. And thank you to the TMA GainSight for for supporting independent media like this week in startup. Okay, let's get back to this amazing episode. All right. Next on the line is Peter. Peter, you're there. I'm here. Hi, Jason. How you doing? You're calling from the 206. Is that your area code? And where are you based? Yeah, I'm in, Seattle. I'm in Seattle. Very nice. So, what's your question? How has Angel investing changed since you wrote your book? Ah, great. Well, the book came out, as you know, in the summer of 2017, two years ago. And I don't perceive it has changed all that much on a fundamental basis. There has been an increase in the number of deals. Every year, there

seem to be more companies to choose from. And every year, the companies have a quicker path to revenue, a quicker path to profitability, and they're scaling faster, and the quality is going up. So, you know, you watch this, you have this television in Seattle yet, you have the TV thing. Yeah. Yeah. So you have that television and then like the HBO came out. Things got a little bit better. And then the Netflix and on and on and on.

And what you're seeing is like TV shows are becoming super sophisticated, right? Because they're building on the past success. So the shield, you know, the wire, sopranos and now is a secession. And you're just seeing like the quality level of these shows, the action. the writing, the production value, and even things like the special effects, which we never thought would ever make it to television shows with Game of Thrones. Game of Thrones looks better than the Lord of the Rings, right? So what happens in society and it's one of the great things about capitalism is that we build on each other's successes. So the success of George Lucas

with Star Wars led to, you know, industrial light and magic. And, you know, it just built and built and built to now people are making TV shows or even YouTube videos with people doing lightsaber battles that look better than the lightsaber battle in the original Star Wars. These are kids at home, right? And that's just a 30 or 40 year arc. Same thing is happening in startups. I would say every four or five years, the quality of the startups we see doubles. So in the last two years, I think the quality has gone up 30, 40 percent of these companies. The other thing that's happened is I'm seeing a lot more angel investors out there. Now, this is a function of the fact that I have a syndicate at the syndicate.com where I work with a lot of angel investors.

I teach a course, angel dot university. I've done it to be 14 times around the world. So I'm seeing an increased level of sophistication from angel investors. I can take some credit for that, but I think also you could share that credit with Y Combinator, Tech Stars, random people doing stuff on YouTube, Naval and Angelist. A lot of people are sharing knowledge about early stage investing. even the Twitter is pretty popular with the investors. So everybody seems to be upping their game a bit.

And if I had to describe one thing that's happened and put it in a nutshell on the investor side, I already told you about the startup side, which is everybody just gets 10, 20% better every year, which means we double every three or four years the quality of a startup on average. The investors are getting more sophisticated. And the early stage investors now know how to read a convertible note. They know how to look at a safe and say, maybe that's not so safe anymore.

Oh, I saw the episode with TopTale. Oh, I know about expiration dates, right? So the sophistication level in the early stage is going up amongst investors. They're not suckers anymore. The angel investors used to be the suckers at the table. Now, they're like, wait a second. I need to own a bigger percentage. I need to have prorata rights.

I need to have a side letter so I get those monthly updates from my founders. I need to have a board seat if I'm over 5%. I need to know about how these funds are being spent and I want my founders to have a plan. You know, the overall professionalism of Angels, I think, has gone up significantly in the last two years. So those are the two sides of the table and how it's changed, I think. Does it make sense? Okay. Yes. Hey, if you bring Angel University to Seattle, I'll buy the first ticket. May I ask?

That's fantastic. Absolutely. Yeah, go ahead. Mass two quick follow-ups. Yeah, of course. Sure. Have you changed your opinion on how to double down on winners, instance, with the big funds out there, are they pushing up series A and B valuation so much that it might make more sense for an angel to keep investing at the seed stage instead of doubling down? Yeah, that's a great question. So there are people who are, some would argue, overpaying. Now, clearly we see overpaying before the IPO, right? There's been a lot of scrutiny in the last

couple of weeks over what SoftBank paid for their shares of Uber, We Work, and other companies. So, and then there was scrutiny before that about what Andresen Harowitz was paying for their shares in companies. And then before that, you know, people were looking at Yuri Milner and DST and saying, are they overpaying? That typically was at the later stages, right? That CD pre-IPO. In the A and the B, I do see a little bit of frothiness, but I think if you know it's a winner, if they're doubling revenue every six months, I like to put that second bet in. I am a fan of the second bet. But I do think maybe the third bet, maybe that's when you want to stay pat.

And then you start getting to the fifth, six, seventh bet. If you even have that opportunity, it might be time to start thinking about maybe I sell 10% of my position. Maybe I sell a third of my position, take some chips off the table. Right. And that's the way to play the overvaluing of startups. I'll give some caveats, though. there were people who sold Uber at the $4 or $5 billion valuation who were in the $5 million round, and it was like, well, this is a really big lift here.

You know, I'm no pun intended, but I'm a thousand X on my investment. You wouldn't be a thousand X or you lift investment. Obviously, it's a second-year company, but putting that side. If you were on the Uber side of the thing, you would. And so you got that massive lift in Uber, and you didn't get an Uber lift and lift. But putting that aside, That was a mistake because there was a 10x yet to come. I did sell some Uber when it was probably in the $50 billion range, which is what it's trading at right now.

And I did that to Masayoshi's on a little bit before that. So pairing a little bit of your position early gives you that what we call in the industry, idiot insurance, just a little bit of covering your basis times 100, times 1,000. If you got one of those big winners and you're not independently wealthy and can let it all ride, I like taking a little bit of chips off the table, putting a floor into how much you've made. I like that. Now, would I be plowing money? This is why I don't play the public markets.

If you're playing the public markets, as we've seen, the pricing has been a little bit high or a little bit low for startups. And a lot of people are arguing now that the public markets, the companies are pretty well established and they're turning into maybe not hyper-growth companies, but just growth companies. but just growth companies. And so that is a different type of company. And so that's going to drive more people into the early stage. When you drive more people to the early stage, it might drive up valuation. I can't see the difference between a $5 to $15 million seed round and a $25 to $75 million A or, you know, $50 to $150 million B.

I think it's probably still worth placing additional bets because you can consolidate on your winners. If you can get to that Series A and Series B, get to that $150 million, it's probably not by accident. It's hard to close those $150 million rounds. I can tell you, I see it every day. A lot of my founders like, yeah, I'm going to go close to Series B. I can get $20 million for 20%.

I'm like, okay, let me know how I can help. And they come back and they're like, I think I need to do a seed extension. I think I need to do a Series A extension. It's hard. So if they do get it done, you might have people who are overpaying on the margins, but they're overpaying for value. And if it's a competitive space and you got a little bit of that extra pro rata, I, and it's obviously situational, I think by and large you want to get that second bed in,

the third or fourth you're going to probably want to really think it through. Make sense? Sure. Are you struggling to sleep? I know I am. I got a lot on my mind. There's a lot of things going on. My mind's constantly racing.

I'm investing in companies. I'm doing the pot. I'm writing books. There's a lot of stress in my life, right? I also got to raise a family. Well, one in three U.S. adults does not get enough sleep. Now, when you think about getting sleep, I want you to think about calm.com. You think about sleep.

You go to calm.com slash twist, and you will get 25% off a premium subscription. And here is Presh. He's been having trouble sleeping. He's under a lot of stress. His boss is a jerk. Boss is also me. And he browses through the sleep categories of all the different things that might help him fall asleep. And you've got a lot of options inside of calm.com slash twist.

Lots of options. You've got nonfiction. You got fiction. You got A-S-M-R. That's that thing where they talk into the microphone. They also have sleep music, which is what I love. And, you know, they have also a bunch of stuff for kids, so my kids love it where you go to sleep with a sleep story sometimes.

And he decides he's going to play sleep music instead of a sleep story. And he selects the lullaby to the star soundtrack. And my little preshy-poo falls asleep in minutes. Get that sleep, presci-poo. Next time we've got to put in this ad a little. little like presh and a comforter just snuggling up against this com.com phone app. There you go. Go to com.com slash twist. I'm obviously an investor in the company and love the founders there and the team. They've done such an amazing job. 40 million people have now downloaded

com and it was Apple's 2017 app of the year. So find out why. Atcom.com.com slash twist. It's an amazing product. Get some sleep. You're going to need it. And second follow up, you talked about the quality of startups continually increasing. Between that and with the economy, it seems like every startup can show at least revenue traction. Have you raised your standard for what constitutes acceptable traction for you to make an investment? Absolutely. And it's a great, very astute question. I think you've read the book at least once based on these questions and you're paying attention. So I have raised my standard. If there are so many people coming to you as an angel investor that you have the pick of the litter,

right? And this is one of the wonderful things. that can happen in your five, six or seven as an early stage investor is that people start coming to you. You have a brand. You have a name. You're a known quantity. You're known to add value. You've got a couple of hits under your belt.

It's sort of like being like a musician. Like people are like, yeah, you know, I want to have, I don't know, Migos or, you know, whoever on my album with me and doing a song with me, right? The hit songs come to you, right? If you're Mariah Carey or you're JLo or you're Katie Perry, there's probably songwriters out there who are like, I want this person to sing my song. So they're bringing you the best songs or Spielberg gets the best scripts or Scorsese gets the best actors, right? That's the great part about building a brand. And that's really, if I was going to write a follow-up to Angel

for investors, it would be about that moment in time. How do you get to that point where you're the celebrity investor, where you're all the sought-after investor, right? Because that changes everything. When that happens, because we only accept seven people into our accelerator, the launch accelerator, We've seen a number of applications go from a couple of hundred to almost 1,000. That means the chances of getting in gets harder and harder, which means we can have companies with more revenue and pay the same price for them. So I have raised the standard, and on the syndicate I've raised the standard, I tell everybody in our portfolio, and I tell companies outside of our portfolio about the rule of 72.

If you're an investor, you might know this rule. Rule of 72, very simple. If you take a period of time, let's say years, the number of years it takes to double your money, divide that number into 72. So you divide 10 into 72. You're growing 7.2% a year. Oh, I'm sorry. You're going to double your money every 7.2 years.

You divide 20% growth a year into 7.2. It's about 3.5 years, right? So we tell our startups, we want you doubling your revenue every six months. If you're doubling revenue every six months, come back to us and we'll know because we read the updates, we're likely to give you a preemptive offer. We might invest another million dollars. So that's what we're doing. doing now. We're studying our portfolio. To your previous question about, you know, following on

doing more investments, doing a preemptive funding is the master stroke. You see that this person is performing. They're doubling the revenue, you know, faster than every six months. Well, that means 10, 15, 20 percent month-over-month growth. Oh, yum, yumskis. Hmm, I see that 20 percent month-over-month growth consistent for three or four months. I'm thinking to myself, wait, they figured something out. I mean, I have to dig a little deeper. I have to check, make sure they're not burning through so much capital that it's a blue apron-like situation maybe where the cac and the LTV got a little out of whack you may have seen. You don't want people selling $100 bills for $30. But it's very hard to fake that growth with customers who love you.

So I think I have raised my standard. Yeah. And I keep raising it. And then I wonder sometimes with these other investments I made actually clear market. With me now, am I missing something? that could be a leak in your game too. So you got to keep that in mind. You want to still take some risk. So you may, you'll see with the syndicate that we're releasing some companies that are pre-launch. And we're trying to do maybe one pre-launch company for every six, seven, eight,

maybe 10 even, launch companies with revenue. Because we don't want to just limit ourselves to only doing the things that have some numbers on the board. We might want to take some people from the draft. Why don't I take somebody from the second round that could become an all-star, right? Draymond Green, drafted in the second round. But you know, you got that $100 million. dollar contract, right? So that's what we're looking for. We still want some of those diamonds in the rough that could still develop in the coming years. Make sense? Yes. Hey, speaking of the syndicate, I've made 20 investments through the syndicate. I love what you all on mine. What? All on my syndicate. Or other syndicate. Oh, wow. That's great. The deal flow there is

so much better than what I can find locally. You know, please keep it up. I could ask you questions all day, but thank you for being generous with your time. Oh, yeah. No, no. It's, listen, it's, It's the great joy of my life, actually, to write those deal memos. And I do think about people like you, Peter, I write that deal memo. I take it serious. I take it serious. And I hope that you, when you read that deal memo, you know that there's 15 people here in San Francisco or so really thinking through, like, are we presenting you with that, you know,

we've got skin in the game, obviously, because we're putting money in. But we don't want to put up garbage. We don't want to put up stuff just to send you a deal. We really want it to be high quality. We want to explain to you why we think it's high quality. and we really want you to have that diversification hit 30, 40 deals so that you have a chance of an outlier. And we encourage our angels who are partnering with us and who are part of this team sport with us called Angel Invest to join every single syndicate on Angelist. Seed invest, read every deal memo on Republic and compare them.

Look at the quality. Look at the quality of the founders. Look at the quality of the product. look at the quality of the revenue, look at the quality of the team, and really kick the tires, and read that deal member. And if you look at the detail level, we put into that deal memo, Ashley, our managing director and I, and the companies, we forced them to do a webinar, right? So you ask those questions.

We put the founders email in there. We put their phone number in there. We tell them, you know, you've got to answer questions. If people have questions, you've got to send those 10 monthly updates a year. And we really want them to perform at a high level because most of the companies are going to fail. We all know that. So at least if we really do the work up front,

we can feel more confidence that we're at least doing the best we can. There's going to be risk, but let's have a plan to execute against. And the plan is the highest quality of entrepreneurs with the highest quality of revenue with the most loved products with the best customers, right? And if you do that, I believe you have a better chance of winning. And I'm glad to be on the journey with you.

Thank you for reading the book. Thanks for calling him, Peter. All right. Thank you. Have a good day. All right. You too, brother. Okay, let's take another call. I got Alexandra on the line. You're there.

Hi, Jason. How are you? I'm well. How are you doing? Where are you calling from? Vancouver, Canada. All right. Love it up there. Very nice. Where Slack is and Microsoft, a lot of people, Amazon got offices up there. Beautiful town. Yeah, we have a few amazing Canadian companies. I've ordered here, too, and hopefully care team's going to be one of the next success stories. Great. Tell me your question. So one of the things that often investors ask in meetings is what's your competition. And we're entering the market healthcare where a lot of things are still done by hand, facts, and verbal and paper.

Yeah. And so our real competition is the status quo, but they want to name companies that we're competing with. So how do you recommend we answer that question? It's a great, this is a great question from you. And it's kind of a silly question from them, but it's a checkbox question. In other words, you're in a meeting. Tell me about your competition. Tell me about your team.

Tell me about your market size. That's in every book about how to be a VC, how to be an investor. These are like the boilerplate questions. You kind of got to have a good answer for them. So typically the way people answer them is they got that quadrant, four quadrants. And in the upper right is you. And the bottom left is like the old people. And then the top left is the dumb people.

The bottom right is like the semi-smart but sort of dumb people. And you're the top right. So if you were going to do it for, you know, trading stocks, you'd be like, okay, what's the cheapest and what's the most, what's mobile? And it's like, oh, Robin Hood. It's free and it's mobile, right? And then like, oh, well, e-trade kind of sucks. And Bloomberg is expensive and terminal.

So they're at the bottom. They're expensive and it's slow. And this is free and it's fast and it's mobile, right? So you can do that kind of thing. I think what you have to do is when you're in this kind of situation where you're replacing. Microsoft Office, right? Like, a lot of things were previously done in Excel, right? Excel was the Swiss Army knife of SaaS.

Now people are like, oh, yeah, this used to be, I used to do my ticketing in an Excel sheet. I used to sell tickets and I copy and paste people's name into an Excel. Then they came out with Eventbrite, right? And so people don't buy that, right? And they want you to put Ticketmaster up against Eventbrite, but Eventbrite was going after a different market. markets that didn't have high-priced tickets in venues that Ticketmaster owned, right?

So how do you make an event bright and say, oh, it's up against Excel? And then people are like, well, that's not a competitor. That's a part of the office suite. So anyway, this is a stupid question that you're going to deal with. And I suggest you zip, zip, zip out of that question. People have not yet built software for this. Nobody's gotten to it yet. People use Excel.

People use, you know, Word. They use whatever. air table. Air table is kind of sophisticated. But anyway, people are using these hacked together duct tape type systems. But like Eventbrite, we're building it for the first time. Like Slack, yeah, some people used IRC, some people hacked together their own software. But Slack made it, you know, more formalized, right?

Like Hipchat did. So I would then go right to your customers and say, here's how our customers did it. So instead of you telling the investors what your competitors are, have the examples of your customers. So you say, meet Dr. Judy Smith. She told us that her office used to put this information on index cards. Meet Dr. John Smith. John Smith told us he used Excel.

Meet Susie. Susie said this. Dr. Susie said that. And now you're using your customers to explain it, right? So if you were looking at Square, when Square said, we're going to build this little card reader. They say, well, who's your competition? It's like, well, people at a farmer's market don't have electricity, nor do they have a phone line. So they're not using one of those old credit card terminals that cost $100 a month to rent that you see in restaurants that need to be mounted on the wall.

So they just said, you know what? Screw it. We're going to let our customers speak. Customers speak. Have your customers explain to your investors how they use your product, how they used it previously. And here's the masterful question for you. What would they do if your product went away? So you got some customers addicted to your product, right?

Now you ask them, what would you do if the product went away? And when they say, is the product going away? Can we buy a license to it and we'll maintain it ourselves? Please don't go away. We'll play you twice as much. That's what we do. When we're doing diligence on companies, we ask the customers, what would you do if this company went away? How would you solve this problem?

So I'm just giving you a little bit of like the next question. I'm giving you a little bit about what happens in the room when you leave. All right? When you leave, this is what we talk about. is this solution so good that the customers would freak the beep out if you went away. And that's what you need to do. That's real product market success. If Slack went away, people would be, you know, people who are using Slack, they're, what?

Slack's going away. I have all these API integrations. How am I going to ever run my business without Slack? Like, you would cause a heart attack. And you can tell that when Slack went down a couple times, all of something. Silicon Valley was like, oh, I guess we get the day off. It's a snow day. It's a slack day. You know? It's like in Brooklyn, we'd wake up and be like, how many inches? Two? Eff it, man. Come on. Let's get to four inches. And we'd listen to 10.10 wins radio. And hopefully

they'd tell us that the Severian high school was closed. Oh, no. Only three inches, not close. Slack goes down. It's snow day in Silicon Valley. That's when you know you got product market fit is when the whole industry is freaked the F out when your service is down. That's what I hope for you. Okay, Alexandra? Take it up to the next level. We don't have Uber in Vancouver, so I know exactly what you mean. God damn it. Can you imagine this is what happened in Austin?

Austin went freaking crazy when they kicked out Uber. They didn't kick out Uber and Lyft. They forced Uber and Lyft to have this like really a lot of red tape. And Uber and Lyft was like, okay, do you want it to do all this nonsense? We're out. Peace out. And people went bonkers. And that's really when you know you have that great product market fit.

I wish you continued success. focus on your customers. You promise, Alexandra? You're going to focus on those customers for me? All right. Raise your prices, focus on your customers. I'll talk to you guys soon. Okay.

Okay. All right, everybody. It's been an amazing episode. I love, love, love getting your questions. Email Ask Jason atlaunch.com. Ask Jason atlaunch.com. Or hit us up at TWA startups. TWA startups on the Twitter or Insta.

DEMs are wide open. Get those questions in there. Looking for a couple of follow-up callers. Peter did a great job today. Just a lot of great questions coming in. Saheed, great one, Darius. Well done on the Patreon. So I just overall, I'm very pleased with the quality of the questions and the call-ins today.

We'll see you all next time on the speaking startups. Bye-bye.