IPOs Are for the Last Investors in Line

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Financiers now come to Silicon Valley to invest in companies first 

Naval: The tech industry is still underestimated. People used to think of Sand Hill Road as a nice, little backwater compared to the gargantuan Wall Street. Now there’s an acknowledgment that Sand Hill Road is an important place, even though Wall Street still captures the headlines.

If you’re investing in the IPO, you’re literally last in line

It’s becoming increasingly apparent that Sand Hill Road produces the technology that generates much of the wealth in the U.S. The wealth originates here and spreads elsewhere. Wall Street financiers now come to Silicon Valley to invest in companies before they get to Wall Street. 

By the time a company goes public, you can bet anybody with connections, an appetite, investing skills and capital got a bite at it. So if you’re investing in a tech company’s IPO, you are literally last in line. That’s not to say you can’t make money—but the odds are lower because the fruit has been picked over many times.

Nivi: The last bunch of financiers who were sitting in the right place at the right time—we call them Wall Street. This is where people used to get capital for their startups. Back then, there was no other market for fundraising until you had the metrics to go public. 

Silicon Valley is turning into the new Wall Street, except it’s not as formalized, organized and segmented. The JP Morgans and NASDAQs haven’t popped up.

A 401(k) plan is like investing in the DMV

Naval: This is going to fly in the face of conventional wisdom. The average person should be saving for their retirement. But I never set out to save anything; I reinvested almost everything. 

In economics, there’s the savings identity, S=I, savings equals investment. If you contribute to a 401(k), that money is getting reinvested in “safe” but unproductive parts of society, such as the government.

You’re investing in the DMV and the Defense Department. Their returns have not been spectacular. It’s essentially just whatever money they can take at gunpoint from taxpayers and foreigners.

If you’re in the tech industry, it’s generally a better bet to invest back in the industry—especially if you’re young and can get diversified.

$50,000 invested in a smart entrepreneur will change their life

Invest in the smartest, best and brightest people around you, rather than people in far-away lands with far-away motives who already have trillions of dollars of capital flowing into them and are not as motivated as your neighbors.

Fifty thousand dollars in your IRA isn’t going to make a difference to the U.S. government when it gets put into a T-bill. But $50,000 invested in an entrepreneur down the street will change their life. 

If you can find 10 to 50 investments like that, one or two of them may pay off, assuming you listen to us and build skills along the way.

I sleep well knowing my net worth is invested in the best talent

Most of my net worth is illiquid and lying in startup companies. But I sleep well at night knowing that hundreds of teams of brilliant entrepreneurs are working hard to build things that could be massive and change the world.

These teams include some of the best talent in the world: founders, coders and designers who studied at top schools. They’re leveraged with venture capital, products with no marginal cost of reproduction and the most modern methods of distribution.

It just takes a few of these companies for the entire portfolio to balance out. If you invest in 100 companies and one of them produces a 1,000x return—which is not that unheard of—the other 99 investments could go to zero and you would still see an overall return of 10x.

IPOs Are for the Last Investors in Line

You’re Living Inside the Gold Mine

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There’s no better place to invest today than technology

Naval: The returns in angel investing are interesting. There’s this meme that angel investors lose all their money and venture capital is a terrible business. It’s true if you aggregate VC and angel investments across the world. But if you stay focused in technology hubs, it’s largely not true.

A competent angel investor in Silicon Valley who’s plugged into a good network, knows what they’re doing and has a broad portfolio might make somewhere between three to 10 times their money over a decade. That’s quite a return. Keep in mind, though, there’s a high amount of specific knowledge and labor that investors put into each of these investments.

There are tax benefits to angel investing

These gains are considered capital gains, which are usually taxed at lower rates than income. This is partially because it’s a secondary tax on corporate income; it’s already been taxed at the corporate level.

There are also tax breaks for angel investors ranging from the qualified small business stock exemption in the United States to very favorable tax breaks in England and other countries. 

From a tax-advantaged basis, if you’re willing to tolerate high risk and illiquidity, it’s very hard to look at any other asset class where you can make as much of a raw return on your money as a patient, diversified, plugged-in angel investor.

The less efficient the market, the better you will do

One way to think about it is: The less efficient the market and the more wealth the underlying asset is creating, the better off you’re going to do. For example, art doesn’t really create that much wealth; it’s more of a tax haven and speculation instrument. The same with wine: The asset itself does not generate much wealth, but the underlying market is very inefficient; so you can make money more easily.

Gambling actually destroys wealth. So it’s not a great asset class to play in, unless you own the casino, in which case you have an edge over everybody else.

Few people can play at angel investing

Angel investing is odd in that very few people can play in it. Very few people have the know-how, geographic access, capital, risk horizon and patience. But at the same time, the underlying assets are changing the world.

I see a lot of people in Silicon Valley who could be good angel investors —they are in the tech industry and have access to dealflow—but instead spend their time on other things. They spend time thinking about macroeconomics: What if the Fed cuts interest rates? What’s happening in the trade war with China? Or they’re shorting stocks, investing in special economic zones or flipping real estate.

You should be doubling down on tech

I have a friend who’s a great VC and runs a rental business on the side. I scratch my head at that. You’re living inside the gold mine—people are digging up gold next to you. The returns in this industry are higher than anything else. You understand it so well. You have specific knowledge. But you have a contempt for investing more in tech that comes from your own familiarity with the industry.

If you’re in the tech industry, you should be doubling down. I don’t know a better industry or better place on the planet to be investing, for today.

You’re Living Inside the Gold Mine

Living in a Tech Hub Is Half the Battle

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It’s a gold rush era in technology hubs like Silicon Valley

Naval: We’re living through a unique time when, as Andreessen says, software is eating the world. We’re undergoing a phase shift where technology is being adopted by everybody, not just knowledge workers.

This transition has created a gold rush era in technology. If you’re in the tech industry and living in one of the tech hubs, you’re already halfway to being a good investor. That’s half the battle. You’re well positioned to angel invest.

There are only a handful of these hubs. If you have to ask, then you probably aren’t in one. It’s usually obvious. There will be hundreds of startups, at least, including some with successful exits that made their investors rich.

If you’re not in a tech hub, the odds are stacked against you

If you’re in the tech industry but not in a tech hub, you should consider moving to one—unless there are strong lifestyle reasons keeping you away, such as family or quality of life, which is often higher outside of the technology hubs.

You can do it remotely, but the odds are stacked against you. You won’t have the trust networks; you won’t see enough of the dealflow. In this case, it’s often better to work through a proxy, like investing in a trusted friend’s venture fund or going through AngelList or coming in for YC Demo Day.

There are about two dozen tech hubs in the world

Nivi: Do you think this advice is just for people in Silicon Valley, or does this apply in New York? Does it apply in Seattle? Austin? China? Bengaluru?

Naval: I think it applies in probably two dozen cities around the world. Some of these cities are emerging, which complicates this. Seattle and Austin are probably stable; you can probably find good deals there. But you need to have access to everything and realize that the city may only produce one or two great companies each year.

Silicon Valley is a more forgiving place to invest

Silicon Valley’s a little more forgiving: There are maybe 20 or 30 great companies created every year. You just need to invest in one of them—although you’ll have to find them in a much larger pool of companies.

Places like Bengaluru, India, or even Kuala Lumpur, Malaysia, be may be up-and-coming cities, but timing is hard: Is this when the tech industry there breaks through? If you’re in Australia and invested in Canva or Atlassian, then great. But if not, there’s not as much of a pool to work with.

At the same time, your returns potentially can be a lot higher outside of tech hubs. Because there’s less competition, the valuations tend to be lower because the risks are higher.

You don’t want to be in a city with no history of producing good startups, where you only see one or two startups a year and you’re paying Silicon Valley prices because they’re keying off of valuations they saw at YC Demo Day.

It’s much safer and easier to get started in San Francisco, New York, Beijing, Shanghai or Bengaluru. Pros can play in places like London, Austin, Seattle, Denver, Boulder and Chicago.

Anything below that, and you better know what you’re doing. We have seen a phenomenon on AngelList: Angels invest locally in a city that is not producing good tech startups, only to surrender and start investing in Bay Area startups because they don’t see the quality or returns in other cities. The returns are so much higher in Silicon Valley.

The best indicators of a startup hub are exits and later-stage investors

Nivi: What’s the best indicator that a startup hub is working? Is it exits? Is it a thriving community of other angel investors?

Naval: Unfortunately, it’s exits. 

The typical way a hub develops is this: Founders start a company, the company does well, the founders and employees get rich in the IPO or acquisition—and then they start investing in their friends and co-workers. They feel comfortable doing this early investing because they made their money through tech startups. They want to put it back into tech startups.

But there are a lot of false starts. Angel investors will pop up in an area and invest in a bunch of companies—but then those companies get stranded because there are too few Series A or Series B VCs there to invest in them. The VCs come in, pay low valuations and wipe out early investors by converting them to common and putting warrants on top.

So funding markets, to some extent, develop in reverse compared to other markets. The least risky investments are mezzanine rounds right before the company goes public. Next are Series Ds and Series Cs. Series Bs are riskier than that, and Series A even riskier. The riskiest is angel investing, before the Series A.

So, in a weird way, angel investing is the thing that should develop last in new hubs. But that’s not always the case. If a company can break out with just angel money, then later-stage money will find it no matter where it is—or the company can move to a mature hub with later-stage investors. But then, you have a big funding gap between the angel investment and the next investor, so the company has to get really far on just the angel investment.

Living in a Tech Hub Is Half the Battle

Strong Opinions, Loosely Held

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This is not investment advice; it’s just one unique approach to investing

Naval: Now, this is the Internet and this is America, so we have to give you some disclaimers. Angel investing is a great way to lose your money. There’s an old quip, “How do you become a millionaire? Start as a billionaire and start investing.” This is a good way to lose money if you don’t know what you’re doing, or if your timing is bad, or if you’re just plain unlucky.

This is not investment advice

Naval: This is not investment advice; but you may find this useful if you’re already in the profession or in the hobby of angel investing. 

Nivi: Like everybody else, our advice is going to be well-meaning but we’ll probably end up talking our own book in the process. 

Some of what we say will be speculative, but it’ll be stated as if it’s a fact. Some other things we say will be just plain wrong.  

Naval: Our advice may go out of date quickly because technology is changing rapidly, as is the investment ecosystem. A decade ago Y Combinator was brand new; AngelList didn’t even exist; the First Round Capital platform wasn’t there; Andreessen Horowitz wasn’t there; you didn’t have a lot of late-stage investments by hedge funds; you still had companies going public earlier. So the market was very different.

This is just one unique approach to investing

Nivi: This is one unique approach to angel investing. The things we’re going to talk about might work for us from time to time, but other people might have similar or better results with completely different or opposite strategies.

Naval: We’re very focused on early-stage technology startups in San Francisco and Silicon Valley. A lot of this will not translate to other locations. There are many important exceptions to everything we’re going to talk about. 

Nivi: We’ll also be discussing startups and funds that we’ve personally invested in and have a financial interest in.

We change our minds constantly

Naval: We’re also constantly changing our minds and learning. That’s what intelligent people do. We hold contradictory and opposing thoughts in our head at the same time. We have a multitude of opinions that often contradict each other. This is not math or science or equations, and we’re always changing our opinions. As Marc Andreessen says, “Strong opinions, loosely held.

Strong Opinions, Loosely Held

How to Angel Invest

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A new podcast with advice for angels in technology hubs

Naval: Hey everybody, it’s Naval and Nivi. We’re going to talk about something very different than what we’ve discussed in the past.

Back in the day, we did Venture Hacks, which was all about the game theory of venture capital and helping entrepreneurs raise money. Later, we talked about “How to Get Rich,” which was general advice on wealth creation for the average person who’s starting a business. Now we’re going to talk about angel investing.

Advice for new angels in technology hubs

We expect this podcast to resonate most with people who are in a technology hub and have started investing but are not yet pros. So brand-new angels, VCs and founders who are dabbling in it.

Let’s say you’re living in Silicon Valley—or you’re in Shanghai or Beijing, or you’re in Bangalore, or you’re in London, or you’re in New York—and you get access to a lot of interesting tech companies; you’re in the tech business and earned some extra money or raised some money. How do you become a good investor?

Where to learn the basics

This podcast assumes that you have some familiarity with investing. It’s not going to be a cold start. There are resources we can point you to for the cold start. Paul Graham wrote a piece called “How to be an Angel Investor.” There’s “How to be an Angel Investor, Part 2” on Venture Hacks. There’s a course called Future Investor. You can look at all of those for the basics.

We’re going to focus on more advanced topics in this conversation. We’re going to talk about things like how to figure out what a fair valuation is; what are the pitfalls of bridge rounds; how pro-ratas work; how can you squeeze into a round when there are VCs leading; when a co-investor is providing a valuable signal versus when they’re just talking their own book; how to size up markets and startups quickly; whether you should specialize in a single vertical or diversify into multiple verticals.

Open-sourcing what we teach at Spearhead

This podcast open-sources what we teach at Spearhead, a fund we created that trains the next generation of angel investors. It gives founders checkbooks, provides mentorship and teaches them the skill of investing, which is something that will be valuable to them for their entire lives.

How to Angel Invest

Negative Signals, Frustrations & Messy Middles: Scott Belsky on the Spearhead Podcast

“I feel like the greatest product and project ideas are born from some sense of frustration.” — Scott Belsky  

Entrepreneur, investor and author Scott Belsky was frustrated with the disorganized nature of the creative world, so he created Behance to fix that problem. Scott’s new book, The Messy Middle, was also born out of frustration.

In the world of startups, much excitement, attention and care are given to launches and exits, but what about the all-important mid-stages of the scaling of a startup? “In the world of new ventures and bold, creative projects, there’s just very little discussed around this very volatile middle part of the journey,” says Scott, who released The Messy Middle in October of 2018.

Angel investor and entrepreneur Cory Levy speaks with Scott Belsky in this week’s episode of the Spearhead Podcast. Cory and Scott discuss Belsky’s new book, how to meet new founders, startup warning signals and more in their 30-minute conversation.

In addition to being the founder of Behance, which was sold to Adobe, Scott is also a Chief Product Officer at Adobe and a seasoned seed-stage investor. On the subject of how investors bring value to the companies they invest in, Scott says, “I think great investors help guide entrepreneurs and teams through their messy middles.”

Before assisting a team in overcoming their messy middle, you have to be able to identify teams worth investing in from the start. When asked how Scott meets new founders, he points to his experience and established pipeline as a leading source for new deals. After making over 80 investments dating back to Pinterest in 2000, Scott states that there is an alumni network of the companies he’s been involved in that introduce him to new projects. Scott advises other investors to build a peer network of other founders you really admire and (are) building businesses you think are interesting. If you become an organic advisor of theirs, put some skin in the game.”

Startup Warning Signs

Through his journey as a successful founder and investor, Scott has recognized several negative signals that he now avoids when considering investing in a startup team, including:

 

  • Outsourced design

 

Scott has worked with teams that have outsourced their design with the intention of hiring a designer when they’re ready. “(They) have typically not worked out in my experience, except for a company like Warby Parker, I guess, or a few that were more like brands that did engage third parties to assist with the early UX in brand design,” Scott says.

 

  • Outsourced development for technology companies

 

Scott concentrates on the tech industry, which relies on design and development to find product/market fit and scale their projects. When a technology company outsources development to a “dev shop,” Scott states, “It’s been a bad signal, I find… If you’re trying to win on user experience or technology, those just have to be native skills that are attained by people at the helm.”

 

  • Bad team chemistry

 

More than anything, when Scott is looking at the long-term future of an early-stage company, he looks for strong founding teams. “When these founders talk over one another and you can tell that there’s some unresolved stuff going on and there’s a weird power dynamic, I can really feel that very quickly in the room with a team… I think that that’s just a recipe for disaster.”

 

  • Self-awareness and admitting fault

 

Not every founder is self-aware and able to face reality in tough situations. While Scott believes founders should be able to showcase their strengths, he also looks to invest in entrepreneurs who can understand and accept what’s going wrong and quickly adjust and iterate. Scott says:

“These are people who in your journey with them, when things get tough, when you go through the messy middle and those lows, they’re not going to face the facts and they’re going to get screwed as a result.”

Learn how to overcome the messy middle as both a founder and an investor. Listen to the full conversation between Cory Levy and Scott Belsky here on the Spearhead Podcast.

In the interview, Scott Belsky and Cory Levy talk about:

 

 

  • The Messy Middle
  • Writing the first check
  • Investing feedback
  • Traits Scott looks for in founders and warning signs
  • How Scott feeds his curiosity
  • And more!

Show Notes

  • Cory Levy and Scott Belsky begin their conversation by discussing Scott’s book, The Messy Middle (1:10)
  • “In the world of new ventures and bold, creative projects, there’s just very little discussed around this very volatile middle part of the journey” (1:40)
  • Cory and Scott discuss the messy middle of investing (3:34)
  • How to hack reward systems in the messy middle (4:23)
  • What Scott is most curious about today (5:54)
  • How Scott meets new founders (8:25)
  • Scott’s advice to an entrepreneur who is starting to dabble in angel investing (9:23)
  • How Scott says no to friends or former colleagues (12:03)
  • “I typically have been investing in someone who I believe is really investable” (14:01)
  • Negative signals and signs that Scott has learned to stay away from (15:22)
  • Cory poses a scenario to Scott, asking him what would happen if he loves one founder and doesn’t really like the other. “Do you bite your tongue and make the investment and trust that things work themselves out or do you have a rule around that?” (18:18)
  • Scott on keeping an anti-portfolio (20:34)
  • How Scott stays curious (22:00)
  • “Silicon Valley has made financing a celebratory moment and, therefore, a goal, which is completely backwards” (24:30)
  • How you can find diamonds in the rough (24:54)
  • “I’ve learned more to just be proud of my edge as opposed to regress to the mean and look at what other investors are doing and think I should be doing more of it that way” (25:56)
  • Show close (27:23)
Negative Signals, Frustrations & Messy Middles: Scott Belsky on the Spearhead Podcast

Wesley Chan (Felicis Ventures) on the Spearhead Podcast

“I always try to say yes whenever I can, whether it’s an investment or helping or being engaged with the company even though I can’t get an investment through my partnership.” — Wesley Chan

Entrepreneur and venture capitalist Wesley Chan went from founding Google Analytics and Google Voice at the tech giant to become a venture capitalist at Felicis Ventures. He quickly learned that his successes and failures at Google over the course of more than a decade prepared him to add value to the entrepreneurs he’d later work with as an investor. “Founders want to work with people who understand their journey…unless you’ve seen this firsthand, it’s very hard to dispense that wisdom,” Wesley says.

When asked what learned at Google he applies to Felicis, Wesley shares that Google Founder Larry Page would consistently repeat a saying that has stayed with him, “A happy user is the best money that marketing can buy.” Google didn’t have a marketing budget to promote Google Analytics, instead, they concentrated on making the customer happy, which was a winning strategy. Wesley says, “It’s very, very easy to lose focus, and the most important thing that founders have to have is a laser focus on building great product.”

Entrepreneur and angel investor Cory Levy speaks with Wesley in this week’s episode of the Spearhead Podcast. Wesley is the Managing Director at Felicis, a successful fund with nine exits of $1B or more over the past seven years including Twitch, Shopify, Rovio, and Ring. Cory and Wesley discuss his past at Google, transitioning into an investor, how Wesley feels about the necessity of conviction, saying no, and why he doesn’t invest in his areas of expertise.

When Data and Conviction are Misleading

Each investor and firm has a different approach to making investment decisions. While data is important to Wesley, he doesn’t believe that where an entry-level company is today will determine its future. “A lot of times it’s misleading because the data is that snapshot of where the company is (in this) moment in time versus where it will be in the future,” says Wesley. He compares investing to fortune telling. “You have to look at this company and say, ‘Five or 10 years from now it will be amazing or will be a dud.’”

Asked about the importance of having conviction when investing in a startup, Wesley states that he hates the word conviction and he doesn’t rely on it blindly. Due to the nature of a startup, with changes and iterations likely, Wesley says, “it’s not really obvious until the final wire has a hit from the sale or from the IPO. There are companies that we looked at that we invested in early on where we looked at the company and go like, “I hope it works.” Then we wound up putting some (money) in only to have it completely pivot and become a big win.”

Wesley believes that because some investors rely solely on their conviction, which is based on what a company is today, they miss out on “massive successes” in the future.

Saying No to Founders and Your Expertise

During each episode of the Spearhead Podcast, Cory asks guests how they say no to founders when there’s no deal to be made. Wesley says that he doesn’t say no. “I don’t say no, I just say not now. People will surprise you as they come back and surprise me.” Asked how founders react to that, Wesley says, “Sometimes they hate me. Sometimes they get angry, other times I hope they take it at face value that this is not the right timing.”

One thing Wesley does say no to as an investor is writing checks to companies who specialize in things he has domain expertise in. ““I’ve learned not to be misled by my expertise,” says Wesley. Instead, Wesley focuses on promising companies in other industries.

You can’t throw money at every problem you face as an investor and hope that it goes away, but taking calculated risks can help streamline your learning curve as an investor according to Wesley. When asked how he breaks into a new industry, Wesley says:

“You just take a risk and write checks. I’m not kidding. A lot of people go, ‘Oh, I don’t know anything about the space. I’m not willing to try it.’ If you don’t write checks how would know? We call them tuition checks. We’re learning. Some of the best deals that we ever gotten into were checks that we had written to other companies that may not have succeeded, but we learned a lot about the space. We’re like, ‘Oh okay, now it’s time to make a bet into these big ones.’”

Listen to the full conversation between Cory Levy and Wesley Chan right here on the Spearhead Podcast.

In the interview, Wesley Chan and Cory Levy talk about:

  • Wesley’s journey with Google beginning in 2002
  • Why Wesley hates the word “conviction”
  • How Wesley learns about new industries to invest in
  • Investing in Ring
  • Deal flow
  • And more!

Show Notes

  • Cory Levy and Wesley Chan begin their conversation by discussing what Google was like when Wesley first joined their team in 2002 (1:07)
  • Wesley discusses how his friends and family thought he was crazy for leaving a Fortune 50 company to work at Google (2:19)
  • “It (Google Analytics) was one of those things where the impact has been bigger than I even thought it was possible (4:50)
  • Cory asks Wesley what lessons he’s taken from Google to apply to investing (4:55)
  • Wesley discusses what he could go back and tell his younger self about being an investor (7:11)
  • “The less that I’m needed by this founder, or the less that I can play a role in it, the better or more likely this company will become a unicorn” (7:30)
  • Why humility is an important investor trait (8:00)
  • Wesley discusses his investment in Australian-based Canva (8:50)
  • How new investors should approach their deal flow (11:19)
  • Why Wesley recommends to just “listen and provide encouragement” when serving on an early-stage company’s board (12:50)
  • Wesley’s “bias towards yes” (14:11)
  • Why Wesley hates the word “conviction” (16:12)
  • Cory and Wesley discuss why Wesley avoids investing in companies that are in niches he specializes is, including business intelligence analytics (17:20)
  • Engineering serendipity as an investor (19:18)
  • How to split your time between projects (19:57)
  • Experienced investors like Wesley are constantly learning and evolving. Cory asks Wesley about a recent iteration or something he’s learned (22:12)
  • How Felicis approaches early-stage investment different than other angels and firms (24:37)
  • “I don’t say no, I just say not now. People will surprise you as they come back and surprise me” (26:31)
  • How investors can break into a new industry (27:11)
  • Cory and Wesley end by discussing who has influenced Wesley as a peer or mentor (28:07)
  • Show close (29:20)
Wesley Chan (Felicis Ventures) on the Spearhead Podcast

Building Your Brand, Missed Opportunities and “What’s Next”: Tim Draper on the Spearhead Podcast

I think if you’re going to build a brand in investing, you need to create a new form of investing. I think you have to change the paradigm.” — Tim Draper

Even the most successful investors in the world, like DFJ founder and world-renowned venture capitalist Tim Draper, miss out on big opportunities. Tim and his partners have passed on Google, Yahoo!, Facebook, Uber, and Airbnb for one reason or another. With successful investments in Robinhood, Cruise Automation, Twitch TV, Coinbase, and dozens of others, Tim has found success looking at the upside of a deal instead of only considering if it will succeed or fail.

“Reasons we might invest are when we say this is so potentially big that if it works, this could be huge. That’s my biggest question. How big is it? If it doesn’t work it’s just not going to work, but if it works, how big?”

In this episode of the Spearhead Podcast, entrepreneur and angel investor Cory Levy speaks with Tim about his career as a venture capitalist, tips for new investors, blockchain technology, and more.

Taking Your First Step as an Investor

Profitable exits are not easy to come by, especially early in your career as an investor. Asked what Tim would tell his younger self if he could go back in time, he would say, “Make sure that you diversify because it’s very uncertain as to whether any one of them will work, so make sure that you’ve made investments in 10 or 20 different companies, or just invest in a fund and follow that fund.”

For prospective investors working a “day job,” Tim recommends spending an extra 10% of their time there. “What you do with that extra 10% is really all the things you want to do,” says Tim. Tim also believes in the importance of building relationships and networking. “The other piece of advice I’d give is to get to know everybody. Find out what they all do. It’s always a little hard to do when you’re just coming out of college — you’re just getting started, but ask everybody to lunch and then ask what they do and get to know them all,” says Tim.


Asked about saying no to founders, Tim states that he has to say no to 95% of founders, and it’s no longer hard to say no when it’s clear that there isn’t a strong fit. Tim gave several reasons he says no, including:

  • Market size  
  • Team dynamic  
  • technology
  • Not unique enough
  • The team needs strength in one area or another

Tim doesn’t rest on his success when looking towards the future. When asked by Cory for the biggest challenge he faces right now, Tim says, “It’s, what’s next?” He frequently asks himself questions like:  

  • How do I take this wonderful machine that I’ve built and build it further?
  • How do I make a bigger impact on the world or how do I get entrepreneurs to make a bigger impact on the world?
  • How do I make it so that my investors are delighted with the service I provide?  

“Keep taking that step, keep pushing. It gets easier and easier to just rest on your laurels but that’s really not in my future. I’m kind of in the mode of, ‘Okay, now I’ve done all that stuff, what’s next?’”

Listen to the full conversation between Cory Levy and Tim Draper right here on the Spearhead Podcast.

In the interview, Tim Draper and Cory Levy talk about:

  • Missing out on opportunities and how to adjust
  • Creating new investment models
  • Setting yourself apart from other investors
  • Blockchain technology
  • Generating deal flow
  • And more!

Show Notes

  • Cory Levy begins his conversation with Tim Draper by asking about his very first investment (1:09)
  • What Tim would tell his younger self about investing (2:36)
  • Cory asks how Tim helped his son, who recently started a venture capital fund, get started (4:21)
  • Tim answers the question, “How important do you think it is to build the brand as an investor and how do you go about doing that?” (6:42)
  • The challenges of setting up a fund that operates using only bitcoin (8:49)
  • “You have to have a long-term perspective…if you really want to do something extraordinary, you really have to have that (10:50)
  • How to know if you’re doing a good job as an investor between exits (11:05)
  • Tim’s experience working with LP’s (limited partners) (12:05)
  • Deal flow and how to say no (13:46)
  • The investment that Tim thinks could return 1000x (15:20)
  • Companies Tim has missed out on and how his investment approach has changed since (15:45)
  • Investing in later rounds after missing an opportunity during a Series A round (16:46)
  • Who Tim has learned the most from in his career (17:19)
  • For the final question, Cory asks, “What are your biggest challenges right now?” (17:52)
Building Your Brand, Missed Opportunities and “What’s Next”: Tim Draper on the Spearhead Podcast

A Few Things We Learned From Daniel Gross

Daniel is the Founder of Pioneer and runs Y Combinator’s AI track. He is an early investor in Cruise, Gusto and Opendoor. Below are some investing lessons from our session with Daniel.

Don’t belabor decisions; either pass or figure out what else you need to know

“I’ll sleep on it” doesn’t work. It’s rare you go to sleep and magically have the answer. So you should quickly determine next steps after meeting with a founder.

Daniel tries making a hypothetical investment decision within 5-10 minutes of starting a pitch meeting. If he’s excited, Daniel then figures out what additional information is needed to proceed with the investment. This helps focus the conversation and the diligence afterwards.

If he’s not excited, Daniel passes quickly. This is beneficial for all parties. Nobody wants to be left hanging.

You can talk your way into later rounds, even if you passed on the seed

Some investors write dozens of $25K seed checks, hoping this lets them access later rounds of the winners. Daniel doesn’t believe in this approach.

As a smart angel, you should be able to make friends with top founders and get allocation in their rounds. You don’t need to buy access by investing earlier on.

Spearhead is a program that funds and mentors founders so they can start angel investing. Founders get exclusive access to masterclasses from investors such as Daniel Gross. Spearhead is currently accepting applications for the 2019 cohort. Apply by Oct 31.

A Few Things We Learned From Daniel Gross

Jeff Clavier on Standing Out, Valuations, and Saying No

“It’s actually not about the money, it’s about the advice, connections, experience, expertise, and track record.” — Jeff Clavier

As an angel investor, the value you provide to early-stage companies extends outside of the checks you write. With thousands of competing angels and firms trying to get into the same attractive deals, you have to define and showcase your value to stand out. “What will get entrepreneurs to come and seek your capital, because there is so much capital that it’s actually not about the money,” says Jeff Clavier, Founder and Managing Partner of Uncork Capital. “Figure out what your shtick is because being a broad-based firm is very challenging in this environment.”

By honing in on your area of expertise, developing a deep pool of resources, and building a strong network, founders will immediately understand the impact you can have on their company, allowing you access to deals you wouldn’t have otherwise.

Jeff speaks with Cory Levy on this week’s episode of the Spearhead Podcast. Jeff has led Uncork, a seed stage venture capital firm, through more than 200 deals over the past 15 years, including investments in Fitbit, SendGrid, Mint, and Postmates.

Like every investor, Jeff has also passed on opportunities to invest in startups that are now tech giants. Cory asks, “If you could go back to yourself 18 years ago when you were just starting out investing, what would you tell your younger self?” Jeff says that there are only two things he would change. “Don’t pass on LinkedIn, don’t pass on Uber. That’s it.”

When passing on LinkedIn, Jeff doubted their ability to raise a Series B without a business model instead of putting his faith in Founder Reid Hoffman. No longer relying solely on the likelihood of success, Jeff now trusts strong teams. “If I believe that the team can actually pull it off, even in the face of low probability, I will go for it,” Jeff says.

At the beginning of Uncork, Jeff was responsible for making every deal. If he believed a deal was worth making, he wrote a check. Today, he’s surrounded by a team of investors who all have strong opinions, which he considers to be an asset even if there are disagreements.

“You have to have pushback. We’ve had contentious decisions at Uncork, where one of us was intimately convinced that the company that he or she was pitching was a good one and the others were like, ‘Don’t like it, don’t agree, whatever.’ Ultimately, if one of us has an absolute conviction that we should do this deal, then we’ll probably do it, unless we have data points or intimate knowledge or experience that disproves it.”

When it does come time to say no, Jeff and the Uncork Capital team won’t make introductions to other VC and angel firms. Jeff believes this decision is in the best interest of the founders.

“The thing which we don’t do to help is introduce someone we pass on to other investors because, by definition, if I introduce someone I just said no to another investor saying, “Hey, I just passed, but they want to meet you,” then, instantly, I kill the deal because in the mind of my buddy who I made the introduction to, I’m passing, and that’s a super negative signal.”

In the early 2000’s, Jeff built an audience by starting one of the first VC blogs. “When you only had a handful of people blogging about an important subject like entrepreneurship, VC financing, and so on and so forth, you get your audience built pretty quickly,” Jeff states. Blogging, while still effective, is much more likely to go unnoticed. Jeff recommends using podcasting, which he says “is back,” to develop your voice and an audience.

Hear more from Jeff Clavier and listen to the full interview between Cory and Jeff here on the Spearhead Podcast.

In the interview, Jeff Clavier and Cory Levy talk about:

  • What Jeff would change if he could go back in time
  • Jeff’s early investment in FitBit
  • How to build an investment network
  • How to say no to founders
  • How to stand out as a new investor
  • And more!

Show Notes

  • Jeff and Cory begin their discussion by talking about how Jeff started as an investor, and his first investment (1:22)
  • Jeff gives a very straightforward answer to the questions “What would you tell your younger self?” (1:47)
  • After missing on several large tech companies, Jeff didn’t massively change his investment strategy; he refocused his energy on understanding how much conviction he has, which leads his decisions (4:08)
  • Jeff explains how he develops conviction at (5:17)
  • Jeff details how he met the FitBit team and what led him to make his first investment in the company (8:30)
  • FitBit, a consumer hardware company, was not in a very “sexy” industry. Cory asks, “What would you say today is similar to Fitbit, where an industry that maybe is not sexy that you’re investing in?” (11:11)
  • Without sharing confidential information, Jeff discusses a current prospective deal and the details of how he met the team, conducted due diligence, and why he decided to submit a term sheet (13:04)
  • “How data-driven are you when it comes to managing your schedule?,” Cory Asks (15:55)
  • Building a network as an investor is crucial to being able to find early-stage founders and get included in deals. Jeff explains his advice for building a network in San Francisco (18:27)
  • Why podcast is popular once again, and it’s importance for investors (20:55)
  • The importance of valuation in today’s investment climate (23:44)
  • How Jeff says no, which he has to do “99.5%” of the time.
  • Jeff discusses who he looks up to and what he’s learned from them (28:07)
  • The show closes with a question about Jeff’s biggest challenge right now — something he’s trying to improve on (29:53)
Jeff Clavier on Standing Out, Valuations, and Saying No