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

A FEW THINGS WE LEARNED FROM KEITH RABOIS

Keith is a Partner at Khosla Ventures and early investor in YouTube, Yelp, Yammer and Airbnb. Below are some investing lessons from our session with Keith.

Invest in deals that are uniquely suited to you

Investing is generally an efficient market, so you should focus on deals where you have a proprietary advantage. Whenever Keith is considering an investment he asks himself “why am I uniquely situated to lead this deal over other VCs?”

Your advantage can come from having superior insight into the market, being able to conduct better diligence or from selling your value-add more effectively. Because of his experience at PayPal and Square, Keith has an edge investing in heavily regulated industries.

Look for companies where if you don’t invest, nobody will

Sometimes the most interesting companies are ugly ducklings. As an angel, the issue is that your capital alone isn’t enough to get the company over the hump. So you need to recruit friends to invest in ugly ducklings, which is a lot of work.

As a VC, investing in ugly ducklings is easier because your capital alone may be sufficient. You still need to recruit investors for the next round, however.

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 Keith Rabois. Spearhead is currently accepting applications for the 2019 cohort. Apply by Oct 31.

A FEW THINGS WE LEARNED FROM KEITH RABOIS

Tony Conrad on Being a Founder and an Investor, Vetting, and Deal Flow

“The best investors I know are people that have actively founded something themselves.”

— Tony Conrad

Entrepreneur and investor Tony Conrad has had success on both sides of the table as an investor and a founder. “I was kind of part of both of those roles. It was very, very fluid. Some people saw me as a venture capitalist, some people saw me as a founder,” says Tony. Having built About.me and Sphere from the ground up and as the co-founder and partner at True Ventures, Tony knows what it takes for a founding team to succeed, and he has applied this knowledge to lead True Ventures in over 200 deals.

Tony joins Cory Levy in this week’s episode of the Spearhead Podcast to discuss his approach to investing, tips for new angel investors, deal flow, and what he looks for in fellow founders.

Like all investors, Tony misses opportunities and bets on companies that eventually fail, but this isn’t something that keeps him up at night. “Where I get really upset is when I feel like we’ve made an investment into a founder, which is what we do, and we got that wrong,” says Tony.

When looking for an entrepreneur to work with, Tony tries to connect with them on a deep level. “I like to really try to make a human connection, and try to understand what makes a person tick, where they’re from, what they’ve been through, what’s their journey here, and why they’re doing the particular idea,” says Tony. While Founders are focused on their presentation and trying to convince Tony that their business is worth investing in, Tony focuses on them. “At times I’ve very politely leaned over the table and closed their laptop, and just asked (them) to take a step back to give me their context and for me to understand how we got there. It changes everything when you can get into that.”

Building Out Your Network

When it comes to Tony’s deal flow, he considers every company he’s worked with as a possible source, and constantly works to strengthen his network. “I think if you are a little bit patient and you carefully build out your networks, in addition to your own experience, you put yourself in a much better place to have top-of-funnel deal flow that is going to be of higher value, higher quality, and higher chance of succeeding,” Tony says.

To cultivate a valuable network, you don’t need to always look outside of it according to Tony, who met WordPress Founder Matt Mullenweg from friend Om Malik.

“I think it’s really, really important that you tap into your existing network as opposed to trying to always looking outside of it. If you do within that network of great founders and entrepreneurs, you’ll get an enormous amount of deal flow. It’s always the best deal flow because founders, they have an intuitive sense of what’s appropriate for me, for us at True Ventures. They’re just going to do a prescreen in a way that’s much more effective.”

Tony says a “hack” that he would recommend to young angel investors is to “Get to know people in the network when you don’t need anything from them and make sure that you keep a list and you do check-ins, and that you’re proactively generous and that you’re sharing deals.” Tony recommends short check-ins and phone calls, even if 5-7 minutes for a cup of coffee or stopping by the office for a brief chat, which can make a big impact when building out your network for partnerships.

Don’t miss the rest of this conversation with Tony Conrad of True Ventures on the Spearhead Podcast. Listen here

In the interview, Tony Conrad and Cory Levy talk about:

  • How Tony got his start as an investor
  • Determining whether or not Tony will work with a founder
  • Saying no
  • The difficulty and benefits of being both an investor and a founder
  • And more!

Show Notes

  • Cory Levy and Tony Conrad start their conversation by talking about Tony’s first investment, which was in a company called Danger (1:23)
  • Cory asks, “If you could go back to Tony Conrad 20 years ago, what would you tell your earlier self about investing?”
  • Tony discusses first meeting Matt Mullenweg, Founder of WordPress (3:01)
  • “I think it’s really, really important that you tap into your existing network as opposed to trying to always looking outside of it” (5:45)
  • Investors rely on having “high-quality deal sources.” Tony discusses who his sources are at (6:29)
  • Tony isn’t a traditional investor due to his involvement on the operational side of companies as well, but that’s changing. Tony discusses what he’s learned from being both a founder and an investor (8:18)
  • “There’s just so many real-world small lessons I’ve learned along the way by being an operator or being a board member that applies to the other category” (11:30)
  • Savvy investors learn and adapt as they grow in their craft. But when Cory asks if his decision-making process has changed over the last 20 years of investing, Tony says no. Hear why at (13:26)
  • How Tony decides if he wants to work with a founder or not immediately (15:19)
  • Cory and Tony discuss how to conduct diligence as a new angel (20:32)
  • How Tony says no to founders (23:16)
  • “Generally, they are fairly well thought out opinions on our end and we share the top line rationale around that” (24:00)
  • How new angel investors can get in on deals with True Ventures (24:22)
  • “The best investors I know are people that have actively founded something themselves” (27:47)
  • Cory and Tony discuss diversity in entrepreneurship and investing (28:30)
  • “What’s the last weird thing you saw or invested in?” Cory asks Tony (33:24)
  • Show close (34:52)
Tony Conrad on Being a Founder and an Investor, Vetting, and Deal Flow

A Few Things We Learned From Jared Friedman

Jared is a Partner at Y Combinator and early investor in Cruise, Instacart and Parse. Below are some investing lessons from our session with Jared.

Diligence doesn’t tell you what a business will become

You can infinitely diligence any company: calling customers, researching competitors and so on. This is problematic if it causes you to lose sight of the future potential.

Jared recalls a deal he researched exhaustively, and passed because of gaps in their product offering. The company later fixed these gaps. He regrets passing.

Sometimes you should invest in great teams, even if everything else is terrible

Investors look at a number of things when considering a business, including the idea, team, market and traction. The default instinct is to weigh all of these equally, although Jared believes that team is most important. Even if the idea, market and traction are all terrible, Jared will still invest if he loves the team enough.

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 Jared Friedman. Spearhead is currently accepting applications for the 2019 cohort. Apply by Oct 31

A Few Things We Learned From Jared Friedman

Apply To Spearhead 2 For A $1M Fund

Today, we start accepting applications for Spearhead 2, a program that gives startup founders their own fund, so they can start angel investing.

Founders start with a $200K fund. If they make promising investments, they receive up to $1M to invest over 2 years.

Nine months ago, Spearhead 1 accepted 19 founders from companies like PillPack, Handy, and Clearbit. These founders have now invested over $2M in 50 seed and pre-seed companies. They’ve co-invested with Founders Fund, Greylock, and Marc Benioff. And they’ve been mentored by investors like Keith Rabois, Elad Gil, Cyan and Scott Banister, Daniel Gross, Lee Linden, Jared Friedman, Nick Chirls, Ann Miura Ko, Naval Ravikant, and Jeff Fagnan.

Applications for Spearhead 2 are due by Oct 31.

Founders backing founders

Founders already help startups with advice–they’re probably the most helpful advisors. They also have access to the best startups. Spearhead gives these founders a fund so they can start investing in the companies they advise.

These funds let startups raise money from their most helpful advisors. They compensate founders for their advice. And they create more high-quality opportunities for downstream VCs.

Collaboration between AngelList and Accomplice

Spearhead is a collaboration between AngelList and the venture capital firm Accomplice. AngelList provides the technology and back office (lawyers, accountants, et cetera). Accomplice is the largest investor in Spearhead.

Spearhead funds are independent of Accomplice and investments don’t require their (or anyone’s) approval. Founders are also encouraged to get additional investors for their fund.

AngelList’s co-founder, Naval Ravikant said, “This is the first program that is trying to turn you into a capitalist, and not a laborer. Unlike a traditional scout program, we are not training scouts, we are building full-fledged VCs. The founders are not getting a slice of carry in a fund, they are getting carry in their own funds. This is really about teaching, learning, and scaling the craft of investing.”

Wealthy founders have been investing in startups since the dawn of venture capital. Now any founder can apply for their own fund.

See the FAQ and podcast to learn more about Spearhead. Also see this in-depth report from Techcrunch.

Meet Spearhead 1

These 19 members of Spearhead 1 are now running their own funds with millions of dollars of dry powder.

Alex Yampolskiy, Founder of Security Scorecard

Alex MacCaw, Founder of Clearbit

Alice Zhang, Founder of Verge Genomics

Amrit Saxena, Founder of Stella.ai

Andrew Bialecki, Founder of Klaviyo

Ankur Nagpal, Founder of Teachable

Evan Weaver, Founder of Fauna

Grant Miller and Marc Campbell, Founders of Replicated

Jay Desai, Founder of PatientPing

John Capodilupo, Founder of Whoop

Laura Behrens Wu, Founder of Shippo

Nikhil Srinivasan, Founder of Cleargraph (acquired by Coinbase)

Noah Ready-Campbell, Founder of Built Robotics

Oisin Hanrahan and Umang Dua, Founders of Handy

Prasanna Sankar, Founder of Rippling

Preethi Kasireddy, Founder of TruStory

Roger Chen, Founder of Computable Labs

Tiffany Zhong, Founder of Zebra Intelligence

TJ Parker, Founder of PillPack (acquired by Amazon)

Apply To Spearhead 2 For A $1M Fund

Tom McInerney on Investment Thesis, Saying No, and Valuations

“Be authentic to your abilities, your expertise, and your world. You should start with what you know and then you can expand from there.” — Tom McInerney

In angel investing, there are no overnight success stories. Proven investor Tom McInerney from TGM established himself over the course of making 70 deals in the past 12 years, specializing in early-stage internet companies. Tom calls investing “the get rich slow business,” and says, “best case, your winners take years and years and years to mature.”

Despite how difficult succeeding as an investor is, Tom knows that to others, it looks easy. “As an investor, I think entrepreneurs probably don’t realize investors have a hard job. It looks easy. I think if they understood fund returns they would be wildly disappointed. You just naturally read about things that work,” Tom says.

Tom joined Cory Levy on the Spearhead Podcast to talk about his experiences as an investor and to share his advice for fellow angels. Among the long list of successful investments he’s made over the years are missed opportunities in now large tech giants, including Thumbtack and Airbnb.

A tactic used by angels to prevent missing investments that match their criteria and beliefs, turning those into an investment strategy, is an investment thesis. Cory asks Tom if he has an investment thesis. “I think thesis is for suckers because the world changes so fast and (it’s) very hard to predict the future.” Instead, Tom takes leaps of faith based on conviction. “One thing I took away was, as I continue to do well — take risks. As an investor, you have to take risks,” says Tom.

Tom takes risks on founders he believes in, regardless of the other angels or firms involved in a round or if he’s the first check or the last. “One thing I would say is just because a bunch of great folks are in a round, doesn’t mean that it’s going to work. I probably overvalued some, like ‘Goldman Sachs and Excella are coming into this round, so it’s got to be good.’ That’s not necessarily true. You still got to believe in the company yourself I think to write a check.”

Writing a check, for Tom, has significance over and above the capital it provides to the company. “When you invest in a company, as an angel, you should think about it as lending your credibility.” By signing a check, you’re putting your name and the name of your investment group publicly on a company, and by lending your credibility to a founder, you’re helping them leverage your name and brand to help accomplish their goals. When you’re not willing to endorse a startup and back them with your name and money, you need to give a “no.”

“Giving good no’s as an investor is hard but it’s really important,” Tom says. Tom explains that he tries to give the best no possible to help founders understand why he’s passing on them. Despite the importance of giving a good no, Tom also cautions founders from taking them as a sign that something is wrong with their business. “Founders shouldn’t over-read a no, and investors should make it clear that just because they’re saying no doesn’t mean that they are right.” However, if a group of founders is consistently hearing no for the same reasons from different investors, they should address this concern.

In the episode, Cory and Tom also discuss the current state of the market. Valuations are high, which could scare investors who are looking for good deals. Asked how he takes the investment climate into consideration when making deals, Tom says, “if you’re betting on a good team that’s creating an innovation, then they’ll still be successful. They’ll have to manage their cash more efficiently, but it’s what good teams do.”

Listen to the full interview between Cory Levy and Tom McInerney here on the Spearhead Podcast.

In the interview, Tom McInerney and Cory Levy talk about:

  • How to start as an investor
  • Cultivating a network
  • Negotiating terms
  • Investment thesis
  • How Tom says no to founders and why he takes this approach

Show Notes

  • Cory and Tom begin the episode by discussing his history as an investor and the biggest investment that got away (1:29)
  • How Tom met the founders of Airbnb and when he realized he should’ve given them a deal (2:37)
  • “I still think most fundamentally you’re betting on the team at that point” (5:10)
  • Cory asks Tom when he’s certain that he wants to invest in a founder (6:43)
  • “Often times I’ll see something and I’ll think right team, wrong idea, wrong space, wrong market” (7:15)
  • Tom’s advice for brand new angel investors, including how to stand out from other investors (7:54)
  • Cory asks, “How do you say no to a friend or a former colleague, what is that like?” (8:16)
  • Tom shares a story of how an investor who said no to a founder was later hired by them, and explains why (8:30)
  • Tom discusses Thumbtack, a missed investment opportunity (10:50)
  • How to manage tracking the entrepreneurs you meet with and keeping in contact with them as an investor (11:50)
  • “Is now a good time to be investing?” Cory asks Tom (12:45)
  • Cory and Tom discuss the importance of being the first check in an investment round (14:22)
  • Cultivating a network is key to the success of an investor. Tom believes it happens “organically over time” (17:10)
  • What Tom would tell his younger self to help him become a better investor (18:08)
  • Tom has strong beliefs about investment thesis and if you should have one. Listen in at (19:09)
  • How to negotiate terms as a new investor (20:11)
  • Not every part of being an investor is enjoyable. Cory asks Tom what parts of his job aren’t fun (21:15)
  • Show close (23:08)
Tom McInerney on Investment Thesis, Saying No, and Valuations