Silicon Valley angel investing phenomenon Jason Calacanis is our guest. Hear how he turned $700K into a portfolio worth $100 million. We had an inspiring conversation about building companies and investing in them.
Highlights include:
Sal Daher Introduces Jason Calacanis as his Guest on Angel Invest Boston
How Jason Built the Stellar Team that Makes His Success Possible
Sequoia Capital Picked Jason Calacanis to Scout for Promising Ventures
How Jason Calacanis Turned $700,000 into $100 million
Jason Calacanis Once Thought Angel Investing Was Stupid
The Odds of Success for Founders and for Angels
“…we live in a time when people believe in balance, and they believe in getting Olympic-caliber rewards…but they only want to commit to putting in 40 hours a week.” Jason Calacanis
Investment Syndicates versus Funds
VC Returns Have Note Been Spectacular
“If you want to be active, you can do syndicates…”
“My personal goal is to train 10,000 people to be active investors in thesyndicate.com. We've got 3,300 members.”
Why Jason Leads Syndicates Despite Having Raised Several Funds
Syndicate Members Act as Scouts, Bringing in Interesting Companies Jason Would Not See Otherwise
Syndicate Members Can Be a Resource to Founders
As His Syndicates Develop, Jason Calacanis Hopes to Match Investor Background to the Needs of Companies
“For me, media is my leverage…” Jason Calacanis
Success Brings More Success
How “This Week in Startups” Podcast Came About
The Responsibility That Comes with Success
“And I watch my contemporaries, and I hold many of them in contempt for the cavalier nature of which they go through their work. They must take the work seriously.” Jason Calacanis
Jason Calacanis’ Launch Accelerator – Sam Bogoch of Axle.ai Found It Very Useful
Jason Calacanis Recommends “Skin in the Game” by Nicholas Nassim Taleb
“Angel” by Jason Calacanis, a Manual on How to Be an Angel Investor
How Y-Combinator Plays the Odds
Jason Is Building His Organization So He Can Start Delegating Investment Decisions
Delighting Your Clients Is Essential, But It’s Not Enough: Luxe Valet
The Unit Economics Has to Work for a Company to Make Delighting Its Customers into a Business
“I think we could have at least 10 times the number of people participating in angel investing than we do here in the United States”. Jason Calacanis
“Start small and start slow. Yes. And you know, it's just like learning how to play poker or blackjack”. Jason Calacanis on Angel Investing
Jason’s Advice for Angels & Founders
Distinctions Between a Life Style Business and a Venture Business
Read full transcript here
Episode Transcript: Jason Calacanis
SAL DAHER: Welcome to Angel Invest Boston. I'm your host Sal Daher, an angel who delights in investing in the fascinating tech companies that abound in Boston's singular startup ecosystem. I'm thrilled to introduce our guests today, Jason Calacanis.
JASON CALACANIS: Thanks for having me out here. Jason acknowledges-
SAL DAHER: Awesome.
JASON CALACANIS: ...his presence. I am here.
SAL DAHER: Awesome.
JASON CALACANIS: I am here.
SAL DAHER: Awesome.
JASON CALACANIS: Thanks for having me.
SAL DAHER: I am so thrilled. You're the inspiration for this podcast. Jason Calacanis and This Week in Startups are the inspiration for the Angel Invest Boston podcast. You're my muse man. You're my muse. Okay.
JASON CALACANIS: I love it. I love it. I've been in [crosstalk 00:00:39]. No, I get it a lot. I get it a lot. A lot of people who listen to the podcast, they go, "You know what? If that shmuck can do it, I can do it."
SAL DAHER: No, no. It was more along the lines of, "Heck, I would struggle to think of stuff that you said on the podcast that didn't make sense to me." Okay? I said, "This guy..." And I was really impressive, you know? So I said, "You know, the guy knows what he's talking about. I've been an avid listener for five years, and I really enjoy it.
JASON CALACANIS: Oh, it's my pleasure.
Sal Daher Introduces Jason Calacanis as his Guest on Angel Invest Boston
SAL DAHER: For those not familiar with this remarkable voice on the podcast, he's a tech investing phenomenon. I attended the Angel Summit held by Jason's group in Napa Valley in the summer and was wowed. I met really interesting angels and founders. I had a chance to meet Jason's team, and they're all stars. Jackie, Ashley, Dumont and others. To paraphrase the opening sequence from cabaret, evens as summer interns are brilliant. Jason, how do you do it?
JASON CALACANIS: Oh, thank you. Well, I think investing in startups is one of the greatest jobs in the world. And you can't help but have massive enthusiasm for it once you start doing it. It's a bit of an addiction I think.
SAL DAHER: But I'm really impressed with the people you have around you.
How Jason Built the Stellar Team that Makes His Success Possible
JASON CALACANIS: Oh, yeah, I developed talent. The good news is, if you hire people who are really into the mission, and our mission is to support founders and inspire innovation. So there's two parts of that. We want to support founders. Typically, that's two groups of people; the ones that we have invested in, and the ones we haven't. Obviously we support many people who we have not invested in through the podcast and events, and we support them lightly with inspiration, with information, with knowledge. But then when we really make those 80 investments this year, we're really trying to make a big impact on those companies. And if the company is ready to do the work, we want them to match our effort, and we want to match theirs. So I just optimized now in my life, for people who really believe in the mission, as well as people who want to do the work.
JASON CALACANIS: And you know, we have a generation of people, a lot of which value, let's be honest, like they work to live. Maybe it's a little European in that regard. And I just optimize for the opposite. I optimize for people who this is their lives' work. And if they come to work every day, and they hear a podcast with a founder, or they're going to the founder interviews and hearing all these incredible ideas, it's really inspiring for all of us. So that's our goal, is to just hire people who are inspired by the mission. And it really does work out well-
SAL DAHER: It does indeed. Now just to add a little context, Jason started out as a tech geek in New York city with a night school degree from Fordham. He wasn't always this maestro in Silicon Valley the way he is now. In 1996, he founded Silicon Alley Reporter. He saw the success of publication Venture Reporter to Dow Jones. I mean, you're an exited founder, and it's very impressive. Now I wanted to talk a little bit about the Sequoia Capital and how this-
JASON CALACANIS: Sure.
Sequoia Capital Picked Jason Calacanis to Scout for Promising Ventures
SAL DAHER: Like the biggest name in venture decided to pick you at the time you were somebody who's been sort of in the journalism side of things, to boldly go where no VC had gone before. Tell us that story Jason.
JASON CALACANIS: Sure. I had founded a company and Sequoia was an investor in it and I had introduced them to a number of companies. My friend was creating a poker company called Zynga Poker, and another friend of mine was starting a micro blogging site called Twitter. And another friend of mine had just invested $50 million of his own money in an electric car company called Tesla Motors. And I had pushed Sequoia to invest in all those companies. So these are really great companies, and they knew some of the founders. It's not like I was helping Sequoia in some major way, but I was pushing those founders towards, "Hey, this is a great firm," and because they had invested in my company. And then a couple of years and they said, "You know, you've sent us such great companies. What if we just gave you some money? We'll split the returns 50/50." And I was like, "Okay, sounds good to me. 50/50, great."
How Jason Calacanis Turned $700,000 into $100 million
JASON CALACANIS: So, I invested in 21 companies and three of them turned into unicorns. That's a one and seven track record, which is absurd. And I put $700,000 to work. Just under 700,000. It became worth famously over a hundred million, and counting. We'll see where it winds up. It's only been... I did six years of investing with them in those 21 companies. So at the peak, I think the fastest year I was doing one a month, and then I had my first fund, my second fund, and the syndicate.com. So the first five years... I've only been investing for 10. The first five I was doing it for a couple of hours a month, three, maybe four. And then I started doing it half-time, then full-time. And you know, really, really love what I do.
SAL DAHER: Before Sequoia... By the way, Sequoia is like the biggest name in venture.
JASON CALACANIS: Yeah, they did Google, they did Apple, they did Cisco, they did YouTube.
SAL DAHER: Huge.
JASON CALACANIS: Yeah. They are the most successful in the history of Silicon Valley.
SAL DAHER: But you were not an investor before that. Or had you made investments in-
Jason Calacanis Once Thought Angel Investing Was Stupid
JASON CALACANIS: No. I thought angel investing was stupid. I thought I should just invest in myself. Right? I thought that would be the better course of action because I had control over it. And then when I realized was, listen, I'm good at what I do, and I'm smart. But my friends are even better at what they do. And many of them are even smarter. And why would I place one bet when I could place 20? And of those 20, 10 of them are going to be smarter than me, five of them are going to be harder working, or some combination of that. And that's one of the big challenges. When you're a founder, you place one bet every five, six, seven years.
SAL DAHER: No doubt.
The Odds of Success for Founders and for Angels
JASON CALACANIS: You kill yourself, and you have a one out of three chance of success, generally speaking. Some level of success. And when you're an investor, you invest in 30 companies, you have a one third chance of those companies, or a 20% chance, depending on who you talk to or what statistics, or what time period. But let's just call it a 25% chance of some of them working out. If 25% of 30 or 40 investments work out, you could have seven to 10 wins. Seven to 10 wins in our industry are going to make up for the losses, and the risk of ruin. The risk of never hitting one is much lower than being a founder. Now founder, you get the glory, founder you get to build the great company. And if you do hit, founders make much more than investors ever will, because they'll own 30% of their company when it goes public for 10 billion or 50 billion or-
SAL DAHER: Absolutely.
“…we live in a time when people believe in balance, and they believe in getting Olympic-caliber rewards…but they only want to commit to putting in 40 hours a week.” Jason Calacanis
JASON CALACANIS: They'll own 10% of $100 billion company, or whatever it is. So there are two different experiences. I think people should do both in life if they're so inclined. But you have to be willing to put in a lot of work. And we live in a time when people believe in balance, and they believe in getting Olympic-caliber rewards, and Navy SEAL-level performance. But they only want to commit to putting in 40 hours a week. Like, if anybody wants to play in the NBA, or if you want to be an Olympian, newsflash, you might have to work harder than 40 hours a week.
SAL DAHER: There was no balance to being a founder. It's a tough life. I know founders who were just unbelievably dedicated, had a modest hit in the beginning, and then had like three or four startups that just... The timing just wasn't right. And now they've gone off to bigger and better things, doing something else. It is a very, very, very demanding thing. And you're right. I think it's good to be a founder at some point in your life, and then it's good to go on to be an investor. Tremendous. I'm curious, you have a three funds underway. Why do we even bother with investing in syndicates?
JASON CALACANIS: Ah, great question. So just to explain to people, back up a second. We have a fund, and the fund invest in our accelerator companies and does our direct investing. And then we offer half, we offer all of those companies if they want to, to syndicate. I think we offer every single one. Yeah. And-
Investment Syndicates versus Funds
SAL DAHER: Let's just back up a little bit. Syndicate, I was perhaps to compressed in what I said. A fund is when a bunch of people invest in a bunch of different companies. A syndicate is when a bunch of people invest in one company.
JASON CALACANIS: Correct.
SAL DAHER: And you're doing both.
JASON CALACANIS: Doing both.
SAL DAHER: Yeah, I'm trying to understand why you choose, because a bunch of people investing in one company sounds like a lot of handling, whereas with a fund-
JASON CALACANIS: A fund is for passive investors. They've put in a bunch of money, they get exposure to, say a hundred names. So let's say it's a $10 million fund putting in 100K each time. You have 100 companies, you put in 100K into each. You basically get that index as an LP. So if you were an LP in a fund that was $10 million that did 100 names at a 100K each, and you put in 500K, you would have put $5,000... You were 5% of the fund. $5,000 into each of those companies. And you get this nice result, which would probably be somewhere between one times your money back, or five times your money back.
SAL DAHER: Mm-hmm (affirmative).
VC Returns Have Note Been Spectacular
JASON CALACANIS: People who have been trashing VC recently but saying it's like 1.x is the average. The great VCs are-
SAL DAHER: If you're lucky.
JASON CALACANIS: Yeah. I think the really good VCs are doing two and a half to five times cash-on-cash, money-on-invested capital. You know, like just how much is coming back. So that's really the way to look at it. Now, we also have a syndicate with 3,000 members of it. 1,800 have been active. They're all accredited, and they're at the syndicate.com. We will email a deal memo and say, "We're investing in this company. They've given us an additional allocation of 500K, 250K, a million dollars. If you would like, watch this webinar with them, ask them any questions you want, and if you'd like an allocation, let Ashley know, my Managing Director of the syndicate, and she will give you an allocation."
SAL DAHER: Very impressive lady by the way. Yeah.
“If you want to be active, you can do syndicates…”
JASON CALACANIS: She is pretty fantastic. And then we collect those. Sometimes we've had four times the amount of requests to invest. So a 500K deal with $2 million in demand. Other times we've had a 500K allocation. Only 250K in demand. So we don't know. And the founders don't know. So it's a process. But here's the good part of the process, there's multiple things that are good. The syndicate members get to pick and choose. So they developed their own signaling. As opposed to the LPs in a fund, they don't choose each company, they just get an index. So if you want to be passive, do funds. If you want to be active, you can do syndicates, and if you want to have exposure to both, I think that's a fine thing, and you can pick a percentage. But what I tried to train people in my book “Angel” and the podcast-
SAL DAHER: And by the way, we are going to get to the book a little later, and a lot of this stuff, including the stuff about Sequoia is covered in the book. By the way, it's really well done Jason. But anyway, please, please continue. Please continue in this vein, because I think this is really interesting about syndicates versus funds.
“My personal goal is to train 10,000 people to be active investors in thesyndicate.com. We've got 3,300 members.”
JASON CALACANIS: Yeah. So I am trying to train... My personal goal is to train 10,000 people to be active investors in thesyndicate.com. We've got 3,300 members. 1,800 or so are active. So I've got a 5x, 6x in terms of active.
SAL DAHER: Wow.
JASON CALACANIS: But that's a good three- or four-year goal for me. And if I have 10,000 people that have inspired to do this, and they actually learn how to do it well. That means I could single handedly be responsible for changing the course of entrepreneurship in America because these high net worth individuals who've joined the syndicate, some of them now we're retired and looking for something to do. And sit... And you're talking about retired at 60, retired at 50, retired at 70. They got 10, 20, 30, 40 years of active life in front of them. And they now get to help these companies with the wisdom that allowed them to become accredited investors, and they get to do something. And the problem with our society is people get old, they get thrown out. People don't think they have value. They have wisdom, they have tons of wisdom-
SAL DAHER: Yes. Gray hair helps in certain situations.
JASON CALACANIS: Let me tell you something, a lot of those gray hairs are earned, and they have some wisdom, they can have some comradery, and some esprit de corps, which is on both sides, right? They get to be part of something. They get to mentor. Both sides get some value from that.
SAL DAHER: And also, some of the EQ. You know, like being a shoulder to cry on for the founders, and that kind of stuff.
JASON CALACANIS: 100%.
SAL DAHER: There's a Brazilian expression, you know, tripping on your shoelaces. You know, tripping on the hairs of your legs or something. You know, it's kind of like founders are going to be doing new stuff, so the oldsters can't really help with the new stuff. What they can help is, you know, watching around the corners, making sure they don't trip on their shoelaces. Obvious stuff that you know, someone who's a first timer, or a second timer may not see. So I think that's really valuable. But my question is, why, in terms of your very scarce time, why do you spend time on the syndicates if you have these funds that you could be managing? I mean, why don't you just maximize the size of your funds?
JASON CALACANIS: That's a great question.
SAL DAHER: I have some too. You know-
Why Jason Leads Syndicates Despite Having Raised Several Funds
JASON CALACANIS: The syndicates are a lot, but the syndicates provide two great value for us. One, they send us deal flow. So of the last 42 companies we invested in through our accelerator, 12 of them came through introductions from syndicate members-
SAL DAHER: Oh, from your syndicate members. That is really cool. That is an interesting connection.
Syndicate Members Act as Scouts, Bringing in Interesting Companies Jason Would Not See Otherwise
JASON CALACANIS: It's the first time I've ever really talked about it publicly, but we give them also 10% carry in that first investment if they refer somebody. So it's sort of, it's not a formal scouts program. It's more just a thank you. But that thank you, and in the case of Uber or Calm would be worth millions of dollars, just for sending us somebody, because we're giving them 10% of our carry on that first investment. That first investment, if it's the accelerator, typically is 6%. So if that 6% got diluted down to let's say 3% of a company over time, and that company became, you know, a $10 billion company, you get the math. It's a couple of hundred million dollars, and we get 20%.
SAL DAHER: Of course. Of course. That makes perfect sense. That is really impressive.
Syndicate Members Can Be a Resource to Founders
JASON CALACANIS: Yeah. And then the second thing is, we set up an email for our founders to email the syndicate members who chose to invest. Those syndicate members can remain anonymous. But if they want to uncloak themselves, they can hit reply to any of the emails from their founders. Once they've uncloaked themselves, they've opted into giving their email, then that founder can lean on them. So if we had a founder who wanted to meet somebody at Disney at some point, they emailed 100 people who had invested, four or five of them had worked at Disney before, or a Disney affiliated company. So like, "Yeah, I know everybody at Disney." Like one person was like, "I worked there for 20 years." One person's like, "I work here. Who would you like to meet?" Other people are like, "My brother works there," or, "My sorority sister works there." So you now have 100 people who have invested $6,000 on average, who are acting as if they put in 6 million, or 600,000.
SAL DAHER: Oh wow.
JASON CALACANIS: And that becomes a massive catalyzing effect for our founders. And we're actually trying to now look at our syndicate members and figure out what their specialties are in life, and how much they want to be involved. So we're going to ask them as we build... We're going to build a little mini-platform at the syndicate. It's not to compete against SeedInvest or AngelList. We're not trying to be like this grand platform. We are one syndicate. My vision is one syndicate to do 50 to 100 deals a year, of incredibly high quality, and then work on those companies. So imagine you go to the syndicate and says, "How involved would you like to be with the companies you invest in?" "Not at all. I want to remain anonymous." Infrequently, maybe an email. Frequently, monthly. Or, "I'm all in as much as the founder wants my help." And they pick like one to four or something.
JASON CALACANIS: Now they've picked that one to four setting, the founders actually know, "Okay. Of your syndicate members, 67% said they would like to be involved frequently, or as much as possible. And then these other ones are infrequent or not at all. And by the way, of your syndicate, 17 of them are involved in sales. 26% of them are developers, 40% of them are management. Would you like to email just the technical group? Would you like to email just the sales group? Would you like to ask them to uncloak and help you?" Right?
As His Syndicates Develop, Jason Calacanis Hopes to Match Investor Background to the Needs of Companies
JASON CALACANIS: Then we could say, "Eventually," this is my sort of grand vision. "Okay. This deal is a SaaS deal. We know that these 100 people are the most helpful people in SaaS. They get to look at the deal first. They get first shot at the deal, then it goes to everybody else. These 100 people work in entertainment. They get first shot at the deal, then it goes to everybody else." So that we can steer the deals towards the people who will be most helpful. So those two things are why it's worth the time. People send us great companies, and they're super helpful.
SAL DAHER: That is really powerful.
JASON CALACANIS: That's what nobody realizes, that I'm building an army, and you're part of that army, right?
SAL DAHER: This is interesting because it is only possible because you are connected to a mass communication medium. Because I don't think-
JASON CALACANIS: The podcast-
SAL DAHER: That the VCs... Yeah, because of the podcast. Is that I don't think the VCs have that kind of reach. I mean 3,000 syndicate members, 1,800 of whom are active. Those people acting to help you originate deals is a lot of leverage. You know, those numbers are really hard to get.
JASON CALACANIS: I think Naval, you know, from AngelList who taught me a lot of this, he always says, you know, "There's different types of leverage." Software's obviously leverage. Money is obviously leverage.
SAL DAHER: Sure.
“For me, media is my leverage…” Jason Calacanis
JASON CALACANIS: For me, media is my leverage. As a writer and a podcaster, leverage just being something scales faster than just normal life, right?
SAL DAHER: Right.
JASON CALACANIS: So-
SAL DAHER: Or fails faster than normal life. Yeah.
JASON CALACANIS: Yeah. So you know, the podcast will be seen by a... We'll have 25 million listens and views this year.
SAL DAHER: Wow.
JASON CALACANIS: And we'll have 100... We had 100... We'll hit up our 130 episodes this year. And so you take all the guests, you take all the people listening to it, it's incredibly powerful. Then you take the syndicate and you email a bunch of people about deals and say, "Hey, if you know of any deals, let us know." And things really start to go supernova. Our biggest challenge right now, and we're just entering our second decade of investing, now that we've crossed that, somewhere around the fifth or sixth year of me investing and the podcast, the issue became sorting through the deal flow and not missing something, as opposed to chasing deal flow.
JASON CALACANIS: So, when you start out as an investor, you're trying to build some deal flow. You're trying to get proprietary deal flow. Deal flow that only you have-
SAL DAHER: Right.
Success Brings More Success
JASON CALACANIS: And that becomes a competitive advantage. Then if you become Sequoia, or you're Marc Andreessen, or you're Chamath, or Bill Gurley, the deals are chasing you. And so the analogy I try to explain to investors is, Spielberg and Scorsese are such amazing directors with such an amazingly respected body of work that Spielberg got the Jurassic Park screenplay. Michael Crichton wanted Spielberg. And Ovitz goes over this in his incredible biography, Who is Michael Ovitz? But he talks about that whole situation with Michael Crichton and Spielberg.
SAL DAHER: Yeah.
JASON CALACANIS: And then you have somebody like Scorsese, like you know, obviously after what he did with Bobby De Niro, Leonardo DiCaprio was going to be like, "Well I'll just do every film with Scorsese and I'll be the next Robert De Niro." And that's actually turned out to be the case, right? Where, I don't know... He's done four or five films with Leonardo DiCaprio now?
SAL DAHER: Yup.
JASON CALACANIS: And so, it's very powerful when you hit that moment, and we just hit that moment I think, the last couple of years. And so I am not going to squander it. I'm going to use it for everything it's worth. Like, "Send me your goddamn screenplays." I changed my Twitter handle, Jason @Calacanis. Like I don't want to miss a deal. I am here for it. That's what I'm trying to scale right now. I mean, you have different problems at different stages in your investment career.
SAL DAHER: It's the 10th year of the podcast. The podcast is this week in startups, and I highly recommend if anybody hasn't listened to it, it is just tremendous. It comes out twice a week, and it's the most influential podcast in the startup world. Okay? You know... Sorry Andreessen Horowitz and other people and Y Combinator. But I mean it really is.
JASON CALACANIS: Well, thank you for saying that. Those other podcasts are worth listening to too.
SAL DAHER: They definitely are. There's lots of bandwidth. Two podcasts a week. There's still a lot of time, a lot of commute time, a lot of exercise time. Now in 2009, how did this come about? How did you decide to start a podcast in 2009?
How “This Week in Startups” Podcast Came About
JASON CALACANIS: So, I been doing blogging obviously with Engadget, Autoblog, Joystick. We sold that company to AOL. Professionally. And we had a company we sold to AOL, myself and Brian Alvey and Peter Rojas. And when we sold that company, we had done a little mini podcast on Autoblog and then I decided I wanted to do one, and we had been watching Dave Winer with RSS and adding enclosures. And there's a famous clip of me on the internet asking Steve Jobs if he would support us making money with podcasts ever, and selling them because he at the D Conference, the Wall Street Journal D Conference, announced that iTunes would allow you to add an RSS feed so you could, before the iPhone, move podcasts onto your iPod player, which is why they call them podcast, because of the iPod. Nobody knows this.
JASON CALACANIS: But it used to be the way podcasting worked was you plugged in your iPod. You had a pod catcher that would download all the files, and then it would hack them onto your iPod and you can listen to this spoken word. And so people would just read their blog posts, add an MP3 file, and then you get it magically on your iPod. And it was just another way to consume blogs. Now it has now become its own medium 10 years later. I did it because I just like to talk. Talking is my superpower, as anybody who's listening [crosstalk 00:22:05] as well.
SAL DAHER: Among them… And I think also your superpower is the ability to attract and to, you know, motivate some really impressive people. I think you're too modest.
The Responsibility That Comes with Success
JASON CALACANIS: Getting there. Well, you know, I have resources now so I try not to give myself too much credit. I think the people with who lack resources who make things happen are the ones I really respect. And I had to do that early in my career, which is just rubbing two nickels together. Now I've got all the nickels and I still struggle with getting things done, right? And so early part of my career I was resource-constrained, and really it was that pressure that made the diamonds, whatever few I could make. And now I've got a bunch of diamonds, and I'm still struggling with actually getting things done. And it's a high-class problem now, where you have a bunch of resources and you're like, "How do I deploy these?" And I think with great power comes great responsibility, Stan Lee said in Spider-Man.
JASON CALACANIS: Like, I take what we do here every day as super serious because people pitch us their hopes, their dreams, they want to change the world. And then we sit in judgment above them, theoretically, and then we get to anoint them. And you know, that is pretty heavy stuff-
SAL DAHER: Yeah, no doubt.
JASON CALACANIS: To just magically be the person who decides if this project goes forward or not in some cases. It's not all cases. But in a slow market as opposed to the hot market is now, that actually is the case.
SAL DAHER: Yeah.
“And I watch my contemporaries, and I hold many of them in contempt for the cavalier nature of which they go through their work. They must take the work seriously.” Jason Calacanis
JASON CALACANIS: We're picking winners. And I tell my team, "Take the work seriously and do the work and do not take it for granted." And I watch my contemporaries, and I hold many of them in contempt for the cavalier nature of which they go through their work. They must take the work seriously.
SAL DAHER: Yes.
JASON CALACANIS: And they don't.
SAL DAHER: They don't. They don't. Yeah-
JASON CALACANIS: And people's hopes and dreams are in the balance here. And the entitlement on the GP side, the general partner side of the equation, the investor side, the check writing side is at an all-time high. Now additionally, with WeWork and other things you're seeing founder entitlement also be at an all-time high. And I am preaching in our industry, and inside my company, and every day when I talk to myself in my 20-minute commute to work, I say, "Jason, take it seriously. Take it seriously. Be humble, put in the work, pick the right companies, work tirelessly to get them over the finish line or die trying." And I hope that anybody who's read my books or who has worked with me gets that infection. I hope they get that bug where they want to work really hard for their founders, not just place a bet and then go to Aspen or Kyoto or whatever for, you know, eight weeks. Not there's anything wrong with going to those places, but man, put the work in people.
SAL DAHER: It's a calling. You could've retired and just gone and do whatever you like to do in your private time, and you don't do it because I thank you really like to matter, make a difference. Which brings to mind the Launch Accelerator. Maybe you could fill us in a little bit how the Launch Accelerator works with the other parts of your organization. By the way, our audience should know that Sam Bogoch of Axle AI, who's been on this podcast, went through the launch accelerator and speaks very highly of it and of Jason. So anyway, tell us about the launch accelerator.
Jason Calacanis’ Launch Accelerator – Sam Bogoch of Axle.ai Found It Very Useful
JASON CALACANIS: So, it's pretty simple. It started as the launch incubator. It's now the launch accelerator. We changed the name about halfway through. We put $100,000 in for 6% of a company, which is kind of the standard deal across the industry. They spend 12 weeks with us here in Silicon Valley, over 20 sessions. We introduced them to 150 investors. And it's primarily to grow your business while raising capital at the same time. Our Goldilocks zone, not too hot, not too cold, is companies with 5-100,000 a month in revenue. And we really try to push them to grow 20% a month, which means, based on the rule of 72, which we can get into, you're going to double every three and a half months, or four months. And if you can be doubling revenue every three to six months, the venture community and the seed funds out here are going to consider you high growth and worth paying attention to. It doesn't guarantee anything.
JASON CALACANIS: We only accept seven companies per class. We did six classes this year. We'll do 12 to 14 next year. And we take it really seriously. So in a way, it's sort of like Y-Combinator classic is what I would say, in that it's only seven companies and Y-Combinator is 250-
SAL DAHER: 300. [crosstalk 00:26:37].
JASON CALACANIS: It's just a giant factory. I mean, you're basically going to a rave. Yeah, it's bonkers. They do 500 a year. You're basically lost in Grand Central there. So I think that it's still worth going to Y Combinator. If any of our companies want to go to Y Combinator, I encourage them to do it because just being part of the alumni network and having it on your resume is helpful and the dilution is modest. And that's really what people have to look at. You know, the 100K pays for two or three percentage points, and then we get, you know, three or four percentage points in kind from running the program. And so for some people that's great. Other people, you know, they can raise a Series A and they don't need our help, that's fine. And we'll work with those companies in the syndicate. Right?
JASON CALACANIS: So, what I like about the program is, we really get to know the companies deeply. We really get to spend time with them, and then we tend to either co-lead or participate in, or even take the entire round when they graduate, if we feel some strong amount of commitment. So we've increasingly been, because of the syndicate, making offers to the highest performers. So when people join us, it would be like having a seed fund like Cowboy Ventures, or Freestyle Capital, and then combining it with Y-Combinator or Techstars, right?
SAL DAHER: Right.
JASON CALACANIS: So, imagine if those two things were one organization. Now there might be a little bit of signaling there that could be confusing for people, but not for our founders. Our founders get it.
SAL DAHER: Yes.
JASON CALACANIS: They do a good job. We're going to continue to invest. We're going to try to build up a position of 10 to 20% in our best companies. We're not obsessed with that. We're not going to walk away from deals because of it, generally speaking. But we want to get to more significant ownership. In my first career as just a part-time angel, I would have eight basis points of Uber or Robinhood or something like that. Then I started investing more and we own 2% of Superhuman and 5% of Calm, right? Two amazing companies. And then this last cohort of companies, Shoot My Travel, Fitbod, LeadIQ, Neighborly, a bunch of these... Cafe X, new breakouts, Blokable... We're starting to see that double digit ownership, 10 to 20%. And that's really where we want to wind up is, we want to [crosstalk 00:28:43] meaningful-
SAL DAHER: That really moves the needle. Yeah.
JASON CALACANIS: Well, and also we can be more helpful and join the board. And so what we did was we took angel investing, and we took the professionalism that I saw at Sequoia, and I applied it to the seed stage, and the accelerator stage. That's all. So we do due diligence, we have preferred chairs, we have board seats if we own over 5% of a company, we have information rights, and we really like to have a seat at the table and really start having these companies be more professional, more professionally-run quicker, and have more resources quicker. I think that that's a big formula for success because a lot of the companies we see fail, fail because of lack of governance or a lack of somebody in the investment community having true skin in the game. If you haven't read Taleb's book, highly recommend it. If you have skin in the game, you can really start to understand what's going on a lot better. And we want to have skin in the game, right? And skin for us is money and time and reputation.
Jason Calacanis Recommends “Skin in the Game” by Nicholas Nassim Taleb
SAL DAHER: Nicholas Nassim Taleb's “Skin in the Game”. Yeah. Awesome. Speaking of books, let's turn to your book, “Angel”. You know, in addition to reading snatches of the physical book, I listened to all of “Angel” in Audible and found that really, really valuable. Listeners to note that Jason reads the audible version himself, and it contains great bonus content from some of Jason's associates like, you know, Simon Bannister. My wife who is not an investor, happened to listen to it and found it really compelling. By the way. Congratulations Jason, because she's kind of bored by business, and it was really compelling.
JASON CALACANIS: Thank you. Yeah.
SAL DAHER: Tell us what motivated you to write this really, I think it's an accessible manual on how to be an angel investor.
“Angel” by Jason Calacanis, a Manual on How to Be an Angel Investor
JASON CALACANIS: I have a book agent who's been fielding offers for me for a decade. They asked me to write “Blogging for Dummies” and “Podcasting for Dummies” and he seem to be pigeonholed in the dummies section. I don't know what I should read into that. And then, you know, after Uber hit, and Thumbtack and Robinhood and some of these other... And Calm as an investment, I said, "You know what? I think that I'm the person who should write this book." And I was reticent to write the other books because I think the person who's the best at the subject, or the best at whatever the opportunity is, is the person who should write the book. Am I the best podcaster? No. Joe Rogan should write a book on podcasts. I really look forward, right? Like the number one person should write it, right?
SAL DAHER: Right, right, right.
JASON CALACANIS: But should I write it as a blog? Should I write the book [crosstalk 00:31:03].
SAL DAHER: Startup podcaster. Yeah.
JASON CALACANIS: Yeah exactly. Like, let's be honest. My podcast you know is pretty great. It does 1.6 or 7 million a year. It's got a following, but it's niche and it's... You know, Joe Rogan's the King there, or you know, Sam Harris. Pick somebody who is truly great. I'm not saying my book would be bad, but [crosstalk 00:31:21].
SAL DAHER: I mean two hour [crosstalk 00:31:21]. You know, 25 million, 50 million downloads per podcast is it?
JASON CALACANIS: It's crazy.
SAL DAHER: Yeah.
JASON CALACANIS: And so, a book about him podcasting is the one. Now, for me, well, if you think about it, well, who's better at angel investing than me? Ron Conway, Chris Sacca, [inaudible 00:31:40]. There's like maybe three or four people who've made more money than I have doing it, and so therefore are better. But none of them are writers. None of them want to write the book.
SAL DAHER: No.
JASON CALACANIS: And so, I think if your Mount Rushmore level, top four, like they do on sports radio with like, "who's on your Mount Rushmore?"
SAL DAHER: Mm-hmm (affirmative).
JASON CALACANIS: And it's like, "Oh, you know, Kobe or Michael Jordan, whatever." I think you got to be Mount Rushmore level if you want to write the book. And so that's why I wrote it. I thought, "I'm really good at this. I have something to say." And then there was the mission of it. Like, "What if I could inspire 10,000 people to do this as a job?" And I'm well on my way, and it's becoming a global phenomenon because it's now been translated to Chinese, Japanese. I'm going to Estonia I think in January. It's going to be in seven languages, eight languages ultimately. And I'm going to write the next book. And books are just a wonderful thing if you are really good at the topic. What books have a bad name for now is, people who haven't accomplished anything write a book so they can become credible.
SAL DAHER: Oh yes. The politician who writes the... When they're running for office, that writes a book.
JASON CALACANIS: Yes. Perfect. Now listen, maybe you've got a great story and yeah, whatever. But this idea of using books to make yourself credible, to me is so frustrating because the reader then suffers. And what I love about having waited and done the book on something that I really am an expert on is people like you read the book and go, "You know what? I thought I knew a lot about this, but you filled in a couple of leaks in my game and I'm more disciplined because of it."
SAL DAHER: I've been angel investing since 1992. Okay. I invested in my first startup back then, and I've invested in, since that time, well over 60 startups, you know directly. You know, I'm working in this stuff all the time and I've learned stuff. A lot of it from your podcast and some stuff from your books. This is a massively complex undertaking having to do with human nature, with human character. And so there's always, always something to learn. It's a really valuable piece. And it's really well done. I can see that they did some really tight editing. It's nicely paced. And I was involved in creation of a book. My business partner of many years had a book about his experience in emerging markets, and I saw how hard it is to put together a book. And so it really, I applaud you.
How Y-Combinator Plays the Odds
SAL DAHER: Jason, now the Y-Combinator phenomenon, you know, what's going on? Are they really like 320 startups that have great founding teams that deserve to get that kind of attention and so forth?
JASON CALACANIS: The way I look at the early stage startups today in 2019 is that they require very little capital in order to test and experiment.
SAL DAHER: Right.
JASON CALACANIS: So, if you don't consider them businesses, but you just consider them experiments, right? In what could be a business, and 100 or $150,000 gets put to work in an experiment, and nine out of 10 fail, and one of the 10 actually becomes a viable business, and of every 10 of those, one of them becomes a breakout-
SAL DAHER: Right.
JASON CALACANIS: Well then, in one in 100 become a breakout, they're going to pay off bigger than a hundred to one. So I just think about the... I'm always doing odds in my head, and those odds seem very, very, very realistic to me.
SAL DAHER: Yeah.
JASON CALACANIS: If YC hits a unicorn a year, and I think they may have hit a dozen and a dozen years, something in that range-
SAL DAHER: Yeah.
JASON CALACANIS: If they just consistently hit one and they invest in 400, the unicorn should pay off more than 400 to one, therefore it works out. Or even if they hit one a class of 200, you know, if one out of 200 becomes a unicorn and they own after dilution, 4% of it, you know, it's a $40 million position and you know, they're putting 150 into each startup, it could actually work out economically. And I think... So what they're doing is very smart.
SAL DAHER: Mm-hmm (affirmative).
JASON CALACANIS: They had a reputation. They hit Airbnb and Dropbox, et cetera, Reddit in the early days. And that reputation and that alumni network is very powerful. So let's say 25% of the companies are weak or weaker. 25 of them are exceptional, and the other 50% are somewhere in the middle. Because they have access to unlimited capital because of the reputation, missing a company is the greatest sin, right? The sin of omission, as opposed to commission-
SAL DAHER: Absolutely-
JASON CALACANIS: [crosstalk 00:36:05] you did something bad. It's that you miss something great.
SAL DAHER: It's the opposite of traditional investing, in a sense that you wanted it to diversify away the risks. Here, you want the risk of the outlier because that's what makes your portfolio. Yeah.
JASON CALACANIS: Correct. So you have to basically embrace that, which means you have to accept a lot of wacky ideas. I was joking with somebody this weekend, and they're like, "Oh, what do you do?" I said, "Well, I'm an angel investor." They said, "Wow..." Well I know anything. And I said, "Well, you know, paradoxically or ironically, my two biggest wins are a meditation company and a cab company." It's like, you know, when you say it like that, it's like, "Yeah, that is really weird." You know, Uber and Calm are the two big wins so far. You know, it is an interesting and humbling business in that way, in that nobody really what's going to work. But you do know, I think, you have a really good chance of figuring out who's a great founder. Over time, you can really figure that out, and you can figure out who has delighted customers.
Jason Is Building His Organization So He Can Start Delegating Investment Decisions
JASON CALACANIS: So, a lot of what I do now is I'm training up a series of managing directors and associates in my organization, and I'm training them to learn my signaling, my playbook so that eventually some of them can become partners here because I have no partners. I'm just a general partner myself. So I'm building up that bench. I'm trying to train them so that they can make investment decisions, maybe in the next year or three, somewhere in that range. They can start making the investment decisions. Right now they queue up the companies for me, and then I put the final approval on them. And so they're getting pretty good at it, I will say. And one of the things I tell them is, you can't fake delighted customers.
SAL DAHER: No.
JASON CALACANIS: And I'll just say that again for everybody listening. You really cannot fake delighted customers. You can fake one or two. You can get lucky. But when you start to see five, six, seven delighted customers, very hard to fake. It is possible.
Delighting Your Clients Is Essential, But It’s Not Enough: Luxe Valet
JASON CALACANIS: I'll give you an example. There was a company that was Luxe Valet and you could literally put a pin in the map in San Francisco, drive your Tesla to the most crowded street corner in union square. And there would be somebody in a blue valet jacket waiting for you who had a picture of you and your car and your license plate. They would take your car and go park it for you, and you would go to your meeting. So imagine having a valet outside of any building, anywhere. Incredible vision.
SAL DAHER: Yeah.
JASON CALACANIS: And they were charging 15 or $20 a day to park your car. And it was costing me $15 to park in the Tenderloin at our really horrible office by WeWork. The office was fine. It was just happened to be the Tenderloin. And they charged me $15 to park. I give the person a $5 tip because that's how we do. And then I was getting charged $15 by Luxe. I give that person a $5 tip. And so it was costing me the same to have a better experience. So they were losing $20 in every deal. So I was a delighted customer, but the unit economics were not sustainable. That company went away. They really needed to charge you $40 or $50 for that experience and that would have limited the number of people who would actually use the product, yada yada.
SAL DAHER: Sure.
JASON CALACANIS: So, if you find delighted customers and the unit economics hold up, which pretty easy to tell. You know, I'd back of the envelope, did it myself because I had an opportunity to invest in the Luxe Valet project. I just asked the guy, "How much are you getting paid?" And he was like, "We get paid 15 bucks an hour." I'm like, "Does it matter how many times you park cars?" It's like, "No, no, they just pay us hourly." I'm like, "How many cars did you park today?" He's like, "I parked four." "And when did you start?" "7:00." "What time is it now?" "10:00." "Okay. You parked four in three hours." Okay. It's costing them basically $15 to park the car from the parking space. And it's costing $15 an hour for this person each time. So that's $30. They're losing $15 every time they park a car. It's pretty easy to do the math. It didn't take a genius. And it was like, "Okay, well this has to be $40 to park or $50 to park in order for this to ever make sense."
SAL DAHER: Yeah.
The Unit Economics Has to Work for a Company to Make Delighting Its Customers into a Business
JASON CALACANIS: I just did the math in my head and I was like, "If they charge 40 or 50, I would just dump it in the lot myself and deal with the four-minute wait to get my valet tickets." So it wasn't that powerful, right? So-
SAL DAHER: No.
JASON CALACANIS: Delighted customers and the ability to make a beautiful product... You know, if you've ever had a great steak, trigger warning, vegans. But if you've had a great steak, it's generally not by accident when you get a perfectly cooked steak or a perfectly, you know... Like if you go to Peter Luger's and you have that Luger's steak, you know it's like, it's not an accident that that tastes so good. They've been perfecting that goddamn steak for a long time. So if you come across a startup that has a brilliant product like Uber or Robinhood or Thumbtack or Calm and the product is just other worldly, and there are delighted customers and the unit economics makes sense, well heck, you could place a bet knowing that there are delighted customers that the product is really dope and that the founder was able to do those two things. Now, most people make the mistake in angel investing of not using the product and not talking to the customers.
SAL DAHER: Yes. Yes. That-
JASON CALACANIS: If you were to do just those two things-
SAL DAHER: You can screen out all the Juiceros of the world.
JASON CALACANIS: If you would literally get rid of at least half... What? Half your zeros, two thirds, maybe 80% of your zeros. You take out the strikeouts, your batting average goes up. You know?
SAL DAHER: Yeah. Let's think about wrapping up here, but there's one question I kind of... Been the back of my mind. I was having a discussion with one of your colleagues at the Angel University or the angel forum that you had in San Francisco that I attended, and my thought was, "I think like podcasting, early stage investing is just in the beginning." And like podcasting, it's really hard for people to access podcast content still. Okay. You'd be surprised how hard it is. I think it's still is really hard for people to access investments in the early stage. It tells me that the stock market seems priced to perfection, unbelievably expensive. But, startups, with all the natural barriers to entry, I know you'd like to say, "Oh, all the dentists..." You know, your uncle who puts money in stuff. Reality is, people who write checks, you know, they're probably tens of thousands of them in the country making angel investments. It's a really, really small, small universe.
SAL DAHER: And from that universe are going to come some really, really valuable companies. So I think, I consider that it is a very, very under-invested category, and it has enormous potential. I mean, my interlocutor who was your person, you know, teaching the course, didn't agree. He thought it was, my calculation was wrong and so forth. What's your view on that?
“I think we could have at least 10 times the number of people participating in angel investing than we do here in the United States”. Jason Calacanis
JASON CALACANIS: I think we could have at least 10 times the number of people participating in angel investing than we do here in the United States. I think we could have 10 times the number of startups than we have now, and I think we would have almost exactly the same performance.
SAL DAHER: Right.
JASON CALACANIS: And the reason is there's a lot of talented people out there who don't know how to raise money, how startups work. And as we've put more education out there, more examples of how to do it, podcasts, medium posts, Quora answers, events, accelerators and incubators and pre accelerators and all this stuff, as we continue to increase the number of people who participate, the number of breakout companies increases. So I don't think we're anywhere near hitting some capacity here. I do think that you have to be intelligent and bet small and learn the game as an angel investor.
SAL DAHER: Yes. Start small and start slow. Yes.
“Start small and start slow. Yes. And you know, it's just like learning how to play poker or blackjack”. Jason Calacanis on Angel Investing
JASON CALACANIS: Start small and start slow. Yes. And you know, it's just like learning how to play poker or blackjack. You wouldn't go play poker with the top sharks in the industry, the best people for the largest amounts of money week one. You would play in a home game for $10 and you know, re-buy 10 times and only burn $100, which would be over 10 hours, which would be less than the cost of hiring a poker coach, right? So take your time and learn the game, and then you know, eventually you can start increasing the size of your checks in the companies that you've made small bets in that are winning, right? So that concentration and 10x-ing or 5X-ing on small bets is really the name of the game. So if you're listening to this and you're a high net worth individual and you want to get into this, don't put 250K into the first company you meet.
SAL DAHER: Common mistake. I've seen it.
JASON CALACANIS: Well, the better thing to do would be to put 20... Put $5,000 into 20 companies. Now you're at 100K. Take the last 150 and put 50K into three of the best companies out of that group when you read their updates and get to know the founders and you're in year two. Now you would have 150K in the second bets going into 15K of the first bets. So you'd have 165K of your 250K bank roll in the three best companies. And you did it methodically. That's the power of syndicates. So if you join AngelList, if you join SeedInvest, if you join Republic, if you sign up for thesyndicate.com, Funders Club, any of these platforms, read every deal memo, make the smallest bet possible, and learn. Spend a year learning. That's what I tell everybody. First year, you're just learning. You're placing 2K bets, 5K bets, whatever the minimum bet size is and learn-
SAL DAHER: You'd be surprised how much you learn.
JASON CALACANIS: And if you lose it, you got a free education.
SAL DAHER: Yeah, putting money is important because if you have money at stake, you really pay attention. You know, skin in the game. It focuses your mind. Most people, they should ask themselves, if they've ever bought a house, if they've ever looked for an apartment rental, after a few weeks of looking for it, they begin to understand the market. The same thing happens with startup companies. It's a really accessible thing. If you're someone who's done some kind of business in life, this stuff is accessible. You don't have to be Mark Zuckerberg to be involved with startups. So is there anything else, Jason, that you want to say to this audience of angel investors, people who work at startups, founders and so forth? Any bit of advice that you want to leave us with?
Jason’s Advice for Angels & Founders
JASON CALACANIS: Yeah. You know, you miss 100% of shots you don't take. So if you're listening to this, wondering if you can do it, just know that like you said, anybody who's an accredited person can do this. It's not that difficult. Just take your time, go slow and make small bets. And then for founders, getting started and focusing on those customers and getting traction is the name of the game. There's a lot of noise and entitlement in the industry right now. And the way you're going to win in the next decade as opposed to the last couple of years is by having great unit economics, a sustainable business, having like some austerity at work maybe, and being focused and doing the work. So we've had a real movement here of unlimited vacation, work-from-home... And work-from-home and unlimited vacations are in and of themselves terrible. They tend to be just signals that maybe things are not... That are off kilter. And this idea of having balance and trying to have an extraordinary outcome, which is what venture capital is about, it's jet fuel. It's not whole.
SAL DAHER: Yes.
Distinctions Between a Life Style Business and a Venture Business
JASON CALACANIS: You know, if you want to build a small mom-and-pop lifestyle business that provides you with a great lifestyle, mazel tov. Don't come to the venture community. It will not work out well [crosstalk 00:47:28]. You know what? Lifestyle business is not meant as an insult. You have a killer lifestyle. You work 10 or 20 hours a week, you have a life, you work 20, 30, 40 hours a week and you make more money than if you worked for the man. That is huge success for a large swath of people. I do not disagree that a lifestyle business is awesome. But a lifestyle business and a venture business are two different things. A venture business is putting everything you got, and trying to get to orbit, and going 1000 miles an hour. Lifestyle business is being on that nice bicycle, and a cruiser going 10 miles an hour, and really enjoying the scenery. If you're not ready to pull G forces and to do ungodly things to make your company grow and be under a lot of stress and be on the tip of that rocket ship, do not raise venture capital. It's not for you.
SAL DAHER: Yes, well said.
JASON CALACANIS: Yeah.
SAL DAHER: I second that. That's the thing. That's the reason I listen to your podcast is really spot on. You have a sense of what makes these companies work.
JASON CALACANIS: Yeah.
SAL DAHER: Thanks a lot.
JASON CALACANIS: Commitment, dedication. Hey, listen, thanks for having me on and thanks for doing the pod.
SAL DAHER: You've been tremendous. You’re a mensch.
This is Angel Investor Boston. I'm Sal Daher. I'm glad you were able to join us. Our engineer is Raul Rosa. Our theme was composed by John McCusick. Our graphic design is by Katharine Woodman-Maynard. Our host is coached by Grace Daher.