Kamal Ravikant: Venture Capital, Startups, & How To Invest In The Next Uber – Business Lunch with Roland Frasier

Check out the Business Lunch Episode Page & Show Notes

Key Takeaways

  • Lessons in Life
    • “Leap and the net will appear”
      • Take the chance, double down, and good things will start to happen
    • There is nothing more sacred than a vow you make to yourself
    • “Life is from the inside out. When you shift on the inside, life shifts on the outside.”
    • Avoid negative people like the plague
  • Lessons in Entrepreneurship
    • You don’t change industries by telling people to change, you change them by making the alternative more profitable
    • Don’t bet the farm on what you’re building
    • Raising money does not equal success – that’s just the starting line
    • Make sure your partners are ethical
      • If you see someone treating other people in a way that’s not right, your turn will eventually come
  • Lessons in Early Stage Investing
    • Invest in people, not ideas
    • Cut through the bullshit by looking out for these signs:
      • Entrepreneurs who use a lot of big words
      • If the founder hasn’t built anything previously in the space
      • If the entrepreneurs are outsourcing their work
        • “You want to bet on builders. Builders build. They don’t outsource.”
      • Pay attention to who the founders are surrounding themselves with
        • If it’s a hardcore tech project, they better have some damn good developers
    • Follow the smart money
      • “People try to be too smart. The smartest thing you could do is to be dumb when it comes to investing. Just come in with the best people, put your chips in alongside them, and learn.”
    • “The name of the game in investing is having an unfair advantage.”
    • You need discipline as an investor – every $100k you put somewhere is $100k less you could put somewhere else
  • And a Final Lesson on Writing
    • If you’re writing a book, it doesn’t have to be the best book ever written, it just has to be the best book that you can write

Intro

First, Some Background

  • Kamal grew up in Jamaica, Queens, raised along his brother Naval
  • He went upstate to attend college at UAlbany on a full ride
    • Kamal only stuck around for his freshman year (he was “bored out of his mind”) and soon decided to join the U.S. Army
      • “I was an immigrant child and wanted to serve my country. I really felt a strong need to give back.”
    • Later on, Kamal returned to school to complete his dual degree in economics and biology

Rebirth

  • Kamal toyed with the idea of both law and med school after finishing his undergrad, but instead decided to take some time to backpack Asia and Europe (his trip lasted 8 months, the whole time spending <$3k)
    • Kamal wrote about the trip in his novel – Rebirth, particularly the few weeks he spent walking the Camino de Santiago (a 550 mile pilgrimage across Spain)
      • (“Rebirth” was actually originally titled “Into This Air”)
      • “I was drunk every night” – There was LOTS of good wine along the way

The Can-Do Kid

  • When Kamal returned from his trip, he began working at a trauma center in Rochester, NY (in order to get the necessary research experience needed for med school)
  • Around this time, the dot-com boom was in full swing
    • Convinced by his brother – Kamal decided to make the journey to Silicon Valley
      • Another friend also had some wise words for Kamal related to his potential move- “Leap and the net will appear”
  • Kamal’s first Bay Area job was with Healtheon (which eventually became WebMD and went public) as a product manager
    • “By the time I left, I was running monetization for WebMD”
      • Kamal describes this experience as his MBA
    • During his time there, Kamal became known as the “can-do kid” for his ability to solve problems
      • “That’s where the military and backpacking came into play. I wasn’t intimidated by new things.”

The Consulting Days

  • Kamal soon left Healtheon and began doing his own consulting work from Paris, France before eventually returning to SF
    • “I worked with startups – the CEOs and the VPs – and would take over their teams to get stuff done. I really enjoyed being a gun for hire…I wouldn’t get bored this way.”
    • “Big companies would fly me in, I would hire/fire people, pull a bunch of all-nighters, and two weeks later we’d ship product and I’d fly out.”

The Ad Network – Into the Depths of Despair

  • Later on, Kamal co-founded a self-funded ad network based on domain traffic
  • Why? – Google and Yahoo had too much of a monopoly
  • What did Kamal learn from this?
    • You don’t transform industries by trying to convince people of your superiority – you transform industries by making people more money in a better way
      • Look at Uber – they didn’t try to change the taxi industry, they just created a better alternative
    • How to put together a good tech team
    • He became aware of the fine line between being motivated by your mission vs. being motivated by money
      • “When you do the latter, you choose partners based on money. Those aren’t the right people – when things go sideways, they’re the first ones to cause problems.”
  • But – the company eventually blew up (only 6 months away from being able to sell for a big exit)
    • “I lost everything… I fell apart, my life fell apart, my health fell apart…. Being depressed would have been a good day”
    • Looking back – Kamal picked up a clear lesson here:
      • “Don’t bet the farm on what you’re building”

Love Yourself Like Your Life Depends On It

  • Faced with the darkest depths of depression, Kamal fought back and started working on his inner game
    • “I just decided I was going to get better or die trying. I couldn’t live in that internal misery any more.”
    • Kamal vowed that going forward he’d do everything in his power to love himself
      • “A vow to oneself is a truly sacred act…there is no going back”
    • “Here I am sick, broke, miserable, and alone in my dark apartment… I just started trying things”
      • What worked for him, Kamal did more of
      • Eventually his mindset started to shift
        • “Life is from the inside out. When you shift on the inside, life shifts on the outside.”
  • Kamal wrote more about his journey in the very popular book – Love Yourself Like Your Life Depends On It
    • He self-published it on Amazon
    • “I thought it was going to be the biggest laughing stock of Silicon Valley, but within a month it was the number one self-help book on Amazon.”
    • “The world gives you way more than you ever give it – that book changed my life”

Starting a VC Fund

  • “I didn’t want to start another company again…. to build a company, you have to care about something so deeply, a problem you really want to solve. There was no problem I wanted to solve that badly anymore.”
  • So the can-do kid decided to start a venture fund
    • How do venture funds work?
      • You raise money and invest it in the early seed rounds of whatever startups you see fit
        • As an example – if you invested $25k in Uber’s seed round, it’d be worth ~$60 million now (at the time of this recording)

Kamal’s Investment Process

  • Kamal always likes to talk to the employees/management and see the company in person before investing
    • What does he look for? – He prefers a scrappier startup without an office full of the latest Macs
      • “People think of raising money as being equal to success. Raising money does not equal success – that’s just the starting line.”
      • To add: Spending money frivolously does NOT = building towards success
        • Instead – gather users and build a great platform, then monetize the hell out of it
  • “I invest in people, I don’t invest in ideas”
    • One of the best exits Kamal has had from his fund was a cryptocurrency exit called Zcash
      • Kamal met the founder and says of him – “I could understand 1 out of the 10 words that came out of his mouth… He was going to solve a very, very hard problem cryptographically… this is someone who had actually been living in his car trying to make it happen. He was born to do it.”
    • As an entrepreneur, nothing is a straight line – the idea will change
      • You need people who can weather the storm
    • Mike Maples once told Kamal – “The best companies are led by the founders for the long haul”
      • Go fund those types of people
    • You’ll NEVER regret investing in the right people
  • Cut through the bullshit
    • How? – Here are some signs to look out for:
      • Entrepreneurs who use a lot of big words
      • If the founder hasn’t built anything previously in the space
      • If they’re outsourcing their work
        • “You want to bet on builders. Builders build. They don’t outsource.”
      • Pay attention to who the founders are surrounding themselves with 
        • If it’s a hardcore tech project, they better have some damn good developers
  • What else does Kamal examine for?
    • Follow the smart money
      • Kamal tries to co-invest with people clearly smarter than him in order to learn as much as he can
      • “People try to be too smart. The smartest thing you could do is to be dumb when it comes to investing. Just come in with the best people, put your chips in alongside them, and learn”
      • Kamal NEVER wants to be the first investor

The Venture World

  • In venture, most of your investments fail (~60-70%)
    • Because of this , you need a lot of possible upside
  • At the seed level, most of the time you need to know either a co-investor or one of the entrepreneurs in order to invest
    • OR You can join an AngelList syndicate (if it’s open for that specific deal) – Like Kamal’s
  • Venture funds don’t typically look for cash flow businesses, but more so companies with high exit potential
    • (Why not? – They’d have to pay dividends to their LPs until the day they die)
  • “The name of the game in investing is having an unfair advantage. That’s why I don’t buy real estate.”

How Kamal Passed on Uber

  • “I pass on good projects every day. I don’t want to bet on good, I want to bet on great,”
  • You need discipline as an investor – every $100k you put somewhere is $100k less you could put somewhere else
    • Kamal learned this the hard way…
      • Just prior to Uber launching, Kamal had Travis Kalanick (the founder) and a few friends over for dinner
      • Uber had just raised their first found at a valuation of ~$6-8 million
      • Many people at the dinner table had invested $25k, but Kamal chose not to (due to some other financial commitments with his own company)
        • As mentioned, that $25k is worth ~$60 million now

Life Lessons

  • Avoid negative people
    • This lessons spawns from a brief conversation with Elon Musk – Elon said it’s the single biggest piece of advice he’d give to a CEO – “Fire negative people. You can’t get rid of them fast enough.”
  • Make sure your partners are ethical
    • If they’re not ethical, it’ll eventually come back to bight you
    • “If you see someone treating other people in a way that’s not right, your turn will come” – Roland

Rebirth

  • This is a novel Kamal wrote about his experience walking the Camino de Santiago
    • On writing the book – “It was one of the hardest things I’d ever done. I had to basically become a monk.”
      • You HAVE to turn the writing into your true craft
  • Kamal sold the book to a publisher after writing the first draft (when it had 150,000 words)
    • The first thing the editor told him – “Cut out 40% of the book and get rid of two thirds of the characters”
      • “I walked around for two days in a stupor wondering how the hell I’d do that. I was ready to give them their advance back.”
      • But the can-do kid stuck to it
        • “I realized it didn’t have to be the best book ever written. It just had the best book I could write at the time…. THAT was something I could do.”

Being a Writer and a Good Fund Manager – How does Kamal manage it all?

  • He separates chunks of the day to work on both
    • It’s difficult because as Hemingway said: “Writing is the loneliest art” – You essentially have to go all in and be a monk
    • “I do struggle with it, juggling both”
    • “If I was a full-time writer, I’d probably go crazy. You have to go deep every day to a place most people spend their lives avoiding.”

Wrapping Up – What’s next for Kamal?

  • He’s raising his next fund, writing the expanded/updated version of Love Yourself Like Your Life Depends On It, and advising a bunch of companies
  • And a final piece of advice:
    • “The best thing we can do for ourselves is to make a full on commitment to your sacred act”
      • Being healthy, being a better person, whatever it is – make the vow

Additional Notes

  • On Roland’s recent Bitcoin purchase – “Just hang on to it. Give it another 5 years, you’ll be glad you did.”
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