January 2, 2020

Advice from the Most Successful Angel Investor – Jason Calacanis on The Jordan Harbinger show

Check out the Jordan Harbinger Show Episode Page & Show Notes

Key Takeaways

• Jason invests in people, not companies
• “You have to rewire your brain to be a great investor and to be a great founder to say, ‘F*ck it, I’m taking the risk.’” – Jason Calacanis
  • A 1% chance to become a billionaire or save the world is a calculated risk worth taking
• A founder must be delusional and highly skilled; here’s why:
  • A delusional founder is too wrapped up in their vision to pay attention to naysayers or give up
  • A high degree of skill is necessary to compete against the best
• You’re either raising money or running your business; you don’t want to be doing both at the same time
• The quality of a leader is determined by the quality of people they’re able to recruit
• The most valuable skill is the ability to learn quickly and independently

Books Mentioned

• Angel: How to Invest in Technology Startups — Timeless Advice from an Angel Investor Who Turned $100,000 into $100,000,000 by Jason Calacanis

Products Mentioned

• Jason doesn’t specify which Neumann microphone he uses to record his podcast, but based on the given price, it’s probably the Neumann U 87 Ai
  • For a more affordable option, the Shure SM58 microphone is also popular amongst podcasters

Intro

• Jason Calacanis (T: @Jason, IG: @jason) is the host of the This Week in Startups podcast (check out the Podcast Notes)
  • He’s also an investor in quite a few companies (including Calm and Uber)
  • Check out Jason’s website
  • For more Jason, check out these Podcast Notes from Jason’s appearance on the 2 Cent Dad Podcast
• Host – Jordan Harbinger (T: @JordanHarbinger, IG: @jordanharbinger)

Before Angel Investing

• Jason was applying to work for the FBI when he realized the opportunity the birth of the internet presented
  • Thus, he decided to take more of an entrepreneurial route
• Jason founded the Silicon Alley Reporter in 1996 and turned down a $20 million buyout right before the dot-com crash 
  • “We went literally from $12 million in revenue one year to $500,000 the next. It was really brutal. I had to lay off 80 people; people cried.” – Jason Calacanis
• Later on, Jason noticed some people he respected were finding success blogging, so he founded Weblogs, Inc. in 2006, which he eventually sold to AOL for $30 million 

Why Angel Investing?

• Jason loves supporting those who are changing the world, and angel investing is one of the best ways to do so
  • “I’ve organized my life around this premise of meeting founders, trying to figure out which ones are under-recognized, and being the person who writes the check when nobody else believes in them because that’s the most exciting check to write.” – Jason Calacanis
• Jason invests in people, not companies
  • Why? – When the right person fails, they always improve on their mistakes, but when a company fails, it can’t try again

Investing Mindset

• Imagine a game where someone pays $1,000 to pick a card out a standard deck. If they choose the ace of spades, they receive $100,000. Otherwise, they receive nothing.
  • “Most people would be like, ‘Well that’s stupid, there’s only one ace of spades.’ But, once you realize 1/52 is about a 2% chance, you’d say, ‘How many times can we do this bet?” – Jason Calacanis
    • Each individual attempt is unlikely to pan out, but in the long run, you’re favored to come out ahead
  • “Our minds are not designed for that. Evolution has made us conservative, scared creatures” – Jason Calacanis
    • Risk-averse people were more likely to survive in prehistoric times
• “You have to rewire your brain to be a great investor and founder to say, ‘F*ck it, I’m taking the risk.’” – Jason Calacanis
  • A 1% chance to become a billionaire or save the world is a calculated risk worth taking
• Angel investing requires gut decision-making with little information, making it very easy to talk yourself out of a good investment

What Jason Looks for in a Founder

• “I look in people’s eyes, and while they’re talking I can tell – and it might be from poker – if they actually believe what they’re saying” – Jason Calacanis
• A founder must be delusional and highly skilled; here’s why:
  • A delusional founder is too wrapped up in their vision to pay attention to naysayers or give up
  • A high degree of skill is necessary to compete against the best
• Other good indicators of capable founders:
  • They have detail-oriented focus
  • They have a list of actionable things they plan to do to improve the business
• On assessing startups with multiple founders:
  • At least one founder should be a great leader
  • If the company has three founders, Jason assumes one won’t be with the company in the future
  • All founders should have been vesting their equity monthly for 48 months with a one year cliff (at least)

Assessing VC Firms

• As a founder, don’t feel forced to have meetings with investors 
  • You’re the one with the leverage, the investors are the ones seeking you out
• Talk to other founders that have worked with the firm you’re talking with in the past
  • Use the internet to find out which companies a VC firm has dropped – then, call the founders of those companies and ask them what happened
• Jason’s power move response to potential investors: “Really don’t have time for a meeting, we’re executing against an aggressive plan. If you wanna come by for a quick coffee one morning, and you happen to be in Santa Monica, I’d love to have a quick coffee with you, but I have to hit these numbers.” – Jason Calacanis

The Rules of Raising Money

• “When you’re oversubscribed, everybody wants to invest, and when you don’t have a lead, nobody wants to invest” – Jason Calacanis
  • If you want to raise $1.5 million, aim for $750k – in your documents, set a minimum of $500k and a max of $1.5 million
    • Doing so will make you a more appealing investment psychologically
• You’re either raising money or running your business; you don’t want to be doing both at the same time
  • Having a co-founder is very powerful in this situation because raising money and running the business are each full-time jobs

Jason’s Must-Ask Founder Questions

• How do you know (person who introduced you)?
• What are you working on?
  • The people Jason is looking for will pounce on these questions as much as possible. Otherwise, they don’t have it in them.
• Why are you doing this?
  • One-fourth of the time, someone will say, “I want to make a lot of money” which automatically disqualifies them
    • There are much easier ways to make money than starting a company (which tends to have a 70-80% failure rate)
• Why now?

Advice for Founders

• “Individual performance can get you to a unicorn status, but to be a legendary company that’s worth hundreds of millions, Jeff Bezos just hires maniacal people who want to change the world” – Jason Calacanis
  • The quality of a leader is determined by the quality of people they’re able to recruit
    • “If you’re a great leader, you will hire people better than you” – Jason Calacanis
    • Just because a founder is high-performing doesn’t mean they can attract other high-performing people
• “When you strike oil, keep drilling” – Jason Calacanis
  • Pivoting after finding success means less energy will be devoted to what’s already working (along with introducing new risks)
• Startups fail because the founder gives up, not because they run out of money
  • Jason has seen companies run on fumes for months with zero revenue before finally hitting oil
• Using fear to motivate your employees will only work to a certain point 

The Greatest Skill of All

• The ability to learn quickly and independently
  • Quick learning ensures adaptability in a changing economy and provides opportunities unavailable to slow learners
  • The capability to learn independently differentiates you because most people don’t have the discipline to spend a Saturday learning a new skill 

Finding Employees and Partners with Drive

• Be candid and upfront about your work expectations at the beginning of your relationship
• As a founder, you have the most skin in the game, so you’ll naturally be more driven than those you recruit
  • “You can demand a lot of people, but maybe not as much as yourself as the founder” – Jason Calacanis

Startups and Rockets

• Building a startup is like launching a rocket: it’s difficult and many attempts end in failure
  • But, if you succeed, you can blast through the stratosphere
• Unlike a rocket, if your startup fails, you won’t die or lose billions of dollars – you can just try again, but with the knowledge gained from failure

Money and Happiness

• Each additional dollar above a $70,000 income will increase a person’s happiness by less and less 
• “99% of the best things in life really are not correlated with capital” – Jason Calacanis
  • No matter how much money you have – You can’t buy a hug from your mom or the satisfaction of having accomplished something difficult