Leading AngelList Ventures and Buying Businesses Like Berkshire Hathaway | Avlok Kohli and Xavier Helgesen on My First Million

  Check out My First Million Episode Page & Show Notes

Key Takeaways

  • VC firms make 7-10x or in some cases 15x returns on their investment
    • It’s really the unicorns (companies worth $1 billion or more) and decacorns (companies worth $10 billion or more) that allow for those kinds of extreme returns
  • Most of the investments in any VC portfolio will fail but you only need 2-3 home runs to earn a great return. Those home runs can return 1,000 or 10,000x your initial investment.
    • “It’s complete power-law dynamics here where you have one investment or a couple of investments that scale up so quickly that it actually doesn’t matter. Like all of your other investments literally do not matter.” Avlok Kohli
  • A rolling fund does 3 things differently: 
    • You don’t have to raise all of the money upfront
    • You don’t have to go beg for money every time like a syndicate (the money is in the bank account)
    • You can publicly talk about your fund and solicit investments
  • Venture funds were built in a world without software, that’s why there outdated
    • “Rolling funds are what a venture fund structure would’ve looked like if it was built in the age of software, and so that’s what we did” – Avlok Kohli
  • Don’t buy a company based on its revenue multiple, buy it based on its profitable multiple
  • “It’s harder to have a stable, durable business in internet land because internet land is so dynamic and changes so much and is so competitive unless you have a moat”Xavier Helgesen

Intro

Books Mentioned

About Avlok Kohli

  • Avlok graduated from the University of Waterloo and moved to San Francisco in 2008
    • In 2014, Avlok launched Fastbite which was acquired by Square
      • He worked at Square for 2.5 years but then left to start another company which was later acquired
        • Avlok was going to retire but then Naval reached out and asking if he would be interested in working at AngelList
          • Avlok has been the CEO of AngelList Venture for over a year now

Building Vs Acquiring

  • When a company wants to grow, it has two options: build or acquire
    • If you’re going to build, you need to find an internal leader and decide who will be the team that is capable of building the product
      • “You have to also bake in the cost it takes for learning” – Avlok Kohli
    • If you’re going to acquire a company, you want to make sure that the company will help you optimize your KPI
      • Square bought Fastbite because, at the time, they owned Cavier and wanted to optimize their food delivery time. Fastbite was delivering food in less than 15 minutes which was multiple times better than other food apps.

Getting Feedback On Meetings

  • A great business idea: Create a product that lets people give feedback on meetings and build an information center around it
    • A lot of meetings can be asynchronous
      • “I think there’s space for someone to build a really great asynchronous meeting tool” – Avlok Kohli
        • It would let any employee listen to a meeting and learn what’s going on in the company
  • Poking holes in the meeting feedback loop product:
    • You probably don’t need it for one-on-one meetings
    • How do you define if the meeting went well or not?
    • How do you get honest feedback from people? 
      • “It’s more behavioral related than it is product-related” – Avlok Kohli

Bullish On Roam

  • One company that Avlok thinks will be huge: Roam Research
    • Roam is like the ultimate note-taking app. It lets you link ideas and show context around them much like how your brain organizes information.
      • “I think it’s an amazing, amazing product” – Avlok Kohli
        • Avlok had to take a course on it to learn how to use it but since then, he’s been using it every day. It even replaced the Apple’s Notes app for him. 
          • It’s a great product at an individual level but also has huge potential to be used across companies

Thoughts On Rolling Funds

  • If you want to raise a traditional fund, you traditionally need to raise a large amount of capital from wealthy individuals all at once
    • “That’s going to take time, that’s going to take effort, and it might not work” – Shaan Puri
  • A rolling fund does 3 things differently: 
    • You don’t have to raise all of the money upfront
    • You don’t have to go beg for money every time like a syndicate (the money is in the bank account)
    • You can publicly talk about your fund and solicit investments
  • Venture funds were built in a world without software, that’s why they’re outdated
    • “Rolling funds are what a venture fund structure would’ve looked like if it was built in the age of software, and so that’s what we did” – Avlok Kohli
  • One perk of a rolling fund is that you can increase or decrease your investment every quarter based on the fund manager’s performance
  • As a general partner, you want to make 25-30 early-stage investments a year
  • The VC firms make 7-10x or in some cases 15x returns on their investment
    • It’s really the unicorns (companies worth $1 billion or more) and decacorns (companies worth $10 billion or more) that allow for those kinds of extreme returns
      • Most of the investments in any VC portfolio will fail but you only need 2-3 home runs to earn a great return. Those home runs can return 1,000 or 10,000x your initial investment.
        • “It’s complete power-law dynamics here where you have one investment or a couple of investments that scale up so quickly that it actually doesn’t matter. Like all of your other investments literally do not matter.” Avlok Kohli

About Xavier Helgesen

  • Xavier bootstrapped Better World Books to $70 million in revenue. He then got an MBA at Oxford. His most recent company was starting ZOLA Electric, a solar company that is now the largest player in Africa. 
  • Xavier is also the co-founder of Enduring Ventures: they acquire companies with the goal of holding and operating them for the long-term
    • One company Enduring Ventures acquired was UpCouncil

Local Monopolies & Business Tips

  • Monopolies are great businesses (e.g: Google in search engines), even local monopolies are highly profitable (e.g: being the best BBQ joint in Kansas)
  • Xavier and Shaan are both bullish on Andrew Wilkinson’s news outlet Capital Daily
    • Owning a newspaper used to be a monopoly business and perhaps with the right technology and business model, it can once again become highly profitable
  • The first thing Xavier looks at when thinking of buying a business is the gross margin. Why?
    • “Even if it’s not super profitable today, it may be in the future” – Xavier Helgesen
  • Don’t buy a company based on its revenue multiple, buy it based on its profitable multiple
    • Be careful about buying SaaS or other internet companies:
      • “It’s harder to have a stable, durable business in internet land because internet land is so dynamic and changes so much and is so competitive unless you have a moat”Xavier Helgesen
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Notes By Alex Wiec

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