Spearhead with Naval Ravikant & Babak Nivi (All Episodes)

Check out the Spearhead Podcast Page

This is a new podcast from Naval Ravikant (@naval) and Babak Nivi (@nivi), which plans to cover a series of startup topics. First up – angel investing. Key Takeaways for all episodes can be found below. We’ll update this post regularly as new episodes drop.

Only Invest in Technical Teams | Episode #28

  • “This is the technology business, and you want to be investing in technology teams. Every great startup is highly likely to have a great technologist as part of the core founding team … That person has to be sufficiently compensated and motivated. Their name and accountability must be involved in the project.” – Naval Ravikant
    • If there’s no technical person on the founding team, it’s a red flag
  • Non-technical people on the founding team should be great at selling—selling to investors, selling to customers, selling to potential employees, etc.
    • “If you’re not building something, you’re selling it” – Naval Ravikant
  • If you’re not a technical person or good at selling, you better be a good community builder

Invest in the Smartest Scientists in a New Field | Episode #27

  • Good judgment—good decision-making and the ability to size people up—comes from:
    • Experience
    • Reading books that intersect science, business, and philosophy
    • Speaking with smart people
    • Understanding mathematics & game theory
  • “You’re not going to become a great tech investor by reading TechCrunch or Bloomberg News; you have to go to the source, and the source is often research papers” – Naval Ravikant
    • Technology is applied science, so you if you want to be a great investor, you have to enjoy diving into scientific topics
  • Investing in a space’s smartest scientists will seldom be a bad bet
    • Even if they don’t make you money, they can help vet & validate deals for you
  • “Being surrounded by good technologists and scientists is a secret weapon … If you can find a group of painfully honest and distinguished scientists and technologists to connect with, that will be a secret weapon throughout your investing career.”Naval Ravikant
    • These types of people don’t bullshit—they’ll tell you exactly what they think of a new technology

Don’t Fantasize About What You Would Do If You Were the Founder | Episode #26

  • Many investors—especially those that were former entrepreneurs—tend to fantasize about what they’d do with a company rather than listening to the founder’s pitch
  • Angel investing is the opposite of value investing
    • Warren Buffett says, “Buy into a business that’s doing so well an idiot could run it, because sooner or later, one will.” That’s not the case with startups—almost all the value creation happens when the founder is intimately involved.
      • So, with angel investing, you’re betting on the founder, not the product or market

You’ll Get Less Money in Your Winners | Episode #25

  • “It’s very easy to overestimate your own judgment. It’s perfectly OK to say, ‘I don’t know.'” Naval Ravikant
    • In fact, “I don’t know” should be your go-to answer
  • If you put a ton of money into a few deals and very little money into many others, you’ll find that your winners tend to come disproportionately out of the deals where you have little money invested
  • If you’re the first to invest in a company, perhaps you should get rewarded with a lower valuation because you’re creating the signal that the company will use to raise the bulk of the money?
  • “Anyone in this business who’s chasing hot markets gets killed”Naval Ravikant
    • By the time there are conferences related to the market & TechCrunch articles about it, it’s probably a little late

You Can Give Every Deal One Fatal Flaw | Episode #24

  • With every deal you do as an investor, you’re allowed one fatal flaw—one thing an established VC would look at and use as an excuse not to fund the startups
    • But, if there’s more than one, you have to worry
  • “Startups are rewarded for innovating on something new. If they’re trying to innovate on things that already exist and work—such as team structure, founder mentality, or those kinds of things—you’re just taking on additional risk.” – Naval Ravikant
  • As an investor, use your judgment to figure out where startups can break the rules 
    • “A startup that follows all the rules is unlikely to be interesting. A startup that breaks all the rules won’t get anywhere, because they have to spend time reinventing everything from scratch.”Naval Ravikant
    • The real value comes from funding a startup that’s breaking a “rule” that you know isn’t a rule (but everyone else thinks is)

The Best Deals Look Weird | Episode #23

  • With angel investing, “You want to be non-consensus right. In other words, you want to be right when everybody else is wrong.” Naval Ravikant
  • Because of the above, the best deals always have something broken, strange, or different about them
    • They’re usually weird, socially unacceptable, or outside the norms of venture capital
    • They might look far too niche to be interesting
    • Or, the founder doesn’t fit the typical mold (or they’re in the wrong city)
  • The above is like the old saying, “there’s a fine line between the genius and mad man”
    • (Both seem like crazy people from the outside until after they’re validated—1/100 turn out to be a genius; 99/100 turn out to be crazy)
  • “You have to be iconoclastic enough to recognize genius founders without being so low in judgment—or strange—that you’re letting in all the crazy ones too” – Naval Ravikant

Judgment Requires a Willingness to Be Unpopular | Episode #22

  • Judgment is an ability to:
    • Be humble
    • Think critically
    • Be well-read
    • Hold conflicting ideas & opinions in your head
    • Have a low ego (so you don’t get too attached to your decisions)
    • Constantly be questioning yourself
  • Also, people with good judgment are willing to be unpopular
  • People with good judgment think from the ground up using first principles
  • Things that lead to poor judgment:
    • Groupthink
    • Over-socialization
    • Picking things because they’re politically or socially popular
  • “Lots of people lose money in this business chasing things they wish were true, as opposed to what actually turns out to be true” – Naval Ravikant
  • “If you surround yourself with brilliant, contrary and first principles thinkers, over your career, you’ll develop extremely good judgment; you may not end up very popular, however”Naval Ravikant

Are Good Investors Piling in the Round with You? | Episode #21

  • It’s tough to assess your judgment as an investor because it takes such a long time for startups to succeed
  • So, here’s what you can do:
    • Look at intermediate markups—when investors come in during subsequent rounds & pay higher prices 
    • Look at which investors follow you in the same round
      • “If you invest in a round, and investors who have proven good judgment pile into the round after you, that’s a reasonable indication of your judgment” – Naval Ravikant
    • Ask people about your weaknesses (of course, only ask people who have good judgment themselves)

Pivot Means Your People Judgment Really Matters | Episode #20

  • Even though many companies at the seed stage end up pivoting, judgment about the founders/people/team still matters
    • After all, usually, pivots don’t involve a leap into a completely different industry; most often, a company pivots into an adjacent space, so it’s still operating within the broader market
  • Examples of pivots/company shifts:
    • Twitter started as Odeo
    • Instagram was once Burbn
    • Slack was once Glitch
    • Lyft was once Zimride
    • Uber started with just black cars
  • With all of the above examples, the team stayed relatively constant—this is why it’s essential to bet on the people, not the company

Judgment is the Work You Do Before a Deal Arrives | Episode #19

  • “Judgment isn’t necessarily due diligence or even thinking. Judgment is the preparation you do before a deal arrives so that your subconscious can process it quickly.” – Naval Ravikant
  • Early-stage investing is more about gut feel than due diligence. It’s smart to check references and talk with others in the space, but over time, you build up your gut instinct to a point where you need less and less data. Eventually, you’ll intuitively know:
    • If a founder is speaking in a way such that they’re credible
    • If the network a founder comes from means you don’t have to reference check them as much
    • How the customers in the space think and behave (so you’ll know what they will and won’t buy)
  • The best investors are immune to the FOMO effect—pressuring them to make a decision quickly doesn’t work
  • Naval implemented a “24-hour cooling-off period” for deals
    • Even after deciding to invest, he forces himself to wait 24 hours before acting

Diversification is a Hedge Against Lack of Knowledge | Episode #18

  • At the seed stage, judgment related to people and product/market potential is essential
    • Because there’s not much data, financial metrics are less important
  • “In some cases, diversification is a hedge against a lack of knowledge” – Naval Ravikant
    • (The less knowledge you have, the more critical it is to diversify)
    • “At the end of the day, you’re going to have to build a portfolio in early-stage investing, because nobody has enough data to have a high conviction or fool-proof judgment early on”
  • “Investing at the seed stage is like playing the lottery—except that you can use your access and judgment to get one or two of the winning numbers in advance … The better your judgment, the more numbers you know in advance.”Naval Ravikant

Everyone Thinks They Have Good Judgment | Episode #17

  • Long-term judgment is critical; without it:
    • You’ll end up with a lousy portfolio
    • You won’t have other investors backing you
    • You’ll lose your money
    • Your brand will suffer (good entrepreneurs don’t want to be associated with bad judgment)
  • “At the end of the day, judgment is the single most important thing. It’s more important than access to deals; it’s more important than access to capital.” – Naval Ravikant
  • Realize: Your own judgment is subject to your own judgment (if you have poor judgment, you won’t know you have poor judgment)
  • The only way to tell if you have good judgment is to look over a long time period (with early-stage investing, it may take 5-15 years to figure out if you have good judgment)

Founders Backing Founders | Episode #16

  • Angel investing:
    • Keeps you sharp and educated
    • Is a great way to stay up to date on technology
    • Exposes you to the different ways to start a startup (i.e., LLC vs. C Corp, raising money from an angel vs. a VC, etc.)
    • Is a great way to give back
      • Many great founders got a lucky break when someone took a chance on them. Angel investing allows them to return the favor.
    • Allows you to teach what you’ve learned (and what better way to learn than by teaching?)
  • “A lot of the best founders end up dabbling in other people’s companies as advisors or investors because they want to be good at everything.” – Naval Ravikant
    • And one of the best ways to learn? – Talking to other founders who have skin in the game
  • “The best founders also want to be backed by other founders” Naval Ravikant
    • Why? – They want to know the people they’re taking money from have first-hand experience

Be Non-Consensus Right | Episode #15

  • “The real money in this business is made by being non-consensus and right: being correct when everybody else disbelieves” – Naval Ravikant
    • There are MANY deals that even the top VCs/angels don’t agree on
  • “One place where we recommend NOT learning how to angel invest is from journalists and the average commentator on Facebook, Hacker News, or Twitter”Naval Ravikant
    • These people may be well-meaning, but they don’t know what they’re talking about
    • Am example: The media has been hating on Facebook from the start, yet the company is worth several hundred billion and everyone surrounding it is extremely wealthy
      • “What Facebook does for society is a different conversation, but the fact that it’s a successful business is undeniable”
  • “In this business, if you want to be successful, you have to make up your own mind” – Naval Ravikant
    • Work from first principles and ignore the heard
      • “The larger the herd you listen to, the worse your returns will be. If you go with the consensus and average thinking, you will have average returns.”

Be a Shadow Co-founder | Episode #14

  • Can you build a brand as an angel investor at the pre-seed/accelerator stage?
    • Accelerators are basically training wheels until you’re ready to go raise money
      • They teach you: how to put your company together, when it’s ready for investors, how to approach your first customers, etc.
    • An angel investor can certainly do the above, it just takes a lot of time
  • “If you want good valuations and good deal flow, the best way is to create it yourself by allying with entrepreneurs early on and becoming their shadow business co-founder.” Naval Ravikant
  • “If you’re investing at the pre-seed stage, you can back great teams, you can set the terms that you want, and you can get pro-rata rights” – Babak Nivi
    • Pro-rata rights are the ability to invest in later rounds (they’re quite valuable)
      • Say you own 5% of a company through an initial investment, pro-rata rights give you the option to provide 5% of capital in future rounds
      • Why does this matter? – The amount of money you can put in at later rounds tends to be much higher, thus resulting in higher returns

The Best Deals Come From Your Network | Episode #13

  • “The best deals tend to come out of your network, from people you’ve known and trusted for a long time” – Naval Ravikant
  • It’s nearly impossible to invest in one of Elon Musk’s companies
    • Why? – His network swoops in first and takes up the full allocation
    • “If you’re getting invited to one of Elon’s rounds and you’ve never met him or made money with him, you almost have to wonder if he’s run out of friends” – Naval Ravikant
  • Branch out as an angel investor only after your network is exhausted
  • “It’s very dangerous to start investing in spaces you don’t know, in people you don’t know, and, most dangerously, into deals you’re invited into by strangers.” – Naval Ravikant
    • Why? – If someone is inviting strangers into investment deals, they’ve likely already exhausted their network

Don’t Build a Brand in a Narrow Vertical | Episode #12

  • Avoid building a brand around a specific market thesis
    • “You don’t want to build a brand around the transition from X technology to Y technology—because when that transition is complete, so is your brand” – Naval Ravikant
    • Avoid building a brand in a space that might not materialize (like solar energy)
  • Resist the urge to specialize (being too narrow) when you’re first starting out as an angel investor
    • Why? – Very often, trends don’t materialize or turn into mass markets
    • The top VC firms are rarely specialists – they’re usually generalists
  • “It’s best to build a brand around your unique capabilities, platforms, and assets, but not around verticals” – Naval Ravikant

My Original Brand Was in Growth Hacking | Episode #11

  • Naval got started out in Silicon Valley by co-building a Facebook app which got 20 billion installs very quickly
    • This was his “calling card” when going to meet with entrepreneurs seeking investment
  • Naval was one of the last early investors in Twitter
    • Ev Williams, one of the co-founders, asked him – “Why should I let you invest?”
      • “I got on a whiteboard for half an hour and laid out what little I knew about growth hacking, while he and his deputy watched. At the end he said, “This sounds great. We’re not going to do any of it because it’s against our ethos.” I respected him for that. But he was impressed enough that I cared and I’d thought about it, that I got a chance to invest in Twitter. That was my first major angel investment that worked out.” – Naval Ravikant
  • Angel investors that have a great brand:
    • Ryan Hoover, the founder of Product Hunt
      • “His Twitter game is among the best I’ve seen; he builds community on Twitter simply as a side effect of breathing. He’s going to have a good brand as an angel investor, especially with consumer companies.” – Naval Ravikant
    • Patri Friedman, who invests in “startup countries” and sovereign individual projects

There’s Very Little Innovation in Venture Capital | Episode #10

  • Your brand as an angel investor must:
    • Be clear
    • Be authentic to who you are
    • Be differentiated
    • Resonate with entrepreneurs 
      • The worst thing you can do is to say something like, “I’m a good, passive, hands-off person. I won’t bother you, and I’m always available to help.” 
      • ^this is too generic
  • How can your brand help startups?
    • Perhaps you have ins with computer science professors at major universities?
    • Perhaps you have a deep understanding of the real estate industry?
    • You can build software for startups (Like AngelList)
      • “There’s still 5,10, 100 different things in the world of software for startups that haven’t been done. – Babak Nivi
    • You can be an expert on raising money from international investors
  • “There’s extremely little innovation in the venture capital business. It’s quite easy to stand out. You have to be willing to do something that other people haven’t done before. In other words, you have to be willing to take on accountability and risk being wrong. – Naval Ravikant

You Can’t Build a Brand by Aping Someone Else | Episode #9

  • How do you build a brand? – One of the best ways is to build a platform that helps entrepreneurs
  • But, this is key: “You’re not going to build a brand because you want to build a brand. The brand is going to be an authentic expression of who you are.” – Naval Ravikant
    • Whatever your unique insight into the venture business, investing, & startups – express it in the most authentic way possible
      • If you’re good at blogging, blog
      • If you’re good at writing books, write books
      • If you’re good at talking, do a podcast
    • “You’re not going to be successful by aping somebody else; it must be authentic to you” – Naval Ravikant
  • Another critical point – The media is crowded; you need to create top-quality content for your brand

You Need a Brand to Get Into Hot Deals | Episode #8

  • “To get into good deals, you need to build a brand, typically by adding value to the startup in some unique way” – Nivi
  • The most critical part of angel investing: Having the ability to get into a deal you want to get into (deal access)
    • How do you get access? – Have a brand
      • “A brand is an authentic reputation you have with founders and investors that tells people around the table, ‘Let’s invite this person to invest in our round, even though it’s scarce and everybody wants in now that the signals are there.’”
  • “I partially started AngelList because I was cut out of some very big deals early on that, to this day, I have qualms over. These would have been career-defining deals that would have made me a lot of money. But my brand simply wasn’t strong enough.”
  • How do you build a brand?
    • Make great investments 
    • Provide something that’s pro-founder that the environment doesn’t already offer (software, a network, or a platform)
      • This could also be a stance (Andreessen Horowitz has a famous founder-friendly stance)
    • Create great content
      • Naval has primarily built a personal brand through Twitter
      • Paul Graham has written amazing pieces that have attracted everybody to YC and Hacker News
      • You could start a blog – David Hornik, Andrew Anker, and Naval started VentureBlog, one of the first venture-related blogs

Don’t Let Deals Pass on You | Episode #7

  • It’s highly important, as an angel investor, to get into the deals you want to get into and not get cut out
  • Angel investing returns are non-linear
    • The majority of an angel investor’s returns come from just ONE deal
      • Then, if you were to examine the remaining returns, once you take that top deal out – the majority of those returns come from just ONE deal
    • “If you removed the top two or three deals out of just about any fund’s portfolio, you would have a negative performing fund, instead of a 4x to 10x fund”
    • “One company out of a 100 or one company out of 1,000 accounts for all the returns every year, so it’s all about adverse selection”
  • When it comes to getting cut out of deals, your brand matters
    • “I partially started AngelList because I was cut out of some very big deals early on that, to this day, I have qualms over.  These would have been career-defining deals that would have made me a lot money. But my brand simply wasn’t strong enough.”

Investing Takes Capital, Judgment, and Dealflow | Episode #6

  • “The three things it takes to get into the investing business are dealflow, judgment, and capital”
  • Capital:
    • Capital is usually the hardest to obtain, depending on your circumstances
  • Judgment:
    • “Good judgment comes from experience and experience comes from bad judgment”
    • Judgment often means applying your highest standards and taste in things you know the best to other people
    • Avoid lowering your judgment by fantasizing about all the things that could go right
    • “Some of the best investors I know are incredibly difficult people; it’s very hard to please them, and they see the problems in anything”
      • A good founder has to be a rational optimist, while a good investor often oscillates between pessimist/optimist 
      • “If you’re doing more than one out of every ten deals you look at, you’re probably too optimistic”
  • Dealflow:
    • Dealflow is not = access
      • You can get dealflow by going to any tech conference or sitting in on YC Demo Day – it doesn’t mean you have access to those deals
    • “When you get cut out of hot deals, that’s a sign you’re going to perform poorly as an angel investor. You need to do whatever it takes to up your access.”

Being a Founder Your Entire Life is a Tough Road | Episode #5

  • “The best way to make money in the tech industry, like any other industry, is to own a piece of a business.”
    • (This tweet from Naval echos the same thing)
  • How do you gain substantial equity?
    • Start a successful company
    • Be an extremely competent execution person, so scaling companies come to you
      • “Someone who’s already done a great job at other companies for investors and entrepreneurs before will get paid a fairly large amount of equity for joining a company that’s solved product-market-fit.”
    • Do it as an investor
      • “As the hits become bigger and bigger, and the returns become more nonlinear, it makes more and more sense to play as an investor and a little less sense to play as a founder
        • The upside is nonlinear – you can invest in a startup and get up to a 5,000x return
        • As a founder, you may own a lot more, but you may only make a 10x or 100x return
  • There’s a famous quote – “Know something about everything and everything about something”
    • It’s great to have been a founder and also do some investing
  • However – being a founder is undoubtedly a lot more fulfilling
    • That being said, it burns you out and ages you quickly
      • “Being a founder your entire life is a very tough road. Most people do not have the constitution for it.”
  • Angel investing is something you can do well into your older years – you can even do it part-time
  • “Angel investing is one of the few things you can get better at until the day you die” – Nivi

IPOs Are For the Last Investors in Line | Episode #4

  • “If you’re buying a tech company when it goes public, you are literally last in line”
    • By the time a company goes public, anyone with any connections/capability probably got a bite at it
    • “It’s not to say you can’t make money, but the odds are way down because this fruit has been picked over many, many times”
  • Silicon Valley is turning into the new Wall Street
    • Wall Street used to be where people went to get capital for their startups – there was no other market for fundraising until you had the metrics to go public
  • “This is going to fly in the face of conventional wisdom: the average person should be saving for their retirement. But I never set out to save anything; I reinvested almost everything.”
    • 401k money gets reinvested into “safe” but unproductive parts of society (like the government)
      • “You’re investing in the DMV and the Defense Department. Their returns have not been spectacular.”
    • “It’s probably a better bet, if you’re in the tech industry, to invest back in the tech industry, especially if you’re young and especially if you can get diversified.”
      • “Invest in the smartest, best and brightest people around you, rather than people in far-away lands with far-away motives.”
      • $50k contributed to your IRA won’t make a difference to the U.S. government, but $50k invested into an entrepreneur will make a HUGE difference 
        • “If you can find 10, 20, 30, or 50 investments like that, at least one or two of them will pay off”
  • Most of Naval’s net worth is illiquid and invested in startups
    • That said, he sleeps well at night knowing he has hundreds of teams of brilliant entrepreneurs building things that could be massive and change the world
    • Only a few of these investments need to work out for the whole portfolio to balance out
      • If you invest in 100 companies and one investment produces a 1,000x return, the other 99 investments could go to 0, and you would still see a return of 10x

You’re Living Inside The Gold Mine | Episode #3

  • “A competent angel investor in Silicon Valley who’s plugged into a good network, knows what they’re doing and has a broad portfolio might make somewhere between 3 to 10 times their money over a decade.”
    • That being said, this requires a ton of specific knowledge + labor
  • There are tax benefits to angel investing
    • Gains are considered capital gains and taxed at a lower rate than income
    • “From a tax-advantaged basis, if you’re willing to tolerate high risk and illiquidity, it’s very hard to look at any other asset class where you can make as much of a raw return on your money as a patient, diversified, plugged-in angel investor.”
  • “The less efficient the market and the more wealth the underlying asset is creating, the better off you’re going to do.”
    • Art doesn’t create that much wealth, same with wine
  • Many people in Silicon Valley would be great at angel investing, but they spend too much time worrying about interest rates, the trade war with China, etc. OR they’re out shorting stocks, buying/selling real estate, etc.
    • WHY?! – “You’re living inside the gold mine… If you’re in the tech industry, you should be doubling down. I don’t know a better industry or better place on the planet to be investing, for today.”

Living in a Tech Hub is Half the Battle | Episode #2

  • As Marc Andreessen has said – Software is eating the world
    • Technology is being adopted by EVERYBODY
  • If you live in a tech hub, you’re in a great position to angel invest
    • If you’re in the tech industry and not living in a tech hub, but want to angel invest, you should consider moving to one
      • “You can do it remotely, but the odds are stacked against you”
  • Around 20-30 great companies are created every year in Silicon Valley
    • You as an angel investor just need to get access to one of them
  • There’s certainly less competition when investing outside of tech hubs
    • This can result in much higher returns
    • The valuations also tend to be lower
  • It’s MUCH safer and easier to get started with angel investing in a tech hub city like Silicon Valley, Beijing, Shanghai, or Bengaluru
  • The best indicators of a startup hub are exits and later-stage investors
  • The riskiest investments from most to least:
    • Angel investing
    • Series As
    • Series Bs
    • Series Cs and Ds
    • Mezzanine rounds right before a company goes public

Strong Opinions, Loosely Held | Episode #1

  • First off…. know that angel investing is a great way to lose your money if you don’t know what you’re doing
    • Want to become a millionaire? – Start as a billionaire and start investing
  • The investment ecosystem is changing
  • This podcast will be focused on investing in early-stage tech startups in San Francisco and Silicon Valley
  • “We’re constantly changing our minds and learning. That’s what intelligent people do. We hold contradictory and opposing thoughts in our head at the same time and we have a multitude of opinions that often contradict each other… We’re always changing our opinions.”