Advice For Angel Investors | Keith Rabois on Venture Stories

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Key Takeaways

  • The hardest part of angel investing is filtering and narrowing through opportunities to identify ones worth investing in
    • Even Keith Rabois isn’t perfect at figuring which investing meetings to take. He’s missed out on several meetings with startups (like Pinterest and Coinbase) that ended up doing extremely well.
  • As an angel investor, you want to have companies that fail in your portfolio because if none fail, that means you’re not taking enough risks. Investing in startups is all about finding extreme outliers–high risk leads to high reward.
  • There are many reasons to become an angel investor:
    • It’s a great way to learn about startups and the VC business
    • You can invest in companies because you love their product or mission and want to grow it
    • You can invest in people you respect or believe in
    • It gives you access to a company with the possibility of working there later
  • If you’re a new angel investor, focus on finding the coolest companies and getting deals with them without worrying too much about the price
    • Only once you’ve built up a track record as a successful investor can you have more influence over the price in a deal
  • When evaluating a founder’s LinkedIn profile, you want to look for a constant increase in responsibilities. People that want to change the world usually aren’t sitting still but instead trying to grow and have as much impact as possible.
  • Two trends Keith is watching carefully:
    • Decentralization of content
    • Disruption of higher education

Intro

  • Keith Rabois (@rabois) is a General Partner at Founders Fund
  • Related notes:
    • Notes from Keith’s last appearance on Venture Stories
    • Notes from Keith’s appearance on The North Star Podcast
    • Podcast Notes (Part 1 and Part 2) from Keith’s appearance on This Week in Startups
    • Notes from Keith’s appearance on Invest Like the Best
  • Host: Erik Torenberg (@eriktorenberg)

Thoughts on Angel Investing

  • Keith originally got into angel investing by investing in his friends from the PayPal mafia
    • He invested in YouTube, Yelp, Palantir, and LinkedIn
  • The hardest part of angel investing is filtering and narrowing opportunities to identify ones worth investing in
    • Even Keith isn’t perfect at figuring which investing meetings to take. He’s missed out on several meetings with startups (like Pinterest and Coinbase) that ended up doing extremely well.
      • Since it’s impossible to take every meeting, it helps to have a team of people that can take meetings for you and report back to you
  • As an angel investor, you want to have companies that fail in your portfolio because if none fail, that means you’re not taking enough risks. Investing in startups is all about finding extreme outliers–high risk leads to high reward.
  • In a capital-intensive business, it’s easy for an investor to add value just by giving the company money
    • However, some founders want angel investors not just for a check, but also for guidance and influence downstream
    • One way to provide value is by being a matchmaker: help companies fill roles of key executives and employees
  • One trend Keith is watching carefully: the decentralization of content
    • E.g: Companies such as OnlyFans or Substack

Benefits of Being An Angel Investor

  • There are many reasons to become an angel investor:
    • It’s a great way to learn about startups and the VC business
    • You can invest in companies because you love their product or mission and want to grow it
    • You can invest in people you respect or believe in
    • It gives you access to a company with the possibility of working there later
      • This was Keith’s initial purpose for investing in startups. He wanted to see which were growing the fastest and then he’d plan to work there. That’s how he ended up working at LinkedIn.

Angel Investing For Beginners

  • A few questions you should ask yourself if you’re a new angel investor:
    • 1) Do I enjoy the investing process?
    • 2) Do I have the right instincts to be an angel investor?
      • After 1-2 years of investing, you should see a spark or rise in your portfolio
    • 3) Is angel investing moving you forward towards your other goals (non-monetary goals) in life? 
  • Keith’s advice to people who want to get into angel investing: Get a budget and invest it over 1-3 years
  • Keith tends to invest in a barbell strategy style: most of his net worth is in super risky investments (like startups) or super safe investments (like index funds)

Pricing Investment Deals

  • If you’re a new angel investor, focus on finding the coolest companies and getting deals with them without worrying too much about the price
    • Only once you’ve built up a track record as a successful investor can you have more influence over the price in a deal
  • Side note: The smaller the check you’re writing, the less power you have to set the price
    • If you’re writing a $100,000 or more check, then you have some influence over the price
  • At the end of the day, investing in the right company is more important than investing in the right price
    • If you invest in the right company, even at a slightly overvalued price, the company will grow and so will your equity
  • When you invest in a company at an earlier stage, you’ll know more about the business and you’ll have an information advantage over future investors

Additional Notes

  • When evaluating a founder’s LinkedIn profile, look for a constant increase in responsibilities. People that want to change the world usually aren’t sitting still but instead trying to grow and have as much impact as possible.
  • Founders Fund has a strong position in Bitcoin and has bought Bitcoin directly over several funds
    • It’s paid off well and while Founders Fund is open to new things and talking with new crypto founders, they plan to maintain their holdings for the time being
  • Being a professional VC gives you the opportunity to help people chase their dreams. That’s why Keith became a VC instead of staying an angel investor.
    • He also enjoys working with smart colleagues and debating ideas with them
  • Why Does Keith Use Twitter?
    • It helps him disseminate information about companies he’s invested in and their amazing founders
    • He likes to share views and ideas, and discuss them with people
  • Keith has started to share long-form articles on Substack
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Notes By Alex Wiec

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