Book review: “Angel: How to Invest in Technology Startups” – Jason Calacanis

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The author Jason Calacanis seems to be a kind of “celebrity Angel Investor” in Silicon Valley, most famous for being on of the original Angel Investors of Uber. He started out as a blogger, founded some companies and then decided to become an early stage Angel Investor.

To be honest, I was close to stop reading during the first few chapters which are easily summarized as “How I did it as poor guy from Brooklyn” and how quickly you can become really reach if you will do like he says.

Then however, from chapter 7 on the book becomes much better. The author explains step by step the concept and details of Angel/Venture funding. He starts with the different funding stages of a startup. Next is the “cap Table” and how to get into it. He also explains when it makes sense to act as advisor which seems to be a good starting point if you don’t have a lot of money but want to get into the game.

“Angel Syndicates” are also a good way to get  cheap entry tickets into Angel Investing, where you basically can co-invest with relatively small sums, starting from 1.000 USD/deal. Besides investing into those deals, the more important step then seems to be to build up a network by contacting as many co investors as possible.

He also gives a lot of useful practical tips like to always write a deal memo and trying to meet the founders at least once personally. He also advises to meet a lot of other Angel Investors in order to build a network for “good” deal flow as the Angel Syndicates usually don’t offer the best deals.

Next then he explains how to prepare for and what to do during pitch meetings with founders and how to manage deal flow as efficient as possible. I personally liked the advise to openly switch off your mobile phone and use pen and paper during pitch meetings.

He also gives very concrete examples of what kind of standard questions should be asked which are:

  1. Why has the founder chosen the business
  2. How committed is the founder ?
  3. What are the chances of success in this business & life of this founder ?
  4. What does winning look like in numbers ?

As follow-up questions he gives these examples:

  1. Tell me about competition
  2. How do you make money
  3. How much do you charge customers ?
  4. How much does your average customer spend ?
  5. tell me the top 3 reasons why this business might fail ?

Throughout the book he throws in his personal experiences which are funny to read but sometimes change into slightly too much self promotion. However some of his advise like for instance general “bankroll management” tips are quite good.

Summary:

With the exception of the first few chapters I can really recommend this book to anyone who is interested in Angel and/or Venture investing. It is a very pragmatic guide of a practitioner and is really fun and easy to read.

Relevance for Value investing:

“Angel Investing” which means being the first “outside” investor  into a startup is maybe as far away as Value Investing as possible. There is no history and no tangible asset. It’s basically only people and ideas. So why should a true Value Investor bother ?

I think the main argument why Angel Investing is interesting even for Value Investors is the fact that as an Angel you are actually investing into a business and people and not pieces of paper. You cannot sell if things turn out to be wrong. You have no stock charts and now “white noise” from daily price movements. Once you have invested, you are locked in for many years. Many Value Investors (including myself) pretend to invest in businesses and people as well but in reality often compromise because it looks “cheap”. 

So Angel Investing in my opinion is really a good training ground for fundamental investing as you are really stuck with an investment and the founders for a long time (if things go well). It also forces you much more to think about how a business actually work as it is mostly only an idea on paper at this stage. If you look at established companies, investors often focus much more on the numbers than on the underlying mechanics of the business. Which, in my opinion is one of the reasons that Value investors often get “trapped” in declining businesses.

I actually do like the idea of investing into “Angel Syndicates” with small amounts of money but I haven’t done a lot of research if there are (good) syndicates in Germany or Europe.

 

 

 

 

 

3 comments

  • Hi,

    Good article and I think valuable for any value investor.

    From my experience, a very important point you should take care of (once you found a very valuable startup of course) is what will be the real capital need of the company and how many financial rounds there will be.

    Because, for exemple, a company starts with a financial round of 100k and you take 10k, you might think “oh nice, I have 10% of the company” but then the company add another 3 rounds of financing, you will face the choice of adding more money or being diluted.

    I’ve seen couples of start ups just doing nothing but financing rounds, so take care..

    After being very interested in the subject, I thought “why bothering about illiquid investments whereas you can find promising and more liquid investment in the stock markets ?”

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