Why recommend this book?
Easy-to-understand practical book
“Angel: How to Invest in Technology Startups–Timeless Advice from an Angel Investor Who Turned $100,000 into $100,000,000” is an excellent introductory book on venture capital written for “ordinary people”, basically no background and Knowledge required, readers who want to understand venture capital, unicorns, and angel investment industries should be able to understand it. If you put your heart into it, you can read about 300 pages in one afternoon.
Author founded several Silicon Valley companies
The author is not talking on paper, the author Jason Calacanis has founded several companies, the most famous of which is Weblogs, which was later sold to America Online (AOL) for $30 million. He was also the general manager of what is widely believed to be the earliest modern web browser, Netscape. When Mahalo, the company founded later, wanted to seek angel round funding, almost all the top venture capital firms in Silicon Valley, such as Sequoia Capital, Mark Cuban, Elon Musk, News Corporation (ticker: NWSA), CBS (tickers: PARAA and PARA) are all rushing to invest in shares.
Rich experience in venture capital and angel
Later, he joined the top venture capital industry company Sequoia Capital (Sequoia Capital). He was responsible for several investment cases in the technology industry, the most famous of which was to Travis. Travis Kalanick’s company, Uber (ticker: UBER ), invested $25,000.
Tips for book readers
What can you get from this book?
Although this book mainly talks about the angel industry and the venture capital industry, many views of the author, including the practical experience of the venture capital industry, how to find companies that can become giants in the industry in the future? How to quickly find pearls from the pile of stones? The importance of founders to companies, future industry trends, risk management and other topics will be of practical benefit to investors in US stocks. At least I have personally benefited a lot, and it is worth sharing with friends of this blog (that’s why I spent a lot of time writing this article!)
Are you suitable for VC or Angel jobs?
The author puts forward a point of view in the book, and I personally agree with it. He sees himself as a man who is not afraid of conflict, and who is acrimonious. It is this kind of personality that has made him dare to ask questions, not afraid of offending others, and his style of doing things to the bottom of everything. After all, engaging in angel or venture capital is an industry with extremely high financial risks. It is not about opening a charity hall or throwing money for charity; not to mention the huge amount of money invested, it is all the hard-earned money of oneself and investors.
Asset management
Tips to get rich
Remember the old adage, when a rich man is asked how he got rich, he will say, “Get off early.”
The point is, the key is to look at only two numbers: how much you put in, and how much you get back. How much your shares are worth at the high point is not as important as when you choose to sell them. Many investors sold shares in Facebook (META ) shortly after its $18 IPO because Zuckerberg couldn’t solve the mobile computing problem at the time. Those investors missed out on the rally to $130 a share, and Zuckerberg now controls the mobile computing community, driven by his seemingly insane, one-sided decision to buy Instagram (for $1 billion when only thirteen people were employee start-ups) and WhatsApp (about $20 billion).
For angels, secondary shares are a smart way to return a “dollar cost average” of earnings. If you have the opportunity to sell 25% of your holdings once or twice before the IPO, it would be wise to do that because we’ve seen too many, too many billion-dollar companies come to naught.
Better to withdraw funds in batches
After the “lock-up period”, you can dispose of it as you like without the permission of the company, other investors or founders. You can hold or sell, almost like cash.
Note: For the “lock-up period”, please refer to my explanation on page 329 in sections 3-6 of my book “The Rules of Super Growth Stocks Investing“.
Should you sell or hold after an IPO? Well, like all financial decisions, it depends on your life stage, risk tolerance, and the strength and potential of the company.
If you are an investor in Google or Facebook, more than 99% of your net worth may be tied to a single stock, which is a terrifying situation. A friend of mine sold his entire holding for almost $20 when the stock price plummeted after its $38 IPO, only to watch the stock price quintuple over the next few years. At this time, that is the difference between hundreds of millions of dollars and billions of dollars. This would be a very high level question if there was such a stock
And other examples, such as Twitter, I have a friend who sold shares at a high of $69 per share in 2014, and others waited all the way to $15 per share in 2016. A difference of only twenty-four months.
If you own shares in Facebook or Twitter, and more than 90% of your funds are invested in these two companies, you should follow an obviously sound investment premise: diversification. If you’re bullish on tech — which you probably were if you read this book or were born after 1960 — then you should take $100 million out of Twitter stock and put it in your top five tech stocks, Including Facebook, Amazon (ticker: AMZN), Netflix (ticker: NFLX), and Google (we are often collectively referred to as FANG). Then you will be much better off! Everyone in Silicon Valley knows that FANG is better than Twitter.
It is very smart to distribute the holdings equally to these giants. You don’t have to be a genius to know that FANG is a better company than Twitter; just look at revenue and user growth.
Secondary market transactions
Based on the massive growth of Twitter and Facebook between 2007 and 2010, a happy thing happened: a market for trading shares of private companies emerged. There are two reasons for this:
- First, the perfect storm causes private companies not to want to go public too quickly.
- Second, private equity and late-stage venture capitalists interested in acquiring large stakes in these companies have amassed large pools of private capital.
Note: A perfect storm is used to describe a state of disastrous consequences caused by the combination of several independent factors.
Practices on Venture capital
$20 million threshold
Angels don’t like the founder of the company to have the threshold of 20 million US dollars too early, because he can ignore the angels or investors from the beginning, and may not fully invest in the company he founded. Because it could lead to founders walking into a board meeting and saying, “Fuck you, I’ll fund the company myself.” Or worse, they’ll “get out of the company” and say, “I don’t care about you shit anymore. I’m going to be kitesurfing on Necker Island all year long.”
Just focus on Silicon Valley
Companies with high returns once every ten years can usually exceed the market value of US$100 billion after listing. Almost all such companies now come from Silicon Valley in the Bay Area. You can forget about the rest of the world.
In Europe, because of local socialism, red tape, and generally anti-entrepreneurship policies. The notable exception is Sweden, which has spawned several recent unicorns such as Spotify (ticker: SPOT), King (ticker: MSFT) with the mobile game Candy Crush, and Mojang (ticker: MSFT) with game Minecraft, Skype (ticker: MSFT), and SoundCloud. Some think it’s their design focus, or the reduced daylight hours that force them to work harder and drive them to achieve, but whatever the reason, Sweden is at the top of its game right now.
China, India, and Japan are also hot markets for technology startups. There is only one advantage to being an angel investor in a small market like New York or Los Angeles: You will be admired. There are too few angels in these areas, and angels are often chased away. Plus, you’ll be proud of your efficiency because there are so few good deals to review. You get your work done early on and catch up on HBO’s “Silicon Valley.”
Skip entrepreneurs funded by friends and family
These people are usually somewhere between the gritty self-employed entrepreneur who earns hard-earned equity, and the glass-hearted babe who doesn’t start without a check from an angel investor. On the one hand, they have the audacity to take their family’s money and embarrass themselves at Thanksgiving if they lose it all, but on the other hand, they can be willful and opinionated dreamers who don’t care about burning out friends and family money.
Founders who only conduct family and friend rounds can tell what kind of people you are dealing with just by looking at their efficiency and resources. For example, if they raised $100,000 over there from their grandmothers and college roommates, and they spent $75,000 on a pilot workshop and $25,000 on a PR firm, you’re dealing with a different person than The group of people with hard-earned equity probably don’t have the ability to create. Such founders are known in my business as “check machines.”
They are usually very good at spending money and making up stories, but in the end they often become habitual begging, too out of touch with the actual product and customers, and cannot match the product with the market, except for finding investors.
I’m looking for scrappy founders — what we call capital efficient.
The stages of funding
Bridge round
Bridge financing, also known as “seed +”. When startups run out of seed-stage money, but haven’t yet reached their goal of getting a VC to raise a Series A round of funding, or haven’t yet reached breakeven or turned a profit, they do what’s called a bridge round. . In practice, there are two approaches:
- The first is the liquidation preference.
- Another option is to issue warrants.
In both cases, the investor can often get double or double the value in cash from the extra stock.
But people on this side of Silicon Valley like “clear and crisp terms,” meaning they avoid tools like warrants and liquidation preferences. In fact, these days, most professionals in Silicon Valley think of these as predatory.
Corporate governance starting at series A
Series A (Series A) is the most coveted and important round for a new startup, as it is usually conducted by a professional venture capital firm and will join the board of directors to establish proper “governance”. Proper corporate governance means that there is a board of directors that will meet to make decisions, all with the aim of increasing the company’s stock price.
Before the A round, the founders usually don’t have to be accountable to anyone. There is no board of directors, no board meetings, no board resolutions, and no one will focus on the stock price.
No need to invest in fundraising after Series A
After the Series A, you probably won’t be actively investing in the company anymore, and the company is heading toward exit. In fact, if your angel investment starts to raise B rounds, C rounds, D rounds, or even more rounds of financing, maybe you should consider selling some of your holdings in the “secondary market”.
Angel syndicate
What is angel syndicate?
There are some websites in the United States that offer angel syndicates. A few of the more notable ones include AngelList, SeedInvest, and Funders Club.
Successful angel investors set up investment groups or syndicates on these sites, explaining what they generally invest in, which companies they have invested in (their history), and how much they usually invest in each transaction (usually between $10,000 and $100,000), and how much “carry” you will be charged for a successful exit. Carried income is defined as the share of profits that goes to the fund manager.
How to choose angel syndicate?
Look out for these basic features:
- The leading investor of the consortium has at least five years of investment experience, and at least one well-known unicorn investment.
- New startups based in Silicon Valley.
- Startups with at least two founders (if there are two, there is a backup in case one of them leaves).
- Startups that already have a product or service in the market (you can’t afford to invest in a startup that hasn’t launched a product yet, and frankly, you don’t need to take that risk).
- New start-up companies with either “six-month user growth” or “six-month revenue”.
- Startups with prominent investors.
- After capital injection, there will be 18 months remaining cash flow.
The successful business ultimately
A 50 million lesson learned
“No, Evan, you’re wrong, and I would never, never invest in something as empty and pointless as Twitter.” That was a $50 million mistake the author made. A 50 million US dollars lesson learned!
Note: Evan Williams is one of the original founders of Twitter.
That’s when it dawned on me that “I don’t need to know if the idea will work. I just need to know if the person will work.“
I knew Ivan would succeed no matter what I did, but my ego and my belief that I must be right and know it all kept me from hitting my first big home run. Since then, I no longer try to understand what works and what doesn’t, but use my Jedi power to understand how strong the founder’s force is.
Identify businesses that can scale
Well, there are two types of businesses: those that scale like crazy, and others.
Independent films, restaurants, bars, B&Bs, consulting firms, apparel, or craft breweries, none of these businesses can scale no matter how much you and the founders put in effort—with very few exceptions.
In my world, scale expansion means that its valuation reaches billions of dollars, that is to say, if it can earn tens of millions to 100 million dollars, it means that the value of my shares will become one hundred, two hundred, or even five hundred times.
Even if you make a movie that sweeps the Oscars, the chances of my investment doubling or tenfold are slim to none.
How to find out the winning company in the end?
While I can’t be sure which companies are the next Google (tickers: GOOGL and GOOG), Uber, or Facebook, I’m pretty sure which companies aren’t, and won’t waste time dwelling on them.
This is almost half the battle. Focus on winners, big markets, and clear ideas.
Focus on the founder
You invest in founders
A billion-dollar question: People always ask me: “What is your method of picking billion-dollar companies to invest in?”
You are not picking a billionaire company. You pick the billionaire founder.
“I don’t need to know whether your idea will succeed, I just need to know whether you will succeed.” This sentence keeps appearing on the author’s blog.
People are more important than other things
Take a moment to evaluate the founder and his motivations for starting a business. Ask yourself a simple question: “Would I buy this person’s stock if I could?” If you wouldn’t buy this founder’s stock? Then you should not buy stock in their company. Because founders and their companies are no different.
Facebook is Zuckerberg, and Zuckerberg is Facebook.
Questions to ask founders?
I’m going to tell you now the four big questions the author asks all founders. The purpose of asking these questions is not just to let you know about the company, but also so that you can answer the four key investor questions yourself:
- Why did the founder choose this business?
- How committed is the founder?
- What are the founder’s chances of success in the industry—and in life?
- If successful, what will be the revenue and my return?
How to filter companies?
How to find great start-ups?
The author’s lesson is that while no one can tell which great founders and startups will stand out, it’s easy to know which ones are too bad–or worse, dispensable, leading to No chance at all to stand out.
The author uses two methods to screen the new start-up companies that flock to the door. He weeds out unnecessary ideas and weak founders. Then double down on great founders and big idears.
Authors will never arrange a meeting directly after receiving an email. I would start by asking how many full-time employees they have and how much they make.
First movers do not necessarily have an advantage
Google is the twelfth search engine. Facebook is the tenth social network. The iPad is the twentieth tablet. The point is not who arrives first, but who arrives first when the market is perfect. I suggest you refer to my previous related posts: “Inventors are rarely successful, but improvers are successful and profitable“, “Apple’s product design philosophy, How does Apple think?” and “Why Apple’s new features always come later? “
The most fundamental question?
“What problem did you solve?” is a classic VC ask.
Deal with startups
How to preliminarily filter unfamiliar innovations?
When I get an email from a random stranger, if I think their product or LinkedIn (MSFT: MSFT) profile looks good and capable, I ask them three questions. Usually I send them an email like this:
A few simple questions:
- What is the quarterly revenue?
- How long (months) has the product been in the market?
- I’ve seen several companies fail in this space over the years, but why did they succeed this time?
How to get critical operating figures?
You have to go straight to the chain of questions. You can prepend (or follow) a modifier, such as “shortly” or “quickly,” to let the founder know that you only want to hear condensed answers.
- Tell me about the competitive landscape.
- How are you going to make money?
- How much do you charge customers?
- What is the average cost of your customers?
- Tell me about the top three reasons this venture might fail.
It shouldn’t take a lot of effort for founders to answer these questions.
How to tell if a company is about to go bankrupt
To judge the signs of life of a start-up company, the author has a very simple start-up company criterion, which is simply called Jason’s start-up company rule:
“If a startup doesn’t send you a monthly investor report, it’s dying.”
How to know if running out of cash?
While most start-ups try to raise eighteen months of cash, they often do so in less than a year, so many of the founders you invest in early on will end up nine to fifteen months after you invest. , I am sorry to invite you to drink coffee.
Why do startups fail?
I’ve seen many founders slog and work part-time, even using their personal credit cards to save their careers. The number one reason a startup shuts down is not running out of cash — yet that’s what most people think.
The number one reason a startup fails is because the founders give up.
Some advice from the author
Don’t jump into investing too early
Getting in too early is the biggest mistake new angel investors make. Here’s an overview of what I’ve seen on the market, which should give you some food for thought:
- 99% of people who write their ideas down on the back of a napkin never do it.
- 95% of people who write a business plan never execute it.
- 90% of people who prototype never build a minimum viable product.
- 80% of people who build a minimum viable product never beta test it.
What kind of company are you looking for?
Venture capitalists focus on startups that have passed the “angel investment stage,” that is, startups whose products are desperately looking for a market, whose teams are still small, and whose resources are still insufficient.
How long will it take to get a return?
Remember, we invest in a company on average for seven years before we get paid — if paid at all.
Is it worth continuing to invest money?
Here’s a simple tool for understanding how enjoyable a startup’s product is. This tool is called Net Promoter Score (NPS). You’ve probably done NPS research before. Net Promoter Score measures a customer’s willingness to recommend a company’s products or services to others. Smart founders use feedback from NPS surveys to improve service and maximize growth.
If the startup is selling a product or building a marketplace, there is a very simple metric you can look at to decide whether you should reinvest: revenue. If a startup starts making money in the sixth month, you can forecast revenue for the next six months and talk to their customers at the same time. You should look at their NPS to determine if they have bridged the company and make a sound decision.
Networking with peers
When meeting with fellow investors, your goals should be to:
- Find out which companies they invest in and why?
- What value do they bring to startups?
- Make sure they understand what value you bring to the startup?
- Ask them, “Have you seen anything interesting lately?”
- Tell them, “I just invested in these two startups, and they’re both fantastic. Would you like me to introduce the founders?”
- Determine if they prefer double opt-in introductions or blind introductions.
Author’s judgment on the tech trend is accurate
Cloud computing revolutionizes the software world
In this view, the author and I have the same views on the technology industry in recent years in Section 3-3 of my book “The Rules of Super Growth Stocks Investing“, pages 171-193; and Section 2-2, pages 90-137.
Disadvantages of traditional software
Office, including Word and Excel, has made a lot of money by solving the actual pain points I mentioned. Of course, Office has created new pain points, the most famous being that files are stored directly on the fragile hard disk of the local host, and the hard disk often fails or is infected with viruses and crashes, resulting in the destruction of many manuscripts and business plans.
Weaknesses create new needs
These pain points have created a huge new category of startups, including external hard drives, antivirus software, and backup software.
Later, when bandwidth and server storage costs plummeted, Dropbox (ticker: DBX) took the lead in proposing a solution, a technical solution to the problem of file corruption: cloud computing.
In just ten years, Dropbox and rival Box (ticker: BOX) plus Amazon’s cloud computing service AWS (ticker: AMZN ) have created tens of billions of dollars in value for investors and eliminated a major problem for consumers. Pain point───File corruption.
Two new problems
Now cloud computing brings with it a new set of problems that will inspire a new wave of startups to solve them. The two biggest problems with cloud computing by far are: the security of data stored in the cloud, which leads to the theft of trade secrets and ransom for people who do not have two-factor authentication turned on.
The second problem that arises is searching and organizing the vast amounts of data thrown into the cloud. Still, technology companies have struggled with files for more than half a century, so many problems now have rudimentary (but still need-to-be-optimized) solutions.
Conclusion
What is the best ending?
Exit: Great companies are bought, not sold.
Lesson learned
There are some things in life that you can control, some things you can’t control, and some things you can only partially control. It’s better to use your energy on things you can fully control, such as knowledge and professionalism.
What is Silicon Valley?
Silicon Valley is synonymous with venture capital. The birth of Silicon Valley, and the technology industry as we know it now, actually started with a few early elites in the semiconductor industry. For this part, please refer to my other blog article “Traitorous Eight, the origin of the semiconductor and venture capital industries”.
For a more complete story about the close development history of large companies and venture capital in Silicon Valley, you can refer to my previous blog post “The Power Law“.
Related articles
- “Traitorous Eight, the origin of the semiconductor and venture capital industries“
- “The Power Law“
- “Zero to One“
- “Venture capital and unicorns introduction“
- “Global Venture Capital and Unicorn Report“
- “How does Texas Instruments make money? Amazing long term capital reward and company net profit margin!“
- “Inventors are rarely successful, but improvers are successful and profitable“
- “Apple’s product design philosophy, How does Apple think?“
- “Why Apple’s new features always come later? “
Related books
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