The Full Ratchet: VC | Venture Capital | Angel Investors | Startup Investing | Fundraising | Crowdfunding | Pitch | Private Equity | Business Loans

Jason Calacanis is back for part 2 of the interview to discuss his book and secrets to successful angel investing. We address questions including: * His thoughts on the original Sequoia scout program and the many similar programs today * How he does such high volume of investments when he insists on spending hours with every startup founder that pitches * If he’s really investing at the angel round when it seems that he’s been targeting post-seed * His response to those who claim that VCs get access to all the best deals * His strategy with his angel list syndicate and the types of deals he’s looking for   Guest Links: * Calacanis.com * Jason on Twitter * Launch Festival * Launch Ticker * The Podcast:  This Week in Startups * The Book:  ANGEL:  How to invest in technology startups — Timeless advice from an angel investor who turned 100k into 100M’ * Part 1 of the interview with Jason * David Rabie, founder of Tovala, appears on This Week in Startups Key Takeaways: 1- Wealth creation in the 21st Century Conventional wisdom in the 20th century, for those that grew up in the 70s, 80s, and 90s, was that the best way to create wealth was to get a white collar job. Become an attorney, a doctor, an accountant or an IT specialist and make a salary of $100k+. Then one should buy a house and save their money. Don’t go out to eat, pack your lunch, don’t buy your coffee and retire with a few million dollars. But, in Jason’s estimation, this formula no longer works. He cited the changes in real estate value. In the 20th century, homes were 1-2x your household income. Now, if you live in a nice area, the home prices are often 5-10x of one’s household income. Using one’s personal real estate to create wealth is no longer viable. And Jason mentioned the conventional wisdom from books like rich dad poor dad and secret millionaire on the block, approaches that just don’t apply anymore. According to Jason, the method for creating real wealth in the 21st century will look much different. He believes that wealth creation will come from investing in early-stage tech. And Jason himself came from a lower middle-class upbringing in Brooklyn. He hopes that others can get smart on angel investing, like him, and can move from poor to rich, from middle-class to rich, from rich to ultra-wealthy.   2- No Gamble No Future It’s important to mention that angel investing is not for everyone. Most people’s brains are not wired to take this type of risk. This is not a normal pursuit. The majority of investments often fail. However, if you are wired for this and you want to learn, Jason recommended to make small investments in 10-20 startups. What was not previously possible is now possible via syndicates. Angels can find these syndicates on Angel List, Funders Club or Seed Invest. He suggests that new angels only invest via syndicates. And to start out w/ four-figure investments but act as though they are five-figure. Amass a diversified portfolio in the first couple of years and get involved. The most successful angel investors,

Jason Calacanis joins Nick to discuss his new book and his secrets to successful angel investing. We address questions including: * Why Jason wrote the book * What drives him to continue angel investing after all his success * His thoughts on angels that make large investments during their first year of angel investing * His focus on finding 5,000x returns and his response to those that say he is discouraging innovation w/ this approach * How he thinks about the economics and business model of early-stage businesses in nascent markets * If he takes a contrarian or adversarial approach with founders Guest Links: * Calacanis.com * Jason on Twitter * Launch Festival * Launch Ticker * The Podcast:  This Week in Startups * The Book:  ANGEL:  How to invest in technology startups — Timeless advice from an angel investor who turned 100k into 100M’    

Welcome back to TFR for another Cram Session. In these special releases, we have aggregated the takeaways and tips from previous episodes. In this installment, we will be recapping the following episodes: * 79. Hardware Investing, Part 1 (Avidan Ross) 80. Hardware Investing, Part 2 (Avidan Ross) 81. Getting Smart on a New Market, Part 1 (Charles Hudson) 82. Getting Smart on a New Market, Part 2 (Charles Hudson) 84. The Cap Table, Part 1 (John Buttrick & Sean Moran) 85. The Cap Table, Part 2 (John Buttrick & Sean Moran)    

Today we cover Part 2 of Dispelling Conventional Wisdom in VC with Eric Paley of Founder Collective. In this segment we address: * I wanted to get your quick take on follow-on investing. There was a recent twitter convo w/ you, Parker Tompson, Semil Shah & Nick Ducoff on Follow-on funding… Nick made the statement: Knowing when to double down is the key to solving the “I wish I owned more of my winners and less of my losers” paradox. And you said you strongly disagreed, stating that “Venture funds are made on the first check and destroyed on the follow on checks.” Wow, that was certainly a shocker to read. Why do think following on is not wise? * Why small, early investments by large firms can create conflicts for founders when they’re raising their next round * Why many early investors actually have a weighted average cost basis of a Series B investor without knowing it * The paradox of pro-rata where investors want to pay the lowest price but also want their existing portfolio to raise at the highest valuations * Eric’s thoughts on concentrated vs. diversified portfolios * His final thoughts on key takeaways from the study and items running counter to conventional wisdom Guest Links: * Eric on Twitter * Eric’s Blog * Founder Collective * FC on Twitter * Eric’s article: Overdosing on VC: Lessons from 71 IPOs Key Takeaways: 1- Capital as a Magnifier Before we got into the study, Eric first reviewed the fundamental principles of raising capital. He said that “VC is a magnifier of whatever you have… it can magnify good things or bad.” There is pressure for VCs to deploy capital and increase their AUM. They want to raise fast and deploy fast. Which is great for strong businesses that are under-capitalized. But for those that haven’t determined how to grow in an accretive way, capital magnifies the problems. While growth is the best way to assess if the market cares about your product, companies often throw money at things that aren’t working. Founders and investors are equally culpable… the founders are chasing growth and investors are pushing for it. Yet scaling things that don’t work, damages the long-term potential of the business and is very hard to unwind. Remember that the money has no intelligence. It’s just a multiplier of good or bad. And the results of Eric’s IPO study showed no causation or even correlation between the amount of capital raised and the exit outcomes. Just because one can raise $20M on $80M pre, doesn’t mean they wouldn’t be better off taking $10M on a $40M pre. Even though the founders suffer the same dilution for each, capital is not the driver of successful outcomes it is merely an enabler.   2- Pro-Rata Founder Impact We spent a lot of time discussing the impacts of pro-rata. Let’s first address the situation for founde...

Eric Paley of Founder Collective joins Nick to dispell some conventional wisdom in VC. We address questions including: * What’s the focus at Founder Collective? * What are the downsides of heavily funded companies? * Overview and Methodology for your study of 71 IPOs: ‘Overdosing on VC: Lessons from 71 IPOs’ * Conventional VC wisdom says more capital, better outcomes… Eric, what were the results of the study and does more capital lead to bigger exits? * Do you think fundraising is a vanity metric? * How do you address large overhead and burn rates when the growth objectives or growth vectors for the business change? * Why did you base the multiples in the study on current, public market caps vs the market cap at IPO? * Raising lots of capital and big exits… Is there causation, correlation, neither? * What about acquisitions… does this study omit a significant number of positive outcomes to strategic acquirers? * You also found that public performance, post-IPO, was quite different between efficient vs. heavily capitalized business. What were the results here? * Was there any blowback or frustration from large investors at later stages? Guest Links: * Eric on Twitter * Eric’s Blog * Founder Collective * FC on Twitter * Eric’s article: Overdosing on VC: Lessons from 71 IPOs

Trey Hart of Northern Trust is back to cover Part 2 of the GP-LP relationship. In this segment we address: * Key mistakes that GPs make * The key characteristics that successful GP’s share * The importance of an ownership focus * What winning really looks like for GPs, in terms of metrics (ie. DPI, TVPI, IRR, cash on cash, bulge bracket follow on, etc) * Trey’s final thoughts on the GP-LP relationship and who he’d like us to have on the program Guest Links: * Trey on Twitter * Trey’s Blog LP2LP2VC * 50 South Capital * Part 1 of the interview with Trey Key Takeaways: 1- The General Partner – Limited Partner Dance We kicked off the conversation by discussing the importance of storytelling. This transcends the LP-GP relationship and even the venture business. One’s ability to synthesize their experience and craft a compelling narrative is essential in relationships and in sales. Ultimately, a VC pitching an LP is a sales process. Both capital and expertise are for sale. Trey emphasized the importance of timing, during this engagement. He said that one needs to know when a sale is going to happen. The people that stand out are those that understand the cadence of fundraising the best. They need to know when to push and when not to push. And the reality is that a lot of LPs don’t know what they’re looking for, which can put a lot of stress on the GP. Trey suggested that the most important component is framing the conversation. He aims to have an open and transparent meeting where he, the LP, is clear about what he’s looking for so as not to string along the GP and waste everybody’s time. As he said, there are way too many people to meet with in this business. It would serve everyone to clarify intentions upfront and engage under the right pretense. 2- GP’s that Stand Out Trey thinks of GPs in two groups: 1-Those that are easy to give money to but are hard to get into and 2-Those that are hard to give money to but are easy to get into In the LP community, this is what separates the bad from the good and the good from the great. Trey cited Lindel Eakman as someone who has routinely given money to the latter and enjoyed tremendous success doing so. The best in the LP business are those that make money by giving to managers that are yet unproven. I’d venture to guess that there is a similar parallel with GPs giving money to entrepreneurs. Proven founders often raise at very high valuations early on, limiting return upside. While first-time founders may be much harder to assess, the upside opportunity is higher for those GPs that take the risk. Hence the return profile for the earliest stages in venture capital is often the highest. Trey said that the truly great GPs have mastery of stage, sector or geography… and in some cases all three. A few unique characteristics that he’s looking for includes: -An actual track record

133. The Importance of Storytelling, VC EQ, and the LP-GP Dating Game, Part 1 (James R. ‘Trey’ Hart III)

132. Nick Moran is Interviewed on Bootstrapping in America

Investor Stories 61: Why I Invested (Roberts, Struhl, Verrill)

131. How Amazon, Fitbit & Snap Won; Where Apple, Pebble & Google Did Not, Part 2 (Ben Einstein)

130. How Amazon, Fitbit & Snap Won; Where Apple, Pebble & Google Did Not, Part 1 (Ben Einstein)