Notes on Angel by Jason Calacanis

One of my favorite books from last year was Angel: How to Invest in Technology Startups--Timeless Advice from an Angel Investor Who Turned $100,000 into $100,000,000 by Jason Calacanis. It was actionable, no-nonsense, and really informative. I loved the crisp and clear framework and suggestions; the reader can agree with them or not, but at least it's practical and direct.

I just started getting my feet wet in angel investing last year, and I plan on spending the next 6 months doing a deep dive into it as a personal experiment for myself to see if I like the process and the work (Jason's motto in the book is "do the work").

Below are my main takeaways and notes on the book. (One telltale sign I liked a book is when my notes Google Doc is 15+ pages long, as it is for this book.)

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He does 40 bets per year
Open Angel Forum
10 unicorns ($1B+) created every year
10 decacorns ($10B+) created every decade
One $100B+ every decade
Dragon = Investment that returns all your capital invested. Need to find dragon eggs.
He only invests in 1 out of every 100 he looks at

Need to invest in 50 exceptional companies ideally in Silicon Valley over 3 years (1-2 per month)
$1.5M to work in those 50 deals, $30K per each on average
$1M in first 45 deals and extra $100K in each of top five winners

Need to look at 5000 startups over 5 years (20 startups per week)
To be effective, need to have some combo of: money, time, network, and expertise
Can trade network and expertise to help startups in exchange for equity
Advisors get 10-50 bps over 2-3 years for helping; offer freelance work/advice in exchange for shares
Look for founders who are wild cards (inflexible, unmanageable, delusional sometimes)
Need to be in silicon valley or else chances of decacorn massively reduced
Need to be in silicon valley 10 days per month for meetings
Better to look for founders aiming at a big goal than a small one
Look for sweat equity (founders creating value and working on business before raising any money; not just a powerpoint deck)
If already raised friend and family money, see how efficiently they spent it; look for capital efficiency and not just writing checks to dev and design and marketing shops
If self-funding, ask how and why and how much
Monitor people who self-funded/bootstratpped/raised friends & family/did incubator and pick best ones

Bridge rounds: ask “what has changed since i made my original investment?”
If what changed is faith in founder’s ability to execute or market doesn’t want or need the product, then don’t participate: “I’m going to stand pat”/”I’m not going to participate in this round”
If valuation same as previous round, then it’s fine because now founders know more. But if higher, then seek justification: “how did you arrive at that valuation” (then leave long pause)
If not good answer, “I’m going to pass based on valuation”
If no one will fund at same valuation as seed round, can suggest “down round” or “pot sweetener”
Can give liquidation preference or warrants to help bridge investors get better deal (but these aren’t “clean terms” and undesirable in Silicon Valley)

Demand pro rata rights always
When raising Series B, C, etc., consider selling part of stake in secondary sale
When you first start investing, meet with as many people as possible but invest in as few deals as possible
You get rich by selling too early
Wise to sell 25% of your position once or twice before IPO in secondary sales
Don’t join boards unless under attack or close friends or massively passionate about the company because of opportunity cost
Can get screwed out of advisor shares but not worth stressing too much over
Ask everyone around you to introduce you to hot startups
Beg good founders to let you invest in exchange for consulting on things you know

Syndicates: invest in 10 startups in the next 30 days
AngelList
SeedInvest
Funders Club
Jason’s syndicate
Can meet w/ founders before and after you invest as well as with syndicate leads
Can ask the right questions and offer material help where they need
10 deals ($25K total across 10) allow you to build your reputation, have a chance to prove our worth to founders, and jump-start your network
Once you have 10 investments, can list them on your LinkedIn profile, Twitter and FB bios, and on your website and put “Angel investor in …” in your email signature

Month 1: first 10 syndicate deals
Find 10 quality deals that include dozens of well-known, successful angels
What to look for
Syndicate lead who has been investing for at least 5 years and has at least 1 notable unicorn investment
Startup based in silicon valley
Startup with at least 2 founders (giving backup in case one quits)
Has a product/service that is already in the market
Startup that has either 6 months of continuous user growth or 6 months of revenue
Startup that has notable investors
Startup that post-funding will have 18 months of cash remaining (ask founder and syndicate lead how many months of runway they will have post-funding)
What % of net worth to put on table?
How tied up can you afford this portion of net worth to be?
How easy is it for you to get more money?
How would you feel if you lost 100% of the money allocated to angel investing?
5-20% of net worth can be reasonable depending on risk tolerance
How to act in syndicate
As helpful and involved as if directly investing
Reach out to founders
Retweet news stories about company
Provide intros to potential employees or customers via LinkedIn network
Advise them on something you have expertise in
Write deal memos
For all 10 startups, write a deal memo explaining below
Why investing
What the risks are
What has to go right for the startup to return money on investment
Review these deal memos everytime the startup raises a new round
Test if original thesis still applies
Notice trends in how you think
For each startup you don’t invest in, write clear notes on reasons why you passed
Review these notes to see how bad you are at this and how improving over time
Meet w/ founders 1-2x when investing in syndicate
Even when investing in syndicate, Meet in person w/ founders at least once, if not twice
Visit their office, even if it’s a dump
Are they wasting money on expensive chairs and tables
Only invest in those 10 startups if you would buy stock in the founders themselves
Jedi poker
Ask syndicate lead why they are investing
Meet w/ the founders
Talk to their customers
No rush to be great angel; great companies will keep being formed. Start small and learn from others. Cover your eyes and do jedi training, paying in small amounts to learn lessons from others.
Do deal memos, office visits, and customer calls even when investing $2,500
Angel: not just a job; vocation/calling. Take seriously.
Stop trying to predict what will work and instead use jedi powers to understand how strong the Force is in a founder.

Month 2: 30 days of angel and founder meetings
Can now introduce yourself like this
Hello, I’m Jane Smith and I’m an angel investor in ten new startups with angel investors including Chris Sacca, Jason Calacanis, Cyan Banister, Naval Ravikant, and Gil Penchina
But no one knows you yet. To fix that, set up 2 meetings a day for next 30 days.
Meet twelve angels
Build up your deal sharing network
Create a spreadsheet of all the co-investors in those ten startups you invested in
Should be about 50 investors from the syndicate and 12 other investors for each startup
So will have about 600 investors minus duplicates
In spreadsheet, put person’s linkedin, angellist, twitter, and facebook URLs
Connect with each of them those services
When connect with them, send a message that says
Hey, Jason, we’re co-investor’s in Evan Williams’s startup Twitter
Will take some time to do but will learn how other investors present themselves to the world
Make a private Twitter list called “co_investors” and include all those investors in it
Bookmark that list on browser and open it 1-2x/day, favoriting, retweeting, and replying to fellow investors’ tweets
Start emailing the top, most interesting investors
Maybe syndicate leads or other co-investors
Write an email or send PM
Hey Jason, we co-invested in Company X together. Do you have time for a quick cup of coffee next week? I’ll be investing at least $2,500 each into 2 startups per month going forward, and I’d like to trade notes. All the best, X.
When meeting, here are the goals
What they invest in and why
What value they bring to startups
Tell them what value you bring to startups
Ask, “have you seen anything interesting lately?”
Offer them, “I just invested in these two startups, which are exceptional. Would you like to get introduced to the founders?”
Determine if they prefer double opt-in intros or blind intros
Keep meetings short and travel to the angel
“I’m happy to meet you at a time and place that works best for ou. I know you’re busy.”
Turn off phone during meeting
After meeting, email them thank you message
Include a list of the 10 startups you’ve invested in, with links to each one
Ask if they are interested in meeting any of your founders
This means you as lowly $2,500 investor will be introducing your founders to 2-3 angels each
Providing value to everyone in ecosystem
Email all your founders and tell them they don’t need permission to intro  you to other founders who are looking for investors or other investors who are looking to expand their networks. They can email you blind without asking you first.
Meet 25 founders
After meeting 12 angel investors, need to look for proprietary deal flow
Two styles of email to send to those angels
Jason, it was great getting coffee with you last week. I noticed that you’re an angel investor in X, and I think they have a really interesting vision of Y. Was wondering, would you mind introducing me to Zfounder? I believe strongly in Z’s vision and I’ve got two specific ideas that I’m positive will help improve X’s marketing and social media.
Have you seen anything compelling lately?
Should get you leads for 2 startups from each
Sets you up for next 25 meetings with founders warm intro’d by current investor
“Reputation in a box”
Getting good at saying no
Month 2: meet w/ 25 founders, listen, ask lots of short questions, write long notes about their answers
When they ask if you’re in, say you need some time to come to a decision
Never say yes in a meeting
Say you Need to do research and think about the deal terms
Only after you have seen all 25, circle back and pick the best one
Put all 25 in a spreadsheet w/ Great/Good/Okay next to each
Put one sentence next to each Okay, saying why not investing
Look back at 6, 12, and 24 months when checking ability to forecast
Same for Goods, writing why not going to invest
For Greats, maybe 4 of them, write why you think they will win
3 columns: company name, rating, why not investing/why considering investing in great ones
For top 4, the Greats, ask for a second meeting an do a little due diligence
Add 4th column where you put your 2nd round of comments on great ones, detailing why you said no to 3 of the Great companies and yes to one
Put recurring calendar reminder every 6 months to visit the spreadsheet and make 5th column with notes on how the 24 companies you passed on are doing: whether raised more or shut down
Founders of YC and 500Startups create artificial deadlines and scarcity; ignore it
Opposite approach of syndicate investments
For syndicate deals, just need to get 10 logos on your site
For these, need to be very methodical

Pitch meetings
Develop good habits
What to do before
Allocate 3 hours per startup meeting: 1 hour of prep, 1 with founder, 1 for postmortem
Review (ideally try) the product, market, competitors, previous investors
What to do during the meeting
Dedicate full hour to in-person meetings
Leave 30 min open after it in case it keeps going to let founders talk until they’re tired
Be known for always having time for founders
Give them full attention
When meeting starts, check phone one last time, tell them if you have a hard stop, and ask how they would like to run the meeting.
“Would you like to run me through your deck, show me your product, or just talk about your business?”
Bring pen and paper
Take notes in a nice book/journal
When meeting starts, say, “Let me take a moment to turn off my phone.”
Important people have the ability to turn off their phones because the world can wait for them.
Coffee shops are last resort
To do this professionally, a proper conference is required
Crisp, sharpened pencils and pads in middle of table
Fresh-pressed juices
Snack basket
Phone chargers
Pads
Pens
Dongles to hook up phone
Assistant escorts guests to the room, sets up their computer, tests it before meeting starts, and asks them if they want a hipster coffee or tea from one of SF’s elite roasters
Want folks to feel like meeting with me is like going to Michelin restaurant, that we are professionals. Not about impressing with expensive offices. About meeting with best angel investor in the world.
Details matter
Best interview questions are hidden in subject’s answer to last question
Best interviews morph into conversations
Key is ability to listen
Be present and keep your mouth shut
Just ask one or two words inquisitively like “solar?”
Never say yes or no during a pitch meeting
Will seem impulsive; want to be wise and methodical
Founder reality distortion field fades when move away from them and over time
Response if asked directly if will invest: “This has been great. Give me a couple of days to give it some thought and let’s talk on Monday. I might have some follow-up questions on email as well.”
Set a to-do list item for monday to let them know if in or not
Ok to give news in 2nd or 3rd follow-up meeting

How to pick a billion-dollar founder
Not about picking billion dollar companies companies. About picking billion dollar founders.
First eliminate small ideas and weak founders
When receive email, don’t go straight to meeting. First ask:
How many FTE they have, how much money they made, funding history, how they acquire customers, and why they are building this business.
This tells you their burn and cash left in bank which you later repeat back to them
Asking for more details before a meeting shows founders you are focused on things that matter and not lonely
Need to say no to a lot of meetings
Review 10,000 startups in a decade as angel, meeting with thousands in person, placing 200 bets, of which 197 will have little impact on returns
Businesses that can scale and those that can’t
Achieving valuation of billions of dollars
Businesses made from atoms much harder to scale than businesses made from bits
Signaling (Rules and heuristics you build up over time about evaluating people/ideas) can cause blind spots
Limit signaling to founders, not ideas or markets
Choose companies based on people running them not idea or market
Would i buy stock in this person if i could?
People aren’t everything. They are the only thing.

The 4 founder questions
Deal funnel: sourcing deals, evaluating deals, picking founders to fund
Meeting w/ founders is most frequent technique
Others are just following other smart investors or reviewing deck and public info
App store rankings, traffic monitoring services like Alexa and Quantcast
Or just invest in founders you know
10 one-hour meetings per week is good goal for professional angel; half that if part time
Be promiscuous with meetings but a prude when writing checks
4 investor questions you need to be able to answer after meeting
Why has this founder chosen this business?
How committed is this founder?
What are the founder’s chances of succeeding in this business--and in life?
What does winning look like in terms of revenue and return?
How to ask questions
Understated, small mouth, concise questions; like detective (Columbo) or therapist
“Hmm”
“Tell me more about that”
“Unpack that some more”
Question zero
Icebreaker: how do you know Jane?
If mutual connection
Then follow-up based on their answer. “What was that like?”
Game: ask things with as few words as possible
4 critical questions
First half of meetings just on them then we go deeper
1. What are you working on?
Focus is on founder
2. Why are you doing this?
Bad answers
Money
Because X company doesn’t do this
Lack vision and usually low $ acquisition
Good answers
Something personal
3. Why now?
Why will this idea succeed now?
Not who gets there first. Who gets there first when the market is ready.
4. What’s your unfair advantage?
Secrets
Sometimes answered in rear-view mirror afterwards
Next 30 min of meeting
Tactical details of execution plan
go-to-market strategy
Team
Competitive landscape
Business model
Founder’s backstory
Is this a trust fund kid, son of working class family, etc.

Going deeper
Previous questions take about 5 min to answer, or 30 of the 60 min allocated
Take notes on facts for due diligence like prev company’s name, competitors, customers cited, key terminology they use
Also write down questions you have to ask later and not worth interrupting founder during critical first half of meeting
Ask founder later, “You mentioned X. Forgive me, i’ve never heard of that before. What is it?”
Ask founders to explain any word or technology or theory you’ve never heard of
Get to hear how well they explain things
To not interrupt, look at watch and say to yourself, “i will not interrupt for at least 3 minutes”
Next 5 questions to ask
“Can i ask you a couple of quick tactical questions?”
Use qualifier in front of each like “briefly” or “quickly”
1. Tell me about the 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 three reasons why this business might fail.
Need to understand just how much crazy a founder should have (too much not good)
Burn rate party trick
Write down revenue and # of FTE
FTEs @ $120K all in (10K/mo)
“So you’re burning about 50K a month and have 6-8 months of runway left? Like 400K in the bank?”
Can follow up with projection of when revenue ramp will get to break even and if even need to raise money
Personal questions
“What did your parents do?”

Founder or fraud
Core is unrelenting desire to see your vision of world realized
Will they quit when things get hard
Will they go without pay for 3 months, cut the free food, and ask everyone to take 50% deferred salaries for a few months when money runs out
#1 reason startup fails is founder gives up
Red flags
want to make what they made at google
won’t start working until they are funded
Won’t do certain jobs like sales
Want to have balance in their lives
Go to coachella, conferences before company is profitable
Spending time on office space instead of products
Taj Mahal syndrome
Selling off lots of shares early to other investors
Silent but deadly or silent and dead?
No communication with investors usually sign they are going out of business
See how they behave during meetings and email questions
Response to cold email if product or linkedin profile looks strong
“Jane, nice start, couple of quick questions: 1. Revenue by quarter? 2. How long has the product been in market (months)? 3. I’ve seen a couple of businesses in this space fail over the years--why will it work this time?”
Concise answer is good sign. long answer with tangents not.
Empty can makes the most noise

Evaluating the deal
Timing
pre-traction 
Back of napkin, basic research, business plan, mock-ups, functional prototype, MVP, beta testing, stealth mode
Post-traction
First time founder should build functioning prototype or MVP himself (nights and weekends and convincing friends/family) and same w/ seasoned founder who has some capital
Should only invest in post-traction startups
Don’t meet with anyone who doesn’t have a product in the market
Founders shouldn’t be contacting angel investors in idea, b-plan, or pre-MVP stage
Should only meet with best teams capable of building products w/ sweat equity and who have the most traction
Getting in too early is cardinal mistake of new angels
Most people can’t follow through on the next step required
Focus your first 30 angel investments on companies that have product/market fit, some traction, some angel investors and need more capital to finish their mission
You want the people who are doing it, not talking about maybe doing it after you fund them
Pro rata
They are a must and you should never do a deal without them
“Hey i’m taking a real chance on you, so i’m hoping you will let me keep rooting for you in future rounds by writing more checks. I’m not asking for free equity, just the ability to write you even larger checks as you grow.”
Valuation
$3-6M normal range
“How did you arrive at that valuation?”
If they have a lead investor who picked valuation, then just decide if you love the company or not
If no lead, can say, “So 10M is your target. How did you get to that number?”
“We have 50K/mo in rev” is good answer or “We have 25K daily actives and growing 50% MoM for past 3 months”
Bad answers aren’t tied to metrics or milestones
“Is that valuation set in stone?” and just listen

Deal memos
Best way to improve your selection process
VCs place much fewer bets and decide in committee
You will place more bets and decide alone
Structure
intro
Deal
Competition
Hiring plan
Key risks
Recommendation
Not just journal notes
Can do it as a blog post
“Why I invested $X in Calm.com”

Declining deals
One way is just to be honest and frank with feedback
millenial-safe/YC-safe: list 5 things you love in their biz on the day you meet and then when they ask you to invest or email you after say “they don’t fit my investment thesis”
Incubators
Go to a demo day
Put all companies in a spreadsheet
Rank the chances of success of each (low, med, high) and some notes in a column with a date
Pick the top 5-10 and invite them to come for a formal meeting
Write down impressions after meeting as well as amount raising and valuation
Check in in 6 months and see if most likely still raising money at same amount as prev raise
95% companies there for founders who couldn’t raise money on own (YC and LAUNCH exceptions as they accept people further down the path)
New angels should meet founders at incubators but invest in them 6-12 mo after they graduated
Say not yet instead of no
Sets the tone that monthly updates are something i like to see before i give the founder my money
See if person can execute on their plan over time before you decide to invest

Due diligence checklist
Founders’ backgrounds and reputations, customers
Difference between factual lies and lofty/delusional missions
Appearance of impropriety is impropriety
Ping existing investors to ask their take
Founders Need to be able to manage the relationships with existing investors; don’t leave a lot of bad feelings behind you

​Your first yes
Need solid startup attorney review the documents, giving you a brief summary of the deal and calling out anything they feel is unusual
Should take an hour at most for an attorney to summarize a deal for you and well worth the cost
Double check you have pro rata
Tell them how excited you are and that you’re most excited to get their monthly updates so that you can help
Put quick check-in/coffee meeting with the founders 100 days from now on the calendar, as well as a one-year follow-up call
Allocate just 20 min so founders don’t feel it’s overbearing; can extend the meetings if needed
If round fills up, ask, “Is there any way you can fit me in by expanding the round or carving someone lse back? I want to work with you and help make this company a huge win for everyone involved.”
If can’t get you in this round, can always stay in touch and jump in down the road because will keep raising money
Get a copy of the cap table if they’re willing to give it
Over time can get good at reading these tables and decoding investing strategies of other angels and VCs
Can write a blog post about the company and why you invested or keep the deal under wraps
Never speak for the company itself
Share blog post w/ founder and say, “You cool with this?”
Can ask for side letter for special legal rights you want
Pro rata
Information rights
Option of a board seat if lead the seed round or represent more than 5% of the company
Defend your side letters and don’t eat shit from VCs. Can persuade founders to go to competitor VCs.
Document and fight for your rights
Be candid with people about why they should respect your rights and ramifications of not respecting you
Avoid infighting between investors

Nothing more important than monthly updates
If a startup isn’t sending you monthly investor updates, it’s going out of business
Can call up and ask, “how’s it going? I haven’t heard from you in months.”
Ask for it before investing
“I would like a monthly update from you that includes the key metrics for the business as well as what you consider the wins and losses since the last email. I would like you to put requests for me and your other investors in the email as well. Every email should have how much cash you have left, your burn rate, and when you will be out of cash so that we can all plan for future raises.”
Replying to updates
Keep google sheet with each startup in column A, most recent month in column B, previous in C, etc.
When they send update, put 1 in the cell and 0 if not
Make zero cells red and one cells green and add up the number of updates each month from all startups and from startups over time
If don’t get updates for 2 months, email and ask, “Did we miss your monthly update?”
When get an update, send short follow-up reply with some positivity for what’s working (“nice work landing that head of sales”) while being understanding about the losses (“sorry you lost your CTO. is there a job description I can share on LinkedIn?”)
Pose suggestions as questions: “Have you considered doing Facebook ads?”

Disastrous second year as an angel
Basic system
10 $1K investments before doing 20 $25K investments over 20 months => $510K in under 2 years
In year 2, the dozen companies you invested in during 1st quarter start needing to raise again
When raising new round from VC, need to figure out what this new investor sees in the startup
Consider putting in another $100K
Bridge: Look at revenue, NPS to decide
What will bridge accomplish
Feature death march, savior search, partner parade: usually doesn’t work out

Keep your head up
Losses come early, gains late (5-10+ years out)
Don’t complain
Move from “Oh shit” -> “Okay” quickly in reaction
When founder failing, walk in asking, “What’s going on?” then repeat after they talk for 10 minutes. “Is there anything else I should know?”
“What are you planning to do?”
“How can I help?”
#1 job of angel is to be there for the founder when they’re struggling, making sure they feel heard and that they know you are on their side
You’re not there to take over as pilot
Be positive and candid
Share stories of failures
Focus on only thing that matters: doing the work
Constantly learn and work hard
Don’t speak for your portfolio companies
Don’t comment to press
First forward press inquiry to founder and say, “FYI, let me know if you would like me to respond” and don’t reply to press at all (even “no comment”)
Never publicly criticize. Your job is to work behind the scenes to solve problems.
Starting is easy, finishing is hard
Re-read book after you invest in 10 and again when you hit 20

Exits: great companies are bought, not sold
Try to leave the poker table only after won big pot, buying in over and over again until you do

Finding your groove
Some angels bet on founders
get good at reading people and figuring out how meaningful winning will be to them
Putting people on a range of hands and knowing what cards they have by their poker actions (betting behavior) and non-poker actions (body language)
Insist on seeing the technology early on with someone who knows and is under NDA
Some angels want to solve a problem
Hard problems (death, “Indiana Jones snake venom poison antidote”) vs. soft (in-flight internet, Louis CK’s “everything’s amazing and nobody’s happy”)
Some angels bet on delight
These startups have pricing power
Opposite of problem startups
Tool for knowing how delightful: NPS
Some angels bet on markets

Good angels to learn from who have done this for a decade
Esther dyson
Mark cuban
Stewart alsop
Mitch kapor
Ron conway

Where your story ends
Lose some money, hopefully make it back from returns on rest of net worth portfolio
Push/breakeven, can continue or join VC firm w/ good experience and network
Join one of your startups, get on boards, join a VC firm, raise own fund w/ your track record