Shaan hosts a solo episode breaking down his early experience with angel investing — from missing obvious bets on friends’ startups to structuring his first deal with a backer. He covers portfolio construction, how to evaluate founders, what returns to target, and why the real value of angel investing is a front-row seat on the future.
Speakers: Shaan Puri (host, solo episode)
Introduction: A Beginner’s Honest Take on Angel Investing [00:00:00]
Shaan: What’s up, guys. Shaan here. Sam is out, so I am doing this episode solo, and I’m going to do something a little bit different. I’m going to start by talking about some of the angel investments I’ve made. In our Facebook group I posted something about angel investing and a whole bunch of questions came up, so I thought I’d come on the podcast and actually talk about it.
Shaan: When I wanted to learn about angel investing, I would only ever read things from people who had killed it — usually over the last ten years. Somebody like Elad Gil, Jason Calacanis — people who talk a lot about angel investing. And I would read their stuff, and it was sort of like: “I’m an angel investor, I’ve invested in 100 companies, here are the five huge ones you know about where I’ve made millions, and let me talk to you about what I look for in angel investing.”
Shaan: That was cool, but it didn’t actually tell me their thought process at the beginning — how they decided to do it, how they got started, how much money it required. All the actual tactical questions about doing it. I didn’t hear a whole lot about that. I’m sure somebody has blogged about it somewhere, but that’s what I want to talk about, because that’s where I’m at.
Shaan: When it comes to angel investing, I am by no means an expert. And I don’t mean that in the “you know, I’m not a financial adviser, don’t listen to me” way — that version means “hey, I really think this is true, but don’t sue me.” This is different. When I say I’m not an expert, I mean I’m actually kind of a beginner.
Shaan: I’m just one notch above a total beginner. A total beginner hasn’t even taken any action yet — they don’t know which direction they’re going, they’re just lost in the middle of Disneyland. I’m one level above that. I’ve been on Space Mountain, but I just have a map in my hand. I’m still trying to figure it out, still looking for a hot dog. That Disneyland analogy went pretty far.
Shaan: Anyway, point is: I’m a beginner. I’m learning in public. If somebody out there is listening — and I know a bunch of people will listen to this — who are actual investors who’ve been doing this for a long time, feel free to correct me. “Hey, that thing you said made no sense, usually you do it this way instead.” Those are my favorite types of messages, so feel free to reach out.
Lesson One: Think of Yourself as an Investor [00:02:30]
Shaan: My angel investing life started about six or seven years ago when I first moved to San Francisco. I got a job as a product manager at an idea lab called Monkey Inferno. PM — kind of a boring job title, but not at a boring company. It was a company that builds companies, an idea lab, and I was the only product person there. Everybody else was an engineer.
Shaan: I was making $120,000 a year. Living in San Francisco, paying California taxes — you’re not rolling in money. I had a little bit saved up from my previous company, but I didn’t think of myself as an investor.
Shaan: So the first lesson of angel investing was: think of yourself as an investor. Because those first three or four years in San Francisco, I had the opportunity. I was doing mastermind dinners, organizing dinners, and my friends were founders of other companies. And if I had just quit my job and all I did was write $20k checks to all those friends, I might have needed $250k total — but I would have turned that into at least five million dollars just off the success of those friends’ companies.
Shaan: I was helping them. I thought a lot of their ideas were good. I thought a lot of them would succeed. I remember talking to the founders of Calm early on, when Calm was struggling and couldn’t even raise their next round. I remember thinking, “This guy is really committed to this and really creative. I think he’s right about the world — I think a lot of people will want more calm in their life, I think more people will meditate.” It wasn’t clear-cut, but I would have bet on that company.
Shaan: I would have been in six or seven of those companies. Several of them did really well. Calm is now a multi-billion dollar company. Out of just that group of friends, I think there were probably two or three companies that reached over $500 million in valuation — and I would have been investing when they were valued at under five million.
Shaan: The lesson I learned four years later: why the hell wasn’t I investing in these guys’ companies? I believed in them. I had access to them. I just didn’t think of myself as an investor.
Shaan: The excuse I gave myself was I didn’t have the capital. But the reality is: if you’re creative enough, resourceful enough, persuasive enough, determined enough — you can get capital. You can get any resource you need.
Getting Into Lambda School Without Writing a Check [00:07:00]
Shaan: That brings me to my first actual angel investment. Fast forward four or five years. I still don’t have millions in the bank to write checks, and I see this company called Lambda School. I had been thinking about a product like this myself, and when I saw it I thought, “This guy is doing a much better version of what I was thinking might work.”
Shaan: So I started calling the guy, started talking to him. I told him I wanted to invest in his company — which was true, not a lie. But I didn’t tell him I had never invested in any company. I definitely withheld that. I said, “Tell me about your company, I want to invest,” and he started sharing his slide deck, sharing materials.
Shaan: Now, I knew I needed to invest in this company. I thought: okay, I need to invest $25k. No problem — I could sell a stock I own, or take some savings. One company was never gonna be a problem. But with angel investing, you need a portfolio. You’re investing in early-stage startups — this is extremely high-risk. In a portfolio of ten companies, you’d expect four or five to go to zero, two or three to return somewhere between 1x and 3x, and hopefully one or two that actually break out and do 10x or more. Ideally you get to something that does 1,000x or 10,000x — that’s what the early investors in Uber did.
Shaan: So I always knew I could invest in one company, but you need about thirty bets to really be an angel investor — to have a broad enough portfolio where you give yourself a chance to succeed. I was doing the math: if I need to invest $25,000 in 30 companies, I need $750,000. I didn’t have that. That’s why I didn’t think of myself as an investor.
Shaan: But here’s what I did, and I gotta give myself credit on this one. When I knew I wanted to invest in Lambda School, I asked: how do I get the money? I talked to a friend who I knew was an investor and said, “Hey, there’s this company I think is really great. I want to introduce you to them. And generally I see a bunch of interesting companies, and I know you like to invest — do you want to set up a deal where I can be a scout, a sort of venture partner?”
Shaan: Here’s how the deal worked: any deal we invest in together, I get 10% carry. I don’t put in any capital, I take zero financial risk, and I get 10% of the upside after he’s paid back his investment. It’s not huge returns — Sequoia’s scout program gave their scouts 45-50%, which was extremely generous. This wasn’t that. But then again, Sequoia didn’t pick me. They didn’t even know who I was.
Shaan: I also realized: to get into companies, you need to be able to point to other companies you’ve invested in. Founders want to know what your portfolio looks like. So I said: let me start building a portfolio of logos I can point to. This guy is willing to put up all the cash, I get a piece of the upside — let’s do it.
Shaan: We wrote the check into Lambda School. I’m very grateful to him for bankrolling me on that. Fair enough deal. By the time I organized all of this, the valuation had gone up about 3x from when I first found the company — so I gave away a 3x return just in the time it took me to find a backer. If it was my own money, I could have invested after the first phone call. But anyway, it’s gone up about 10x in value since then. Illiquid, but that’s the paper valuation today.
Building the Portfolio: Five to Ten Companies Per Year [00:13:30]
Shaan: That was the first dip of my feet in the water. I made a deal with myself: I’m going to try to invest in five to ten companies per year. Five is the right sweet spot. If I have free time, I’ll go to ten. But five a year — whether it’s my own money or other people’s money — and I’m thinking of myself as an investor now.
Shaan: That’s the first thing I would say to you: if you ever want to be an angel investor and play this extremely high-risk, high-reward game of startup investing, the number one advice I’d give is don’t wait until you’re rich to do it. At that point, the financial returns are just part of a broader portfolio — it’s not going to be that exciting.
Shaan: If you really want to do this, start thinking of yourself as an investor from day one, and find ways to access capital. There are tons of people out there with capital — myself included — who would love for you to bring them deal flow, and would happily give you carry on any deal they invest in.
Shaan: I remember there was a guy named Suroosh — a 13-year-old kid living in Canada who used to use our product. We built this website called Blab, kind of a Zoom-type product. He came to me and said he wanted to learn. I told him: go scout three companies a week, email me the best one, why you think it would be a good investment, why it might be a bad investment, and your overall recommendation.
Shaan: One of those companies — he’s about 20 years old now, so seven years later — the very first company he sent me was a company called ApplyBoard, which just raised money at a $1.1 billion valuation. He sent me that email back and said, “Why didn’t you invest in this? I told you!” I had to say: you were 13, I didn’t believe you.
Shaan: But there are a bunch of examples like that. You can bring deals to people, and if they invest, you can get carry. You can bring it to multiple people — you don’t have to be exclusive with any one person. You could have five different established investors, all agreeing that if you bring them a great deal, they’ll give you a slice of the upside.
How to Find Deals [00:18:30]
Shaan: Since then I’ve looked at about 50 companies and invested in about four or five. Some of the questions that came up when I posted about this were: how do you approach companies? Are they sending stuff to you, or do you go reach out?
Shaan: My answer: if you look at quantity, I get more coming to me than I reach out to. But if you look at quality, the best stuff is me going directly to the founder of a product I love and saying, “Hey, I’m a big fan of what you’re doing, I think this could be really big, I’d love to chat and potentially invest.” Then I get on a phone call and end up investing.
Shaan: Another way is friends. If I have a friend doing something, my goal is to be the first check in. There are exceptions, of course — my buddy Tyler worked with me at Bebo before we got acquired. When we got acquired, he didn’t want to join us; he wanted to do a startup. I said fantastic, what are you doing? He said he was working on a robotic prosthetic arm for amputees — basically as close as you can get back to what a normal arm would be. I said: “Tyler, that’s amazing for the world. I won’t invest, because it sounds super hard and it’s a ton of risk.” But most of the time, I would love to back my friends. That’s the other way I get deals.
How Much Money Do You Actually Need? [00:21:00]
Shaan: Somebody asked: what’s the bankroll you think is required to get started?
Shaan: My answer: you’re going to need to make twenty to thirty bets. Let’s take 20 as the low end. I think you want to assume you’re investing $25,000 on average per company — I’ve done $10,000 before, but $25k is the realistic buy-in. So at 20 companies, you need half a million bucks. But you don’t need it all up front. If you invest in those 20 companies over four years, that’s $125,000 per year.
Shaan: You can adjust the check size up or down. You can stretch the timeline. The thing I wouldn’t do is fewer total companies. I wouldn’t go below 20 bets — at that point, you’re not letting variance work in your favor.
Shaan: AngelList did a study and basically found that the best returns on average, just like in the stock market, come from indexing. Some individuals can outperform, but not consistently over a long period of time. The same is true for startups — if you could just invest in every credible startup, that would be the way to do it. “Credible” is a key word there that’s hard to define, but we don’t need to get into it.
How to Evaluate Founders [00:24:00]
Shaan: Somebody else asked: what do you look for when you talk to founders? How do you make the call?
Shaan: My answer: there are a million intangible signals, but it really boils down to a few things.
Shaan: First — does this person know what they’re talking about? When I talk to them, do I get a sense of confidence and certainty? Not about the speed of speech or the style, but do the things they’re saying actually make sense? When you push and probe a little bit, can you tell they’ve already thought through the hard questions? They have a thoughtful answer, and they know the subject deeply — which is what you should expect from someone building a company in a space.
Shaan: Second — are they an executor or just a talker? You want an executor. Are they all in, or is this a side project? Do they have a habit of quitting projects or splitting focus? I don’t want somebody I invest in to go start a podcast and speak at conferences and do all this other stuff. There’s a reason I started this podcast after I sold my company, not during.
Shaan: Third — are they in touch with reality, or are they a delusional optimist? Do they actually understand the main risk and challenge of their business? Have they correctly identified what the big challenge is to make their vision come true? A lot of people don’t have what I call a credible view of reality. You bring up a risk, they just don’t think it’s a risk. That can be a very big problem.
Shaan: The overwhelming feeling I get when I walk away from those conversations is either: “Wow, this person had a lot of clarity and quality of thought about their business” — or they don’t. I basically just don’t invest if they don’t have that clarity.
Shaan: The other thing I think about: track record. A history of doing interesting and unique stuff does tend to carry forward. Sometimes somebody has zero experience in a given domain, but I look at their background and they went into other things with zero experience and came out six months later as a leader in a space. That pattern matters. Not having a track record doesn’t mean you eliminate someone, but having one is obviously a huge factor.
What Returns to Target — and Why the Hustle Didn’t Make the Cut [00:28:30]
Shaan: The last thing on angel investing is: what type of returns are you looking for?
Shaan: Some people — and Sam often talks about this — love great businesses like The Hustle. This is actually a good example. When Sam started The Hustle, I had an opportunity to invest. Sam was a friend. I had by then learned to invest in friends and think of myself as an investor. I went to The Hustle’s office — just a tiny, rinky-dink place — sat down, they walked me through the vision, and I thought: this is totally going to work, and I totally don’t want to invest.
Shaan: My thinking was: I don’t think this type of business will generate the type of returns I’m looking for.
Shaan: Here’s what I mean. Angel investing works best when you put small checks into many companies, and you’re not looking for what the median return is — you’re looking for what the maximum return is. You basically need two or three winners in your portfolio to make everything else a rounding error. And what that means is that every company you invest in needs to be able to get to about $100 million a year in revenue. A hundred million a year in revenue is a billion-dollar company.
Shaan: This isn’t about greed. It’s about the risk-and-reward profile. The risk is so high that your winners need to pay off enormously to justify the risk you’re taking. You’re taking on both risk and illiquidity — a startup you invest in is probably not going to be liquid for seven to ten years. If you have an investment that’s both extremely high-risk and illiquid, you need the payoff to be huge to compensate for those two downsides.
Shaan: I’ll give you the Lambda School example. I figured: the average student is worth about $25,000 in revenue to them. So you need 4,000 students in a year to generate about $100 million. Four thousand students — I believe you can get there. That’s not 400,000, that’s not 4 million. At the time I invested, Lambda School had graduated maybe 81 people total. But it was clear to me that 4,000 was an achievable number, and that 4,000 would get them to somewhere between $15 million and $100 million in revenue depending on how the value-per-student worked out.
Shaan: That alone was enough justification to write the check — in addition to Austin being an incredible founder who spoke very clearly about what he was doing. There was also clear evidence their approach was different. Most coding bootcamps were in-person; Lambda School was online. Most were three months; Lambda School was nine months. Most online learning had a 95% dropout rate; Lambda School had something like 80-90% completion, and 80-90% of graduates got high-paying jobs. Those are amazing signals.
Expected Returns and Why the Real Value Isn’t Money [00:34:00]
Shaan: So what do I actually expect from my portfolio? I assume that in a batch of 30 companies, three of them will drive 95 to 99 percent of all the returns. I hope that in the end this nets out to: I put in $500,000 and I basically four or five X my money over a seven-year period. Five hundred thousand in, and at 5x that’s $2.5 million out.
Shaan: That’s not the biggest life change ever. But there’s a chance it’s much more if you hit one of the real winners. I’ve seen a $25,000 check turn into $25 million. That can happen. But the average, or what I’d call the minimum bar of success, is to four or five X my money over seven years — which nets out to something like a 20% IRR.
Shaan: The last thing I would say is: the reason to do angel investing is not to make money. And I don’t mean that in a philosophical way. What I mean is there are much better ways to make money. Ways where your money is liquid. Ways where you have a greater chance of success. You can go own Apple, make 10% a year with liquidity and a much higher chance of success compared to startup investing.
Shaan: But startup investing will teach you a lot about business, a lot about people — because every decision is a judgment call about a person. And it will teach you a lot about the future. Every startup is pitching you a thesis about how the future is different from the present. I really value that education.
Shaan: It’s a much better way to get educated than any other way I can think of. I’m getting an education from an expert — somebody who has seen the future and is coming to me to tell me what it’s going to be. I get to sit alongside them every month and get updates on how it’s coming. And I have skin in the game. I have money in it. If I’m right and they’re right about what the future looks like, we get paid. If not, we lose money. That’s a great feedback loop for learning.
Wrap-Up [00:38:00]
Shaan: That’s everything about angel investing that I’ve learned or would want to share. That went a lot longer than I thought. If you like that, we can do another session later — just ping me. I’ll put my Twitter and email in the show notes. Get in touch — that’s the best way for me to know what you like and what you don’t. Thank you for listening to the podcast. I’m out of here.