Episode of My First Million with Sam Parr and Shaan Puri.
Transcript
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Kind: captions Language: en and what that means is that you need every company you invest in to be able to get to about 100 million a year in revenue what do you look for when you when you talk to the founders you know how do you make your decision if you’re gonna if you’re going to make the investment or not so here’s what I said I said you know there’s a million intangible signals that you’re thinking about and going over but really you know it boils down to the following does this person know what the hell they’re talking about when I talk to them do I get this sense of confidence and certainty that’s not about the style of the speech but that the things they’re saying actually makes sense and when you push and probe a little bit you can tell that they’ve already thought through those things they have a thoughtful answer about it and they know more about the subject they know but they know if so much about the subject which is what you should expect from somebody who’s building a company in a space the next thing I think about is are they an executor or just a talker of course you want an executor are they all in on this or are they doing this as a side project do they have a habit of quitting projects or habit of splitting focus like you know I don’t want somebody invest in to go have a podcast and go speak at conferences and do all this other I mean some people get caught up in that and there’s a reason I started this podcast after I sold my company not during the last thing I really think about is are they in touch with reality or they a delusional optimist what what I mean by that is do they actually understand the main risk and challenge of their business so like have they correctly identified what the big challenge is to make their their vision come true and are they thinking about you know do they appropriately assess that risk there’s a lot of people who don’t have a credible view of reality they’re out of touch with reality you know you bring something up that’s a risk they they just don’t think it’s a risk and I think that’s that can be a very very big problem and so you know 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 and I basically just don’t invest if they don’t have clarity or quality of thinking around their business you know the other thing that I sort of think about is you know what have you done in your past so a track record of doing interesting and unique stuff does tend to carry forward throughout your life and so sometimes somebody has zero experience in a given domain but I look at their background and they also went into other things with zero experience and came out six months later as a winner as it being a leader in a space and so I think that looking at somebody’s track record for success is obviously a good sign just because they don’t have it doesn’t mean it’s it’s a bad it doesn’t mean you know you eliminate them but it is obviously a huge huge factor if you can do it and the other thing is you know the question I got no this will be the last thing on angel investing is what are the type of returns you’re looking forward some people think and Sam often talks about like he loves great businesses that are like the hustle so this is actually a good example so when Sam started the hustle I had an opportunity to invest Kassam was a friend and at that point I had learned invest in your friends think of yourself as an investor but I went to the hustles office which was this like you know tiny rinky-dink place and they sat me down they walked me through the vision and I thought to myself this is totally gonna work and I totally don’t want to invest am I thinking was I don’t think this type of business will generate the type of returns I’m looking for so what do I mean by that angel investing works best when you put small checks into many companies and you’re not looking for what the sort of median return is but 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 revenue 100 million a year in revenue is a hot there’s a billion dollar company and this isn’t about greed it’s about the risk and reward profile the risk is so high that you need winners to pay off so so well to justify the risk that you’re taking because you’re taking both you’re taking risk and in liquidity right a startup that you invest in is probably not going to be liquid for seven to ten years and so if you have a liquid if you have an illiquid investment that’s extremely high-risk you need to pay off to be huge to make up for those two downsides I’ll give you an example with lambda school I realized pretty quickly I was like okay so it sounds like the average student is worth what you know 25,000 check turn into twenty five million that can happen but you you know I would say the average or they sort of expected return of what I would call the minimum bar of success as to four or five X my money over a seven-year period which Nets out I think to like I don’t know like a twenty percent IRR or something like that [Music] you