Episode of My First Million with Sam Parr and Shaan Puri.
Transcript
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Kind: captions Language: en so i started angel investing almost one year ago well i i did it five or eight companies personally before that i forget and a couple of them have turned out to be like meaningful like turning 20 grand into like 300 400 500 000 and i’m like holy this is how it works and like but like it it sucks for a while right because you just invest it you’re like well that’s money’s gone and you don’t ever hear about them and then you’re like oh nice it works and so i’m like in some of those cases those are huge markups in other cases i’m just now experiencing like two and three and four x markups and i’m like that’s awesome what would happen if that was had i invested in this company at a 10 million valuation instead of a 50 million evaluation that would have been wild [Music] i’ve noticed that your angel investing is on a tear our friend suli just said whatever sean what did he what did he say whatever sean joke he was like oh i got this new brilliant investment strategy uh sean invests in something and then he tells me about it two weeks to two months later and then i paid 10x price for the same item for the same company yeah it was great which is and he’s like he was joking obviously obviously that’s not great he’s like making fun of himself because that’s literally what’s happened in like i think six or eight deals now where i’ll i’ll even tell him about it but he just delays responding for a couple weeks or i forget to tell them and i tell them or he tells me about the company a few months later i’m like oh yeah i invested in that he’s like awesome can you make an intro and i make the intro and but the price has gone up like dramatically because the company has more traction or more whatever so that’s what he was joking about but how are you getting such good um i don’t know like dude it’s amazing so i feel like there’s i think the easy answer is oh cool i do this podcast and because of this podcast people come inbound right the bigger this podcast gets the more people uh want you to invest and there’s this great um thing my buddy vishal taught me when she goes startups are the only asset class like real estate doesn’t work this way stock market like in real estate if you want to buy it you go buy it if you want stock if you want to buy it you go buy it startups are the only thing where even if you want in you don’t just get in the security selects you the asset selects you just as much as you’re selecting the asset and that one insight is pretty important it basically means you need to build your brand and your like reputation so that people want you in deals um because the best deals are all like kind of like super competitive to get into um and you want people to when they’re first thinking of an idea to reach out to you because they know oh you know like for example i did a great deal recently and it’s so funny you’re going to hate this it’s going to piss you off so much you’ve been talking about short-term rentals somebody came to me with a short-term rental startup idea because they thought i was you or something or somebody who was like hey bro why didn’t you say that to me well the by the way the subject line that she reached out with was last one in it was like hey i have the smallest bit of allocation left in this a company called motherboard you’ll love it because it’s it’s literally exactly what you’re doing you should get it i’ll enter you you will get in uh but but basically what they’re doing is you if you own a bunch of airbnbs which is kind of like a new market uh it’s basically like you’re a property manager so you’re more than just renting out your home or one home so you have multiple properties but you’re not a traditional property manager who owns a multi-family you know like uh building of like 32 units and so this is for people who run multiple airbnbs and it’s just like it makes your life way easier as the as the owner of that and they have like few million dollars in recurring revenue the valuation was great founder was really impressive so i was like oh yeah great sas software for people who manage multiple vacation rentals and then you’re over here building short sam short-term rental club building this community doing this thing and i got the benefit because people thought i was you that’s that’s one answer the piss you off answer that’s ridiculous that is a piss me off answer whatever it is what it is send me what’s the company called can we talk about it yeah hostfully host fully well then i can just email her it’s uh is it uh do they have a bunch of uh vcs behind it or all angels um i think this rounds a lot of individuals i’m not sure it was like i was kind of late to the party so i was just pretty quick to just be like okay this makes a lot of sense uh you know the once once you have revenue and a few million dollars uh that’s recurring and they really haven’t even like figured out what their marketing strategy is going to be yet it’s like okay that’s a pretty good signal that this is going to work and uh it’s a pretty indispensable tool for a property owner so i like that one but i would say okay here’s here’s some of the things that have happened one is when i share deals with you you share deals with me my buddy julian shapiro’s shares like some of the best deals um he’s just very active he’s very like consistent with it meaning like every week he’s sending me some good um that’s i would say 40 to 50 of the portfolio is relationships with friends who themselves are experts and specifically people who are experts in one niche so it’s like we’ve been doing a bunch of like sales person software and it’s because we like have a relationship with craft ventures who it started by david sacks he’s kind of like the enterprise sas guy he built yammer sold it for a billion dollars his fund specifically just focuses on sas companies and what you’re do you talk to so david sends you stuff dave not me particularly so my partner romine who runs my fund he basically has a good relationship with somebody at graph so for example when they’re seeing something good they’re just trading notes all the time and so we’re getting to get in on a lot of their deals so if even if are they giving you the deal but do they do are they giving you the deal because they like sean or they like romaine in this case it’s rameen because uh he has that relationship he’s catching up with that guy every two weeks goes get coffee or whatever it is and but then i do the same with my guys right so i do the same with the people in india or people in southeast asia because i’m like i think that’s where a lot of opportunity is and that’s where i have the right relationships so we’re sharing stuff uh just amongst that so and then the other thing is like themes so for example once i decide that a theme is correct uh like worth worth betting on what i learned from suli actually is the level of aggression you need to have once you decide x is a good idea you need to go invest in that company and then like the five other companies that are like adjacent to it so for example um there’s this trend of of banking like neo banks right so this started several years ago uh where people basically were like look banks are something everybody uses but has super low customer satisfaction scores like their apps sucked uh their marketing sucked so basically people were like look we can create like a digital first bank and this started like new bank is is probably the best example of this it’s in brazil they’re like oh look yeah and they’re about to go pop people are under bank there so they started a new bank uh a friend of a friend of mine uh was like led their investment and now it’s a 10 billion dollar company and it has like millions of customers in brazil and then the same thing happened in the uk with revolut and monzo whatever so this idea of neo-banking basically of can you make super slick cus like slick app for customers digitally market to go get customers and basically you’re building um you’re actually not building the banking part you usually go partner with like some bank like bbva or something like that under the hood it’s bbva but the customer relationship is with uh with a company that’s really good at at taking care of customers and building good user experiences anyway so that’s the the short answer is like okay decide that that’s a good idea um and that takes many forms so like we talked about this before like ramp or brex these are like brexit i think was the fastest growing yc company in the last few years and you look at it you say is this a good idea you say well what are they actually doing they’re basically giving credit cards to some group of people that were dissatisfied with current credit card providers brex did it for startups and they get a portion of every time that card swipes oh interesting so if a million people are spending a thousand dollars a year on it and they’re keeping 1.3 percent of the interchange fee of the debit card or whatever you can come up with some number you say wow this company is going to get big pretty fast so we did that math of neo banks how much is the neo bank customer worth and how much is a credit card customer worth and then we went and did it in every niche we could think of so we we invested in keep which is doing this for canada and then we invested in uh pluto which is doing this in the middle east but but did you holler at them yeah then we go search and destroy basically it’s like how do you go hunt for the best companies that are doing this in in either this geography or with this customer base so for example and you just dm them on twitter probably yeah exactly we just reach out cold dm and say hey i’m a believer in this for this this and this reason what you’re doing looks super interesting would love to invest and sometimes it comes inbound sometimes it’s oh you got 100 things inbound but you know what you’re looking for so you quickly pounce on the four that fit your your thing aren’t you out of money at this point from the fun though i raised more money because i was like i was like before i thought dude uh you know will i get a million dollars worth of deals every quarter that are good deals i’m not just trying to invest in crap so i need to invest in good deals so i i was like i don’t know how many high quality deals i’ll have and now um i realized that like whatever i whatever i had before was too low so now we’re doing almost two million a quarter uh we raised more money because we just had better deals man i because i’m starting so i started angel investing almost one year ago well i i did it five or eight companies person the last would have been wild and like how do i do that well one of the reasons so i hated startup investing for for a while because i was like you know is this the best use of time and money dude it feels like an expensive hobby i’m just spending money and not getting anything in return and then i then i realized two things which is bezos has this quote which i believe he goes one of the biggest competitive advantages you can have is being long-term oriented basically if you prioritize like if you have a 10-year view where you’re like okay i’m gonna maximize what i can do in 10 years and the other guy is trying to make the most they can make you know for their quarterly earnings call right this is what this is how amazon worked right amazon was basically like we’re willing to lose money to invest so that we provide two-day shipping instead of seven day shipping or free two-day shipping or a larger selection but it’s going to cost us more because we’re going to have more inventory or whatever so we’re going to go into all these other verticals books cds whatever they basically said like his strategy was long term this is going to be the most valuable strategy short term we’re going to get punished by the market because our quarterly earnings are not going to look great but that turned out to be the like magic you know the sort of like the biggest competitive advantage amazon had was their ability to be long-term oriented i think this is true just in general which is if you’re competing in somebody who they need a result in one year and you’re willing to be patient and get the result in five years seven years or ten years you can make bets that they can’t make so that means you get to have lower priced bets um that will pay off bigger just over a longer time horizon so i think if you have the luxury of a long-term present that’s a competitive advantage that’s how startup investing works is if you need money or you want you need to see positive growth in one year startup investing sucks if you’re willing to play a 10-year game this could be an awesome game to play and so do you think that well but do you think you told me you’re like man i think i could three and a half x my fun because that’s average now it seems like it’s going to be significantly more yeah like you know you think about kind of like what’s the floor you know i think a three and a half x would be you know a a solid outcome but you know nothing to write home about um but like with a small fund like ours you know you could see things where you can get a 15x you can get a 20x there are literally crypto small funds like ours that that have had 100x the 100x the fund in in the period of time right so so you know you shouldn’t really the ceiling is high um but but the floor is is pretty reasonable so the first thing was okay long-term oriented is a competitive advantage i i like startup investing for that reason the second one is you want to do things that compound so for example if i wanted to beat the market in the stock market right i want to beat the s p 500 i need to have proprietary like intelligent i need to be smarter than anybody else about something and i think just being smarter at a game where money’s on the line is just really hard to do whereas if you do um if you basically say hey my advantage comes from my reputation or my my network of people that i know that’s just gonna compound every year the more deals i share with you the more deals you’re going to share with me the more companies i have that are winners that’s going to make it easier for me to get into the next winner or for founders to come reach out to me because they’ll say oh i saw you did these five indian unicorns i’m an india i want to be the next one of them so you should can you invest in me so compounding also comes into play here in a way that doesn’t happen in the stock market and doesn’t even really happen in real estate real estate has it to an extent but but not in the same way as how fast your reputation can compound and start investing so anyways those are my two reasons why i now actually view startup startup investing as a as a game worth playing because it it uses two of the super powers that uh that i believe in that i think most people undervalue is it gonna what do you think will earn more the ecom thing or this angel investing thing uh probably for me personally the ecom thing because i just own the majority of that company so you know if it sells for 50 million dollars or 100 million dollars you know i’ll own the majority of it but uh whereas with startup investing you know it’s like my fund invests a hundred thousand dollars we own point eight percent of this startup i personally have twenty percent of the carry but then i share with romine and ben and zach so i personally own 14 point something percent of the carry or whatever sure so it’s not like you know you’re owning a slice of a slice of something big versus just owning them you know how it is owning the majority of something that sells for a decent chunk is is just better financially it’s so much better and yeah i think that whenever people raise money i’m like are you sure man you might be able to sell this for 50 million dollars and you’ll make more money than if you raise money and sell for 500. yeah exactly now you know but i have to operate that other business whereas startup investing is like you know a joy right you just read about cool ideas you meet awesome founders and you say yes you write the check and then they go do the hard work so it’s you know just a different thing you