Book Review: Angel, How to Invest in Technology Startups — Timeless Advice from an Angel Investor Who Turned $100,000 into $100,000,000

Jason Calacanis

https://www.harpercollins.com/9780062560711/angel

https://www.amazon.com/Angel-Invest-Technology-Startups-Timeless-Investor/dp/0062560700

This is a book for those who want to be majority-time or full-time angel investor in tech startups based in Silicon Valley, or for those looking to raise money who want to understand the thinking of an angel investor. My perception is that the book is being marketed for the mass market, but in reality, Angel’s strategy is really made for the wealthy investor in the top 1% to 5%. Since most startups fail, an angel investor needs to diversify — and that means having a portfolio of investments, and to do that, to do angel investing yourself, you’re going to have to have a lot of capital. If you want to still angel invest, the best way to do it is through syndicates, which Angel does describe as the way to first get started in angel investing and building a network.

I’ve been looking for a book sort of like Angel for a while. Having moved to the San Francisco Bay Area in August of 1999 during the dot com boom, and working in the tech industry as a product manager or in business development since (for Adobe, Yahoo!, startups and others), it’s kind of hard not to hear of startups, venture capitalists and to a degree, angel investing.

I don’t know Jason Calacanis, though I had heard of his name peripherally through reading various online tech blogs such as TechCrunch and had attended Calacanis’ 1st annual LAUNCH Mobile event back in September 2013, through an invitation via a Managing Partner Luke Lightning at LAUNCH, whom I met socially in support of a San Francisco elected official. Lightning is mentioned in the book’s acknowledgements. Calacanis was a very, very early investor in Uber.

I’ve known friends and acquaintances who’ve mentioned they’ve done some angel investing or helped fund a friend’s startup, and have seen a number of LinkedIn profiles of current-or-ex Googler’s, Facebook, others who had decent exists list their angel investments, but I’ve never really dived in or invested in startups (though I have worked for a few).

Overall, Angel is a very approachable, quick read giving an overview of how to get into the angel investing “game” in Silicon Valley. However, not everyone who reads this book will be able to relate. Essentially, Calacanis starts off with the premise that you are accredited investor (earned income exceeding $200,000 annually and have a net worth over $1 million- excluding the value of your primary residence). But then starts off with the assumption of the reader, the potential angel, having a net worth of $2.5 million (p.23) to possibly set aside 10%, $250,000 to invest in startups — and in invest it in $5,000 increments and do 50 angel investments.

Although there are a lot of people in Silicon Valley that have that kind of money, I’m not one of them.

A quick Google search of “top 1% income in US” lead me to this:

The top 5% of households earn an annual income of $214,462 or higher, according to the Census Bureau. That’s nearly four times the 2015 nationwide median household income of $56,516.

The people I kind of know who have made angel investments I think have invested in maybe a few here and there. Angel is really focused on those who are wealthy enough to do investing in startups at the earliest stage as a full-time job. As most startups fail and where most of the gains from your angel investment portfolio can come from one investment, it makes sense to have a diversified portfolio of angel investments. And to do that, you need to invest in more than a few startups here and there if you expect to actually make money in angel investing.

Now there are plenty of people who might be financially qualified in the U.S. or in the world, but Angel is geared towards Silicon Valley — as stated in a one word chapter in the book:

Chapter 5: Do You Need To Be In Silicon Valley To Be a Great Angel Investor?

Yes.

Silicon Valley is very biased towards itself, but I believe this statement to be true. There’s probably no other place in the world (with maybe a few exceptions) that has the density of “tech” startups than in Silicon Valley (or more broadly stating, the San Francisco Bay Area).

As Chapter 6 (What’s So Special About Silicon Valley?) states:

“If you look at the top five companies in the world by market cap right now, they are all technology companies: Apple, Google, Microsoft, Facebook, and Amazon. Of those, three are located within fifteen miles of one another in Silicon Valley and the other two are in Seattle.

Of all the venture capital money being invested in the United States, 30 percent is invested in the Bay Area. That’s nearly double the money that;’s invested in Boston, New York, and Los Angeles — combined.”

Angel has a chapter (Chapter 10) on syndicates, and encourages angel investors to start off investing through them, but could go into a little bit more details about them and their backgrounds except for:

“…but over the past five years, a handful of platforms have emerged that allow angels to syndicate deals via a legal construct called a special purpose vehicle (SPV).

There are a number of sites offering angel syndicates here in the United States, including AngelList, SeedInvest, and Funders Club.

At these sites, successful angel investors create an investment group, or syndicate, where they explain what they typically invest in, what they’ve already invested in (their track record), how much they typically invest per deal (typically $10,000 to $100,000), and how much in “carry” they will charge you on a successful exit.

Carry is short for “carried interest,” and it’s defined as the share of profits that go to the fund manager — in this case called the syndicate lead.”

Unless you live in Silicon Valley, your everyday investor has probably never heard of AngelList or familiar with incubators such as Y Combinator, or 500 Startups (which was started in Mountain View, and about 2 miles from where I live) or LAUNCH — where a lot of startups lately are “incubated” with some funding for a small equity stake ( ~ <10%).

Angel continues to discuss the syndicate investing strategy:

“After you make ten investments for $2,500 each, you’ll be on the cap table of ten startups along with dozen of other investors. After just one month and ten deals, you will have a network of hundreds of co-investors, as well as a network of twenty to thirty founders you have invested in, since most startups have two to four founders these days.”

Angel and Calacanis are at its best when he outlines the day-to-day of what a part-time/full-time angel, from starting out as an advisor (where one might not have the money to invest but get advisor shares) to meeting and evaluating startups and their founders and leveraging and expanding your network, and some practical nuts-and-bolts advice:

Chapter 12: Month One: Your First Ten Syndicate Deals

Chapter 13: Month Two: Thirty Days of Angel and Founder Meetings

“For a fraction of the cost of going to business school, you are now deep in the angel investing game, except no one knows you. We’re going to change all that by setting up two meetings a day over the next thirty days.”

Chapter 14: My Best and Worst Pitch Meetings

Chapter 15: What to do Before a Pitch Meeting

Chapter 16: What to Do During a Pitch Meeting

Chapter 17: How to Pick a Billion-Dollar Founder

Chapter 18: The Four Founder Questions

Chapter 19: Going Deeper

Chapter 20: Founder or Fraud?

Chapter 21: Evaluating the Deal

Chapter 22: Why Angels Should Write Deal Memos

Chapter 23: The Perfect Way to Decline a Deal

Chapter 24: Due Diligence Checklist

Chapter 25: Your First Yes

Angel goes on to describe how to be behave professionally and ethically as an angel, as well as what to expect as an angel in follow-on chapters:

Chapter 26: How Founders Should Treat Their Angels

Chapter 27: There is Nothing More Important Than Monthly Updates

Chapter 28: Your Disastrous Second Year as an Angel Investor

“Remember, we said the mortality rate of early-stage startups was 70, 80, or 90 percent? Well, guess what? You’re about to see some of your baby turtles, ones that have recently hatched and are waddling their way to the glorious surf, get ripped limb from limb by a flock of vicious seagulls.

…

You’ll see founders cry, break down, and even beg you for money, all while their team loses faith and quits to join more promising startups or, brutally, get massive offers from Google or Facebook that you can’t possibly match.”

Chapter 29: Keep Your Head Up

Chapter 30: Exits: Great Companies Are Bought, Not Sold

Chapter 31: Finding Your Groove

Chapter 32: Where Does Your Angel Story End?

Overall, I found Angel interesting and informative, but not necessarily exactly what I was looking for.

I was hoping for more information and details as to what an investment term sheet for angel investment would look like and the mechanics of what goes into valuations and negotiations, but does reference at times to work with a lawyer. Calacanis does reiterate many times throughout the book of requiring “pro rata” terms for an angel investing — essentially allowing you, the investor, to reinvest in the startup at the same equity % percentage portion in a subsequent investment round. But beyond that, not a whole lot of details, except the mentioning of liquidation preferences (and not explaining that to those who don’t know or going into any details: “Liquidation preference determines the payout order in case of a corporate liquidation. More specifically, liquidation preference is frequently used in venture capital contracts to specify which investors get paid first and how much they get paid in the event of a liquidation event, such as the sale of the company.” — Investorpedia)

The concluding chapter describes what the end goal should look like (p. 269):

“Here are the common scenarios of what will happen in this book, with the first ten being $1,000 syndicates and the next twenty being $25,000 bets, and then putting an extra $100,000 into each of the top five startups in our portfolio.

In this scenario, you will have put $510,000 into your first thirty deals, watched for winners, and put another $500,000 into the winners. You’ll have put just over $1 million to work.”

So in the beginning of the book, we’re starting off with the premise of $250,000 but then working towards the end to investing to $1,000,000.

Again, if you have that kind of money to risk, congratulations. But I think for your everyday Silicon Valley worker bee, even those working at Google, Facebook, etc., you’re probably not going to be able to risk that much capital unless you’ve had an IPO exit.

Misc notes.

• Calacnais never does go through the math as to how his $100,000 into $100 million, but that didn’t really bother me, since he was one of the first investors in Uber (investing $25,000 at a $5 million valuation.)
• A little bit too many references to Stars Wars and poker.
• Error:

“I owned a thousand-dollar computer with a four hundred baud modem at the age of thirteen, and I was able to pay my way through night school at a recent college based in the skills I learned using that computer.” — p. 15–2,400 baud modem?

• No such thing as a 400 baud modem, as far as I could find. I had a 300 baud modem with my Commodore 64, and longed for a 1,200 or 2,400 baud modem at the time.
• https://en.wikipedia.org/wiki/Modem#List_of_dialup_speeds