Jason Calacanis, one of the most successful angel investors in the world, shares his insights on how to become a successful angel investor at the StartmeupHK Festival 2020.
As an entrepreneur, angel investor, author, and podcaster, Jason Calacanis is reputed to be one of the world’s most successful angel investors.
Having previously worked as a reporter and conference producer, Jason started out his journey as an angel investor during the Great Recession in 2008. In 2009, he launched the Open Angel Forum, a platform through which early-stage startup companies can seek funding via presentations to prospective angel investors. To date, Jason has invested in more than 150 early-stage startups including 7 “unicorns” (billion-dollar valuations) such as Uber, Calm, Thumbtack, and Robinhood, just to name a few. In fact, he was the third person to invest in Uber, investing USD 25k when it was valued at USD 5 million.
Today, Jason continues to support founders and inspire innovation via his launch accelerator LAUNCH, which counts Fitbit, Yammer, and Dropbox amongst its alumni. On top of that, he’s also on a mission to train individuals to become successful angel investors through his online workshop Angel University. Here are his top tips on how to become a successful angel investor.
Invest in startups that are resilient in times of crises
As angel investors, it is important to make worthy investments on companies that can stand the test of time. The best way to do so is in times of crises – when companies are put to a test to show just how resilient they are.
“There’s no success like failure,” Jason explains. “That failure makes you strong if you don’t give up. If you get knocked down three times, you just get to the fourth and you win on the fourth one.”
There are founders who may have lost all their money two or three times before building a successful business. Jason also talks about going into “cockroach mode” in times of crises where companies may need to lay off some of their employees and implement pay cuts in order to survive. As hard as it is, Jason is a firm believer that crises are when companies grow the most. In fact, Uber was founded during the recession when the world’s economy was on its knees.
For angel investors, the current crisis caused by the pandemic can be a blessing in disguise because it enables you to assess how agile and resilient the founders and their teams are.
Photo Credit: launch.co
Be a mentor, not just an investor
“A lot of what we do as early-stage investors is we try to inspire people to keep going because it’s so hard”, says Jason.
It is no news that being the founder or CEO of a startup is tough – you’re met with unexpected challenges on a daily basis. “You have competition. You have unknown events like the pandemic. You could have political issues. Maybe you’re running out of capital or you have a great employee leaving to go to a big company,” Jason lists just some of the challenges that startups face.
As an angel investor, offer help with empathy and humility – you’re not there to give them a hard time or be this overbearing teacher. You want to be their friend and be of service. Stand next to them and say, “Hey, I think you can do this,” or ask, “Is there any way I can help?” Be a good coach and a good friend.
Look for firms who already have a minimum viable product
“If you’re going to be an entrepreneur, you need to be a builder. The best entrepreneurs have the ability to build great products,” states Jason.
This is because when it comes to starting your own business, many people may have great ideas in their head, but it is their actions that truly count. On top of that, creating a minimal viable product (MVP) is easy today – it only takes a quick Google search to learn how to fix electronic products or learn how to code.
So, before you invest, do your research. Make sure they are not just all talk and no action – get your hands on the product and get to the bottom of it to see if they deserve your money. If people are asking for money to build the product, they are probably not developers, programmers, or product managers themselves.
Seek out firms with strong monetisation strategies
Companies might experience a huge amount of growth based on what the market is like. Citing two examples, Jason explains how Steezy Studio, a company that offers online dance classes, saw incredible growth all of a sudden because of the pandemic. Similarly, Calm, the meditation app, experienced the same thing.
However, although their evaluations have gone up theoretically, this does not necessarily mean that they would make good investments – some companies may only raise money when the market is hot for two or three weeks.
So, as an angel investor, Jason advises that you identify and invest in “bridges” – businesses that will get you to the other side, adapt to the situation, and are able to formulate a long-term strategy. You don’t want docks – businesses that figure out how to make money later. “Docks are not going to get them to the other side of the river. It’s gonna get them to the middle of the river. They’re going to drown and get wiped out,” Jason elaborates.
Photo Credit: launchfestivalsydney.com
Understand the local market you’re investing in
In the context of an increasingly globalised world, it is natural for investors to want to expand their investment portfolio internationally. However, this may not always be the best decision.
In order to make wise investments, Jason stresses how crucial it is to understand the products, the customers, and the traditions. Different markets have different audiences, and different markets evolve in very different ways.
To fully understand the local market you’re investing in, it is key to be able to communicate fully with the startups you’re investing in – which is why Jason has chosen to only invest in places that are English-speaking.
Look at consumer feedback as a key indicator of product-market fit
The key to a successful startup is to establish a loyal customer base. So, when you start as an investor, Jason suggests that you look at what startups have built and talk to the people who actually use what they’ve built. If they’re over the moon and crazy about it, then the product will likely have great potential and make for a great investment, he explains.
Another important thing to look into is the churn rate – this refers to the percentage rate at which customers stop subscribing to a service. If the churn rate is high, it might not be worth the investment.
Don’t be afraid to take risks
Being an angel investor is risky business. “You need to really have 30 or 40 bets in order to have the chance of hitting one outlier,” says Jason.
But there’s always a silver lining – some of the startups you choose to invest in have the chance to not only succeed, but also become the next unicorn. So, the next time you see the startups you invested in failing, just keep going and keep in mind that the money you put into it might be life-changing.
Evaluate the sector’s current – and future – potential
When it comes to making investments, many people research their addressable market size. This underestimates, and even neglects, markets that do not exist yet and could result in you potentially missing out on great investment opportunities.
Being an early investor in Calm, Jason cites meditation apps as an example. Although the market size was non-existent 10 years ago, today, meditation apps like Calm and Headspace now comprise a combined total of 1 billion dollars.
Some businesses may even induce the market and increase more usage than currently exists. Airbnb, for instance, has expanded the lodging sector by encouraging longer stays than hotels would normally accommodate.
“We’re not investing in history, we’re investing in the future!” Jason effectively wraps up.
Banner Photo Credit: angel.university