Nov 14, 2016 · 34m · 20vc
20VC: Rick Marini on Lessons Leant From Naval Ravikant, Why You Need To Make 30 Investments Before You Know What You Are Doing & Why You Have To Earn The Right To Good Dealflow
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of The 20 Minute VC, host Harry Stebbings interviews serial entrepreneur and prolific angel investor Rick Marini to discuss early-stage startup investing mechanics. Marini shares key insights on building founder trust through upfront value creation, navigating seed valuations, managing equity dilution, and navigating the steep learning curve of angel investing.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 27.1% of the talking time here. How this is scored →
Harry as informed peer 2.5 Guest teaching 3.8 Guest disagreement 0.8 Harry pushing back 0.1
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 7:06 Pre-investment value disagreement
Rick directly rejects Harry's premise that holding back value until signing a term sheet is optimal, pointing out that Silicon Valley rewards open value demonstration over secretive behavior.
Hardest push from Harry ▶ 23:08 Downstream valuation risk pushbackHarry pushes back on high early-stage pricing by pointing out that over-negotiating seed valuations leaves founders in a difficult position for Series A.
Biggest teaching moment ▶ 13:34 Angel versus VC exit math breakdownRick provides an insightful masterclass on how institutional VC fund economics force passes on $50M-$100M exits that angels would profit from, leading to unwanted acqui-hires.
Harry holds his own ▶ 23:08 Identifying the seed valuation trapHarry showcases strong domain understanding by pointing out how artificially inflated seed rounds lead directly to Series A funding failures.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Rick Marini's Career and Angel Investing Background | 1 | 3 | 0 | 0 | Harry welcomes Rick and asks about his background as an angel investor. Rick provides a comprehensive summary of his 17-year entrepreneurial history including Tickle, BranchOut, Talk.co, and his angel portfolio. | |
| Strategic Value Addition Pre-Investment | 2 | 4 | 1 | 0 | Harry asks whether angels should hold back strategic value prior to a term sheet. Rick gently contrasts Silicon Valley's open culture with Boston's closed NDA culture, explaining why demonstrating value upfront earns dealflow. | |
| Market Due Diligence and Market Leader Dynamics | 2 | 4 | 1 | 0 | Harry asks how Rick maintains discipline amid deal excitement. Rick educates Harry on power-law market dynamics, noting how 85-90% of market value accrues to the clear leader like Uber versus Lyft. | |
| Angel vs. VC Exit Expectations and Realities | 3 | 5 | 1 | 0 | Harry inquires about differences in exit expectations between angels and institutional VCs. Rick breaks down the structural conflict where a 10x exit works for an angel but gets rejected by Series A funds needing 100x fund returners. | |
| Dilution Risks and Fighting for Later-Round Pro-Rata | 3 | 5 | 1 | 0 | Harry brings up angel dilution risk in later rounds. Rick provides concrete financial mechanics showing how option pool creation and missing pro-rata rights significantly erode angel returns over time. | |
| Navigating Seed Valuations and Pricing Discipline | 4 | 3 | 1 | 1 | Harry demonstrates keen market foresight by observing that over-negotiating high seed valuations traps founders into unrealistic growth hurdles for Series A. Rick strongly agrees and references historical precedent. | |
| Evaluating Consumer Startups and Core Metrics | 3 | 4 | 1 | 0 | Harry cites Fred Wilson's writings on consumer startup headwinds to frame a question about modern consumer investing. Rick outlines the key underlying metrics needed to validate a consumer hit including D1/D7/D30 retention, CAC, and LTV. | |
| Quick-Fire Round and Recent Investment in TrueFacet | 2 | 2 | 0 | 0 | In the quick-fire round, Harry asks about books, red flags, mentors, and recent deals. Rick explains his investment in TrueFacet and the pair share a casual banter regarding Tim Ferriss's health advice. |
Statements from this episode (15)
Marini: Silicon Valley is far more open and collaborative than Boston
“I'm originally from the Boston area, and anytime somebody wants to talk about their idea, they want you to sign an NDA, and you know, they're really secretive and closed, and when I came to Silicon Valley back in 2000, it was so different. You know, sign NDAs,…”
Marini: Demonstrating pre-investment value motivates founders to include investors
“So for me, I would rather prove out my expertise to an entrepreneur. I would rather contribute to the ecosystem. And hope that they see that value, and instead of cutting me out of a deal, they're more motivated to bring me in.”
Marini: Angels must make 30 investments before they know what they're doing
“If you're serious about becoming an angel investor, you're going to need to do probably 30 investments before you really know what you're doing.”
Marini: Angels should review 300 to 600 companies to make 30 investments
“If you're going to do 30 investments, you should probably have a investment rate of, let's say, five to 10%, which means you should see 300 to 600 companies if you're investing at five to five to 10% acceptance rate before you hit 30 companies.”
Marini: 85% of startups fail
“Most, you know, 85% of startups fail, and you can't say yes every time, or you'll go bankrupt.”
Marini: Network effect market leaders capture 85% to 90% of sector value
“Often in markets, you'll see the number one company accrue 85 to 90% of the value, and then the next company, especially network effect companies and then the next company might get five or 10%, the number two, and then the long tail shares the last five or 10…”
Marini: Uber and Lyft valuations perfectly illustrate the 90/10 market value rule
“If you were an angel in Lyft, you're still very happy if they're worth, you know, roughly five billion. But you really want to be an Uber who's worth over sixty billion. Right. And that math actually, you know, kind of works out to that kind of 85, 10, and fiv…”
Marini: Series A partners see 600 to 700 deals yearly, doing 1-2
“A partner in a series A firm typically sees between six and 700 deals a year. And a series A partner typically does one to two deals per year.”
Marini: Acqui-hires prioritize employee retention, leaving early investors with pennies
“In an acqui-hire, the acquiring company, they don't care about the investors, right? They only care about retaining the employees. Therefore any kind of cash compensation that's going towards the acquisition is going to be earmarked for the employees, and the …”
Series A VCs Typically Require 10% to 15% Employee Option Pools
“Typically, the VC is going to require a 10 to 15% option pool for the employees, which makes sense, but usually the angel investor is getting squeezed by that as well.”
Founders Only Fight for Angels Who Provide Value Beyond Capital
“But the entrepreneur has to go to bat for you. Which means you have to add value along the way. You can't just write a small check and go away and expect that the entrepreneur is going to go to bat with you with a new investor.”
Rick Marini Strives to Deliver 10x Value Relative to Check Size
“My philosophy is that I want to add 10 X the value of my check. So if I write a 50 K check, I want the entrepreneur to feel like I added 500,000 dollars of value to this company.”
Rick Marini Insists on Single-Digit Million Valuations for Seed Deals
“I've tried to stay disciplined for seed investing. I'm almost always going to be single digit millions for the valuation.”
Marini: Getting Great Investors Outweighs Optimizing Seed Valuations
“It's far more important for an entrepreneur to get great people around the table, people that can help them raise a series A. People have a certain domain experience and expertise that they can bring. To me, it's far more important to bring people around the t…”