The Exchanges

Q So how does that transfer to angel investing?

A So angel investing is very interesting as a pursuit because unlike playing at a poker table where the most you can win is the most you risk, right? So if we're at a poker table and there's 10 players and everybody's got 10,000 dollars in front of them, the most I can win, if we all, all 10 players went all in, is everybody's 90,000 dollars. So 10 X, right? Now, if I told you there was a casino where not only could you win all the chips at that table, but all the chips at every poker table in the world that played that day, would that, might that be interesting to you? Well, that's angel investing. Uh, so an outlier like an Uber, for the people who are in the seed round, paid off somewhere in the range of 4000 to 5000 X, not percent, X. And it's important to, like, pause on that, because every time CNBC talks about, like, if you invested in, you know, Amazon at this round, you would be up 1200%, right? Like, ok, 1200%, not 1200 X. The outliers are so ridiculous in angel investing. If you happen to hit one, I could not invest in enough startups to negate my investment in Uber, right? When you hit one of those. Now, will I ever hit another one? It's probable that I will not. But will I hit another 300 X, 500 X, 1000 X? It's probable I will if I keep up at this pace. And so really what angel investing is about is you're playing at a game where the implied odds are beyond what exist…

AI assessment note: “really what angel investing is about is you're playing at a game where the implied odds”

Q Are you betting on people, ideas, companies? Like, how do you think about that?

A Yeah, I mean, ultimately, You're betting on the person's ability to not quit. That is the number one killer of startups, is people quitting. If you are betting on somebody to take on a major, majorly difficult task, the number one killer is that they give up. At some point, they tap out. And most people think it's because the company runs out of money. That's actually the second reason a company shuts down. I've seen companies where the founder refuses to quit even though they've run out of money. They tell the staff, hey, we're not going to pay everybody for two months while we raise this next round if you want to do that. You can stay on. If you don't, we understand you can quit, but we're going to keep going if you can. So that's number one. You're also betting on their ability to execute what, what kind of craftsmanship there is in the product, what kind of ability to build a product that delights customers. And then, yeah, of course you're betting on a market, but these market-based investors, they tend to be the NBA tights. They're, you know, analyzing the market. And it's really a fool's errand because the truth is the outliers, which is what I'm going for, The market is hard to define. So, you know, when you asked Bill Gurley early on about Uber, and they built, and he built models, he wasn't just looking at the cab business. He was also looking at rent-a-cars and car o…

AI assessment note: “ultimately, You're betting on the person's ability to not quit.”

Q Let's double click on that for a second. If, if I were to like open up your brain and look at the source code for how you determine if a founder is going to give up, what would that algorithm look like?

A Well, I mean, I have a bunch of like secret questions like, Hey, what else are you working on? You know, you ask Elon Musk what he's working on, and it's like, oh, I'm on Tesla Tuesday, Wednesday, and then I fly back to SpaceX on Thursday, Friday. That's what he told me back in, I don't know, 15 years ago, and if you asked him this week, he would say, yeah, well, I'm, uh, I'm at SpaceX on Monday, and Tuesday I fly up to, you know, work at, uh, Tesla, and then I'll come back either Wednesday or Thursday, depending on the needs, and get back at SpaceX. Like, it's the same thing. It's, it's, he is super consistent. And then, What else are you working on? It's kind of like nothing. You know, like he really tries to focus in on his projects and actually, you know, deprecate anything else. And so that's the singular focus. When you saw Travis sell all his Uber shares, I wasn't surprised. He got off the Uber board. He's a thousand percent focused on cloud kitchens. He needs to be. That's the sign of a great founder. If you ask a founder, like, what else you're working on? Like, oh, I have a nonprofit and I'm doing a conference and my podcast and this and that. It's like, okay, well, they're not going to be successful at what they're doing. I mean, unless it's a podcasting company or conference company, then they will be, but, uh, that sort of, like, distraction, uh, Or you could ask, …

AI assessment note: “I have a bunch of like secret questions like, Hey, what else are you working on?”

Q Can you expand a little bit on other ways that the system might inadvertently keep poor people poor and protect rich people?

A Yeah, I mean, the entire capital gain system, if you just think about it, is, you know, designed to, it's noble, the design of capital gains, right? Get people investing for the long term, creating businesses. We want that. But you can't have that and not let people have access to it, so it sort of dovetails with my first point. Additionally, I think there's some common sense things that are lost on the elite class, and I think we're starting to see them reverse it as the guillotines are, you know, being rolled out in society, and people are really upset, and I think, you know, Bernie's surge in the polls as part of this is, you know, people think it's, it feels unfair, and Even if it's not, even if everybody's standard of living is being pulled up, even if the number of people living in poverty is, is plummeting, even if all the rich people give away all their money eventually through the giving pledge, it still doesn't feel fair. And so I think people who are in that ultra high net worth area need to think for a second and say, what, do I really need my company to pay no taxes? And when Amazon does something like HQ two and It, it, it felt overreaching, right? It felt like unnecessary, and I think this is where there's, talking about blind spots that people have, I think the rich have a blind spot of They're so good at gaming the system, and they have so many people working w…

AI assessment note: “the entire capital gain system, if you just think about it”

Q How do you develop that edge, and how do you know what your edge is?

A Yeah, I think being super self-aware of not only how other people are playing, but how you're playing, right? So how do people perceive me at the poker table? I think about that a lot. How do people perceive me as an angel investor? How do people perceive me in Silicon Valley? And then what advantage do I have in that perception of my role here? And, you know, how do I lean into that? So, you know, people generally would look at me as a very conservative type poker player who cares about the money. Which means if I am, if I take the time to bluff, um, or I fold a lot, people expect me to have it. So when I do bluff, my chances of successfully bluffing go up, but I might be laying down a lot of good hands. And what I've learned in poker is really it's about when you get up from the table, because if everybody's... Relatively, you know, similar in their ability. What I see a lot is there's people who like to lose. I know this sounds like a really crazy concept, but there are people who are gamblers who love the feeling of being down, and if you've seen the movie Uncut Gems, have you seen it yet?

AI assessment note: “being super self-aware of not only how other people are playing, but how you're playing”

Q How would you judge the quality of investing if you were to take away the outcome and you could only look at it at the decision point?

A Yeah, that's a difficult one. A lot of people like to profess to be, like, great pickers of companies, and I've given a lot of thought to this, and where, what is the cognitive bias there? Like, because people tell me, like, oh my god, you're the greatest picker ever. You picked Uber, and Thumbtack, and Robinhood, and Wealthfront, and, you know, Com, and then I look at them, and I'm like, Yeah, but what about the 190 other ones I picked that didn't become that, right? And so the survivorship bias there is great. You start to think you're a great picker, when in fact, it might be geography and timing more than anything. I started investing in 2009 during the Great Recession. There were very few entrepreneurs then, and if you were an entrepreneur during the Great Recession, you were a masochistic, true believer, and resilient to a level Of Elon Musk and Travis from Uber. Like, you had to have that level of resiliency. In other words, peak resiliency and peak desire, commitment. And most people don't have that. And so, really, I think a lot of my success is the network I had built, the location I was in, California, and the timing, starting at the bottom. It'll be very interesting to see what the cohort of investments I did in the last five years, when I was a better investor, I think, With better knowledge compared to the first five years when I was a neophyte, but the timing was…

AI assessment note: “it might be geography and timing more than anything.”