UVC: Brian Nichols from Angel Squad on What Angel Investing Is, How to Do It Well, and Why Angel Invest

[00:00:00] Rahul: Welcome back to Understanding VC. I'm your host Rahul. Today, we'll delve into what angel investing is, how to do it well, and why you should do it with Brian Nichols, the co founder of AngelSquad. AngelSquad is a program by early stage VC firm Hustle Fund that offers you the opportunity to learn about angel investing.

[00:00:17] Rahul: And invest alongside Hustle Fund in its portfolio companies. As an Angel Squad member, you'll also gain access to a vibrant community of angel investors and operators, along with valuable angel investing resources. Previously, Brian co founded and grew the Lift Syndicate to over 3, 500 members. Let's talk to him. Hi Brian, thank you so much for joining me today.

[00:00:38] Brian: Thanks for having me.

[00:00:40] Rahul: Who is an angel investor? Like, how do you define, who's an angel investor?

[00:00:44] Brian: So it's a topical question. So I, uh, I define an angel investor as anyone who is accredited. So if you there's in America, the series 65 65 [00:01:00] As a step to then getting licensed and becoming accredited. so that means that there's a lot of people who should be considered angel investors and maybe have self selected out of being angel investors because they don't think that they can do it. but in the, kind of the new world of tech and the tools that exist in platforms that exist today, really, you know, what I'm seeing is anyone can become an angel investor as long as they're accredited.

[00:01:39] Rahul: Yeah. And, what is, typically the, the investment check size on an average these days?

[00:01:46] Brian: Yeah, so I think, you know, people used to think that a credit that angel investors. And they were probably right. Back in the day, angel investors are writing, you know, 25, 000 checks, probably more [00:02:00] today. It's very different. And I, I have insight into this and we can talk about that a little later, but the average check size that I see is between a thousand and 5, 000.

[00:02:10] Brian: It's not a check. Um, and, and I think that is, that is kind of a misconception that people have about angel investing as a whole. and it's just changed a lot. So hopefully people start to take notice.

[00:02:23] Rahul: Yeah. So, you know, before the recording, I asked Bard, what is the average tech check size? so the answer that I got was 50, 000. So

[00:02:32] Brian: 50. Oh, wow.

[00:02:33] Rahul: 000.

[00:02:34] Brian: Yeah, that is not, not right. Not right.

[00:02:38] Rahul: Yeah. So, before we go on, you know, it would be great if you could also define what is angel investing and, how is it different from, venture capital?

[00:02:47] Brian: So angel investing is when an individual writes a personal check into a company, into a private company, in exchange for equity. So they have some ownership of that [00:03:00] company. They have, hopefully some upside down the road when that company exits. and that's different from venture capital or a venture fund in that it's kind of a different vehicle.

[00:03:12] Brian: In one sense, it's an individual. In the other sense, it's a fund. So a fund that is raised money from LPs, limited partners who give them the capital that they then. deploy into the startups that they choose. Venture fund also has fees associated with it, where as a fund manager, you're collecting management fees.

[00:03:32] Brian: Usually that's 2% annually of the AUM that you're managing, and then you're getting carry on the profit, which is typically about 20%. And so if you're an angel investor, you're just. Investing directly into a company, if you are potentially investing into a fund, then that that's just a different game and you're letting other people make those, those investments for you.

[00:03:55] Brian: Or if you're a fund manager, you are the one making those decisions, but you're also [00:04:00] fundraising from LPs. So very different approaches.

[00:04:04] Rahul: Yeah. And most of the VC, I mean, angel investors, are in the U S right. And I think most probably in California. So why do you think that is?

[00:04:15] Brian: you know, so I think that's probably accurate right now. So here we are July, 2023, but it's changing super quickly. And I'm, I'm really excited about this, by the way. you know, I think historically the center of the tech world has always been Silicon Valley and that's, you know, where Stanford is.

[00:04:34] Brian: That's where a lot of the venture funding exists. It pre COVID, it used to be the case that. You, you know, in order to get an investment from a VC, you needed to come in person and pitch the, the, the partnership at that fund. And so that's changed a lot. really I think accelerated by COVID and starting in, you know, early 2020, when the whole model kind of flipped on its head, [00:05:00] it opened the doors to people all over the world.

[00:05:03] Brian: and so, you know, you're seeing people who are getting involved in the ecosystem from. literally every country on the planet. And, you know, again, they're not investing a ton of money and we can talk about where they're getting the deal flow from. but. I think the expansion is a great thing because what happens next is the founders in those different geographies are then going to be able to get funded by local folks who can then invest in those companies.

[00:05:34] Brian: And that will, you know, enabling that entrepreneurship in other parts of the world is just going to, you know, be a good thing for, for so many different reasons we could talk about too.

[00:05:45] Rahul: Yeah. And, if I say, that angel investing is like a relatively new phenomenon, would you agree?

[00:05:54] Brian: Yeah, I think so. I think, I think it's existed in a capacity that's [00:06:00] been very exclusive, and opaque for a while. You know, I don't know exactly how many years, probably around 40 or 50 years. You can, you might be able to call me on the actual number there, but I think The, the evolution of angel investing and what it's become, that's become much more democratized in terms of who can participate.

[00:06:23] Brian: I think that has changed a lot. And so I do think because of that, the, the phenomenon of becoming an angel investor, and you know, you see it in everyone's LinkedIn profile now. I think that is a newer phenomenon.

[00:06:35] Rahul: Yeah. I think it's a newer phenomenon, especially in places outside of, uh, um, yeah. So now how has the, the angel investing landscape, really evolved and what trends do you see

[00:06:55] Brian: So the way that it's evolved, in my opinion [00:07:00] is. Thanks to platforms like AngelList, which have created the rails to both make it very easy to invest capital into startups. And more importantly, make it very easy to, to find high quality companies that you want to invest in or otherwise known as deal flow.

[00:07:23] Brian: So what do I mean by that? AngelList is a platform that. Allows people to syndicate deals among other things. They also are the back end for many funds now as well. But for me, I've run over a hundred syndicates on AngelList and basically what I do is I source high quality investment opportunities and companies that I'm excited about, and I share them with the people in the syndicate who then can decide whether or not they want to invest, you know, a minimum of a thousand dollars into that company.

[00:07:55] Brian: And without AngelList. And, you know, there's other [00:08:00] emerging companies in the space as well. this just would never have happened. I would not, I would not hire a lawyer to create the LLC and then a bank account for people to invest the money into. And then with that bank account and with that LLC, make the investment into the company that I find.

[00:08:18] Brian: It's just, I just wouldn't do that. But since AngelList does that, and I don't have to do any of that. I think that's where the emergence of more investors from more parts of the globe, who invest smaller amounts has really, you know, become a huge trend and a trend that I think is so good for the ecosystem.

[00:08:38] Brian: And that's really like what I kind of have put my career behind now is, is making sure that, we keep moving that, that forward.

[00:08:47] Rahul: Yeah. so I'd love to know more about what is a syndicate, but yeah, before that, you know, I have a trivia question. do you know who termed the, I mean, who coined the term angel investor?

[00:08:59] Brian: [00:09:00] I wish I did. I hope you do.

[00:09:02] Rahul: Yes. I looked it up.

[00:09:05] Brian: All right. Who is it?

[00:09:08]

[00:09:08] Rahul: yeah, so it's, it's a guy called, William Wetzel. so he was a professor, at university of New Hampshire. So he wrote a paper on funding of, entrepreneurs in 1978. And, in that paper, he coined the term, angel investors. Actually, the story is, you know, before that, the, the rich patrons, who used to fund, shows or talent on Broadway.

[00:09:29] Rahul: they used to be called angels. It's kind of like a

[00:09:33] Brian: Okay. Gotcha. That's cool. I didn't know that. And here's, here's what I kind of, how I feel about the term angel investor. I think it has because of the past 50 years, it has this association with, You know, the ultra wealthy, old, rich, white dudes on Sand Hill Road in Palo Alto are angel investors.

[00:09:53] Brian: That's who it is. Right. And now it's, that's just not true. Like it is not at all true that that's who an [00:10:00] angel investor is. And so I think we have two options. One, we can try to rebrand the term angel investor and do it, kind of redefine it in the way that is more inclusive of more people. That's one option or we need a new term to describe the people who invest in startups and maybe it's not angel investor It's some other name, you know Like it I don't know.

[00:10:23] Brian: I actually don't know what it is private market investor something a little more catchy, but I wish And I, and I, I really like try to, I think a lot about this, that, that the term age angel investor, because of this connotation feels so exclusive and I want to, I want to change it in some way. So

[00:10:45] Rahul: yeah, yeah. Now, now would love to know more about syndicates and, what are the disadvantages and advantages of, being part of a syndicate or doing angel investing, individually.

[00:10:58] Brian: the [00:11:00] advantage is, so a syndicate again, you know, I was describing this. I, I run a syndicate. I, I started it years ago in 2019. now it has almost 4, 000 people in it. it's the Lyft alumni syndicate, but it's open to anyone. I was, it's Lyft alumni cause I was, Early at Lyft, and I recruited a bunch of my friends to invest alongside me, into the companies that I was excited about.

[00:11:20] Brian: And many of those companies were founded by our friends at Lyft. So that's a little kind of context for why I'm qualified to talk about syndicates. I think I've, I'm now approaching like 150 of them over the past four years that I've created. and I think we've deployed across all that, over 60 million.

[00:11:39] Brian: So what is. What is the purpose of joining a syndicate? So first it's free to join a syndicate. So you can just see what deals are coming through that this person who leads it, thinks are good investments. The person who's leading it has to invest, at least a thousand dollars into that, that syndicate syndicated deal.

[00:11:59] Brian: and so there, [00:12:00] there's some skin in the game from the syndicate lead. and then they have to write up a memo about why they're excited about the company. And so. As a syndicate member, you can review all these deals, and if you get particularly excited about one, you can invest as little as 1, 000. So the advantage here is that you don't have to do any of the work other than reading the memo and making a decision about investing.

[00:12:24] Brian: It's a lot of work to go out and find the good companies to invest in. It's, you know, really a full time job. If you want to find good companies, and so, you can kind of rely on somebody else to do that. Of course, that comes with a fee, which in this case is carry. So the whole venture ecosystem, really the business model is to take profit on the back end of these investments.

[00:12:49] Brian: so if you invest in a syndicated deal, you're going to be charged 20% of the profit. So let's say, you know, your investment. 100 X's and it's a great [00:13:00] outcome and you make 100, 000, the syndicate lead would take 20, 000 of that as their take, you would get to keep 80, 000. So you, you know, wouldn't have made that 80, 80, 000 without the syndicate lead finding the company.

[00:13:17] Brian: But there's a price for that. And so that's, that's the advantage.

[00:13:21] Rahul: Yeah. And you also talked about how AngelList made all this a lot more accessible and easy. So what role do you see technology and tools play to make this even better in the future?

[00:13:38] Brian: Yeah. And, and yeah, I guess, sorry, I ended that last comment with like, that's the advantage. It's, you know, that's the advantage and disadvantage of a syndicate. It's like one, it's easy for you. But two, the, I guess the disadvantage is there's a fee associated with it. And if you just hustled your way into finding companies for you to invest directly into, and you felt conviction that you were [00:14:00] a good decider and you didn't need any other filter, You know, investing directly. There's no fee associated with that. So there's that. in terms of the tools, I mean, I think AngelList is just getting started. I actually invested in AngelList last fundraising round, because I'm so bullish on where this ecosystem is going. And it's, I think at the, at the nucleus of all of it is the tooling, the infrastructure like AngelList, that's just making things that have always been so hard to do.

[00:14:30] Brian: Like managing a fund, like managing a syndicate, they're taking all of the leg work, putting software over it to, to make it efficient on their side and, building like very high quality software that, you know, has all these different use cases that they're powering and, making it, you know, so the hungry fund managers and syndicate leads.

[00:14:54] Brian: and even, you know, more institutional funds use their tooling. So, I, I [00:15:00] really, you know, I'm bullish on the future, the next decade of, you know, what, what platforms like AngelList will empower people to do. And so, you know, time will tell what exactly that is. I don't even know. But I am very bullish because the last three years alone have been just a step change in what is now possible

[00:15:21] Rahul: Yeah. And what do you think are some challenges for angel investors right now?

[00:15:27] Brian: right now. So here we are, July again, 2023 I think the market is so the public markets have been pretty tough. There's all this kind of uncertainty and fear. and I think as a result, people in general, you know, when that happens, people are a little bit gun shy in terms of making investments. They, maybe they got burned and they lost some money over the past two years, you know, when the bull run really peaked in 2021 and, and then things have fallen down since then.

[00:15:59] Brian: And so [00:16:00] maybe, maybe they're a little gun shy in terms of investing, which in my opinion. Is the complete wrong takeaway. So if you're able to continue to invest, like this is actually a really exciting time because finally, the thing that happened, the thing that we wanted to happen for the past five plus years is finally here, which is valuations have reset to really a more realistic place, especially in the earlier stages where companies were, you know, getting, we're fundraising at like.

[00:16:34] Brian: 12 to 20 million valuations when they hadn't generated any revenue, right? It's hard to, it's hard to win the game when you're coming in at that price point. Now we're seeing plenty of pre seed companies raising at five to 7 million, which is. Where that should have been all along. Right. And so now we're, we're back, I think, in terms of the, the opportunities.

[00:16:59] Brian: But I think the [00:17:00] challenges are that people are very hesitant to make these investment decisions. And then because of that in funds are too, which. Blows my mind, but Series A, Series B investors have not really shown any indications that they will follow on to, you know, that they will make investments and be active at all, which means that your pre seed and seed stage companies really need to have enough runway to make it.

[00:17:27] Brian: Through this period until these, you know, later stage funds start to pick up their activity because there needs to be a little bit of a baton past, unless you, you know, unless you're a seed stage company, that's, you know, running profitably already, which is. Pretty hard thing for some of these companies to do.

[00:17:45] Rahul: Yeah. In terms of the stage of the startup, right? What do you think is the right time for an angel investor to make investments? Is it always at the starting phase of the business or?

[00:17:57] Brian: I mean, so it really depends on the [00:18:00] person's risk appetite. Yeah. AngelList has made it possible to invest in Series C companies or pre IPO companies even, like, you know, like Databricks, for example, you could probably find an SPV at some point over the past couple of years. That company is an amazing company.

[00:18:17] Brian: You could put a small check into that and they'll probably IPO in the next year or two. so you can get a quicker return there, but that is not what I really would think of when I'm thinking about the opportunity with angel investing. I think that's just a completely different risk profile and so the risk reward is not really there like maybe with that Databricks investment at this point.

[00:18:41] Brian: Maybe you can get like a 20% markup, not, you're not going to get a 200 X markup there. It's too late. So when, if you're trying to play the, the true angel investing game from a risk profile perspective, which means it's highly risky and then the outcomes can [00:19:00] really be asymmetric in terms of your upside. I think you have to be participating.

[00:19:05] Brian: When these companies are valued at less than 10 million, because the, the chances of a hundred or a thousand X. outcome really go down if you wait much longer than that. and, and I think a lot of people angel invest because they are looking for those outsized returns. And so if that's what you're looking for, you need to go early enough to, to have that be possible.

[00:19:29] Brian: Yeah. And in terms of the companies, the kind of companies to invest in, is it always? they can, I mean, the scalable tech companies, or can you also invest in like consumer products?

[00:19:43] Brian: yeah, I mean, it really depends on what you're. Why you're angel investing, right? So if you're angel investing for purely for financial returns, you know, my opinion is that you probably want to focus on high margin, low cost, [00:20:00] uh, low, low capital requirements necessary. software companies like that is a, that's a nice asset class for so many different reasons.

[00:20:10] Brian: However, Angel investing is not always for that reason. There's other reasons to angel invest, right? So maybe you want to just support a friend on their journey. And, you know, you're, you want to be in their corner and you want to have some skin in the game. It's one of your really smart friends and you feel really dumb not to angel invest in their company.

[00:20:29] Brian: And then, you know, five years later, they exit it for a billion dollars. You, you, you should have invested in your friend's company, right? And then there's mission alignment. Like sometimes maybe you don't think it's the best business, but maybe it's something you really care deeply about. And you want to support the founder and you almost see it as like, You can almost see that one as like a donation, like carry on, I wish you the best and I just want to support and you know, that money is probably gone.

[00:20:58] Brian: but you still, you [00:21:00] still see people do it because they, they want to, they're investing because they want these things to exist and maybe the founder can find a way. And that's, that's, you know, if you find it, you come across a founder who, who you get that vibe from and they're aligned with your mission and you know, maybe it's worth a small investment.

[00:21:17] Brian: And then the last thing is there's kind of like the. What some people call like a passion play where it's like your friends starting a restaurant and you want to you want you know Or maybe it's not even your friend It's a person It's starting a restaurant that you really want to go eat at and you want to be able to tell your friends like I angel Invested in this restaurant, you know, there's that that's a totally different asset class.

[00:21:40] Brian: It's not going to be The same sort of, you know, return profile as a early stage investment, but it's something that you might get some joy out of. So it's really, you know, hopefully that helps. Clarify the different types of opportunities.

[00:21:54] Rahul: Yeah. And, are there any misconceptions, misconceptions, [00:22:00] about, angel investing that you would like to debunk?

[00:22:03] Brian: Yeah, well, I think I covered this one, which is just, I think it seems like most people still think that it's reserved for the ultra wealthy and it's not. It's you would be surprised at who all is out there angel investing. It is, you know, a nurse in Canada. It's a chef in Turkey. It's a surgeon in, Australia, you know, it's in there and they're investing thousand dollar checks.

[00:22:30] Brian: And so I really. wish that more people understood that

[00:22:34] Rahul: Yeah. And, how do you think one, one, one can decide whether It's the right thing for you to do.

[00:22:40] Brian: for angel investing specifically. Yeah. I think, I think you have to kind of look at your whole, whole financial portfolio and if you have some liquidity and you feel good about, you know, how much you've already put into ETFs and index funds and just like feel good about [00:23:00] kind of your low risk, plays.

[00:23:02] Brian: And now you're interested in taking some bigger swings. Then I think that's, that's the type of person who could benefit from angel investing. I'll give one example. And I know this is kind of, this is an outlier, but if you invested 5, 000 in Uber seed round, that you would have basically, the, the people who did that made 25 million at the exit at the IPO.

[00:23:25] Brian: So, you know, you take a, you, you ideally are taking enough swings where you can afford to invest in 20 to. 30 plus companies and small amounts into all of them. And maybe you have that outlier come through.

[00:23:39] Rahul: Yeah. I think Jeff Bezos was the seed investor, angel investor,

[00:23:45] Brian: There you go. The rich get richer, but that's yeah,

[00:23:49] Brian: I wonder, I really, I really would be curious if, you know, the next Uber is going, there will be the next Uber funded on Angel, AngelList through a syndicate and [00:24:00] people who put in thousand dollar checks are going to get that 5, 000 X return.

[00:24:05] Brian: What company is it going to be? Like, I, I'm so excited to see, but AngelList didn't exist when Uber was raising their seed round. I don't think, and it definitely syndicated deals on AngelList were not a thing yet. And so that just wasn't possible, but you never know. I mean, we will see that happen. and it's just going to take some time to see which ones are those, those outliers, but it's coming.

[00:24:30] Rahul: yeah, yeah. So now, now let's talk about how to do this really well, right? so, I have an investor, that I'm close to Michael Blakey. he, he has a fund, called Cocoon Capital here, but before that he was an angel investor and he talks about this advice that he got from someone when he was starting out as an angel.

[00:24:51] Rahul: It's ideally to do three things. One, is to do angel investment full time, which sounds very contrarian because most angel investors don't do it full time.[00:25:00] the second thing is, do angel investment like a VC. And the third thing is actively support, your portfolio.

[00:25:06] Brian: Mm hmm.

[00:25:07] Rahul: So would you agree with this?

[00:25:11] Brian: Yeah, I don't think you need to do it full time right now. because, you know, so I'll plug one thing that I'm leading, which is Hustle Funds Angel Squad. There are things, you know, out there now. Where you can benefit from the filter of a venture fund. And instead of being out there sourcing your own deals, which is, which is maybe a full time job, you can invest alongside a fund.

[00:25:36] Brian: And so that's what we've built with hustle funds, angel squad for this exact reason. Most people can't angel invest full time, but he's probably right that it's a good idea. So since we're seeing a thousand companies a month with our fund, and we're only investing in the companies that we determine are the best, and then we're following on into the best of the best.

[00:25:55] Brian: Why not share that access with Other folks who are interested in this [00:26:00] asset class. And so that's what we've done, over the past two and a half years. And so people can, you know, take advantage of a program like that. so I don't know if I agree with number one, number two, invest like a VC. I kind of agree with that.

[00:26:13] Brian: I mean, VC, this is, this is what, what our full time job is. We have, you know, we, we have our own pattern recognition. I think you need to take a framework that you like and, you know, really make it your own and be disciplined about following it. And so if you, if you can be like a VC in the sense that you have a framework.

[00:26:34] Brian: You're, you're, you're being disciplined about this. And I, I think like most VCs are bad about this. So I don't, so I don't know, like, I don't know if I would recommend being like VCs in general, but I think if you were to take like the ideal VC and what their approach is. And the person, that person's extremely disciplined and not sucked into, you know, [00:27:00] these hype y rounds of, you know, you know, overvalued companies and things like that.

[00:27:04] Brian: So that's, maybe there are just not that many VCs that are able to avoid that. but if you can, then, then I think like be like a VC in the fact that you take a disciplined approach. As I'm saying that I feel like. Most people will jump on me and say like, that is literally what VCs are horrible at. And so maybe I'll, I'll, I'll take that back and I'll say, just, just be disciplined.

[00:27:27] Brian: I don't know if being like a VC is the right answer there. and then the last piece of supporting the portfolio, a hundred percent agree with that part. I think that is part of the fun. Number one, I think it's part of actually the thing that I think is unique about this asset class is you can really impact the trajectory of your portfolio's performance.

[00:27:46] Brian: You know, if you invest in 10 companies and you're able to help some of them with meaningful introductions to, you know, potential clients or customers or potential recruits that they hire, like that, that is a game changer. And so you might be [00:28:00] able to, you know, help them go from their seed to their series a, and that's big.

[00:28:04] Brian: And so a hundred percent agree with that. And then the final thing that comes from that is you end up getting better deal flow because founders typically have the best deal flow because they're connected to other founders. And so. When they see a company that they really like, and you're the one who's been helpful for them, they'll send it to you.

[00:28:21] Brian: And so that becomes a really valuable source of, of deal flow.

[00:28:25] Rahul: Yeah. and yeah, I was reading about angel squad. so. Two, two things, you talk about, teaching angel investing, so why is that important? one thing. And second thing is, so is it also like a syndicate or?

[00:28:39] Brian: So good questions. Um, so one, yes. So hustle fund, early stage venture capital fund based in Silicon Valley, all three GPs are friends from Stanford. It's a really, really high, high caliber investment team. And. What we found is, and what I found, what they found is there's so many people with this appetite to get [00:29:00] involved with angel investing, but really they don't know where to start, like if you are completely blank slate and you got an opportunity to invest in a company.

[00:29:10] Brian: what would your be? What? What would your framework be to assess whether or not to invest? Right? Like, how do you do that? I think there's a lot of inputs that as VCs, we've all kind of established as these are the criteria that that we're looking for. And some people wait things differently than others.

[00:29:26] Brian: So, you know, some people might care more about market. Some people might care more about, The problem in the, in the, the, the solution to that problem that this company has come up with the why now, is this something that needs to exist right now? So there's all these different inputs that we think through.

[00:29:42] Brian: And I think the most important thing is for everyone who's going to invest in startups to also think through those different things. So what, what that framework is, we share our framework that, that we have at Hustle Fund, exactly. And we teach it and then we say, make it your own. And then [00:30:00] here are a bunch of deals.

[00:30:01] Brian: That you can, that we're investing in and you can apply the framework and decide if you want to invest too. We also go through lots of deals just together where we're not investing or we're, we're deciding whether or not we want to take the meeting with the founder. And we'll just go through and explain whether or not we're going to meet with this founder, why or why not, how, you know, what, what we would need to believe to think that this is worth pursuing.

[00:30:27] Brian: And so really kind of going through lots of education to get people confident in their approach. And I think that is really important so that we're funding the right companies. and then, in terms of the investing itself, we do both share, we share pre seed deals where we're investing and people can invest directly into those companies.

[00:30:47] Brian: their, their name is on the cap table. We also syndicate deals, where we're following on and that's when, you know, when we're writing a bigger check into this company, that's when we invite the angel [00:31:00] squad to, to invest via a syndicate into those companies. So we do basically about 50% of the deals we share are not syndicated deals, but they're deals where we're investing and then the other half are syndicated deals.

[00:31:14] Rahul: Okay. Okay. so I, I came across this tweet, by an investor that I like, Rajesh Rony. so he talks about,so this is the tweet. Angel investment isn't about investing into a business that you understand. It's about investing into a business you don't understand when it's first. Pitch team in a month or so, one has to develop a deep understanding of the space, its future potential, and the ability of the founding team to execute.

[00:31:38] Rahul: So my interpretation of the suite at least, is that you need, you need to be able to do due due diligence, on investments where you don't have, much of a domain expertise. So, yeah. what do you think? And like, how do you do due diligence?

[00:31:54] Brian: Yeah, it's a loaded question. There's a lot there. So I think I guess the first piece [00:32:00] is, do I overall agree with the thesis that, you know, it's investing in companies that you don't understand in the spaces that you don't understand? I think for people who are angel investing part time and they just have, they don't have the bandwidth to learn everything new about a space that they don't.

[00:32:17] Brian: No, well, I just don't think that's true. I think they want, they want to, like, for example, my brother's a doctor. He really only is interested in health tech companies because that's really all he understands. And so sometimes he's coming across a company, like I think one of the only angel investments he's done, he came across this company and he was like, yep, that is exactly what we need.

[00:32:40] Brian: So I'm investing. Makes perfect sense. Whereas, you know, for, for me, I'm not a doctor. I have, like, look at this. I'm like, I don't, do I, do I, do, do you need this as a doctor? I have no idea. And so that's the answer to your second question, which is, if you do have the bandwidth to learn more about an industry, there is a benefit to naivety, [00:33:00] because You just a lot of the times when you know too much, you don't even give the founder a chance.

[00:33:07] Brian: You're like, yeah, you're going to run into way too much red tape is not possible. but if you're new to the space, you might be that kind of ignorance is bliss piece might actually be beneficial because you need, you need these. outsized outcomes to carry your portfolio in angel investing. And so something that most people in the space maybe typically don't think is possible is where those outsized outcomes probably will come from.

[00:33:36] Brian: And so there is a little bit of a benefit. And so that's the part of the comment that I do agree with. So to diligence that though, you kind of. Take those conversations to the people who, who will know those answers, like in this case, health, health tech company, talk to my brother, get his take, figure out, you know, from what he's saying, you know, I need to, I need to [00:34:00] wear the hat of, you know, believe everything he's telling me, but also be skeptical.

[00:34:05] Brian: About the fact that maybe this is possible, and maybe, you know, the things that he's describing as the status quo are changeable with the right maneuvering. And so, that's not usually the case, right? But, you need to believe that it's possible for these outcomes to actually... Exist. And, and so you'll probably run into the, the, the, the red tape more times than not, but it, in the cases that it works out, it could be, those could be the big outcomes

[00:34:32] Rahul: Yeah. And, how do you think, as an angel investor, you can handle the negotiation because depending on the state, there are other VCs and you need to negotiate with the founders. So

[00:34:43] Brian: to win the deal,

[00:34:45] Rahul: Yeah.

[00:34:46] Brian: to win allocation. That's a big part of it. Right. A high quality company. will likely, you know, depending on the market, but there's a chance that they will not have space for you in their round, you know, the lead investors is going to [00:35:00] take the whole thing or, other angels have already claimed, you know, allocation.

[00:35:04] Brian: And so you need to convince the founder to let them give you money, let, let you give them money. And, and so how do you win those deals? You. Need to explain how you'll be valuable to them. And I think the, the, like, for example, my pitch has always been, for the lift syndicate specifically, like it sounds like you have a lot of interest in this round.

[00:35:29] Brian: but wouldn't it be helpful for you to, you know, be able to benefit from this army of my. Early lift colleagues who were really the folks that made lift the company that it became, and they have all these different skill sets that they could bring to the table. Their networks are really high quality.

[00:35:49] Brian: And so when you need help from from a group. your investors, we are going to be the people who really respond to that because we have the skills to provide the [00:36:00] support. And if we don't have it, we know somebody who does. And so, and it, it is also often the case that it's those smaller check writers. That outkick, they have their, they have an outsized impact based on, you know, compared to the dollars invested.

[00:36:16] Brian: and so, you know, it's beneficial to really activate that group. and so there's a lot of reasons why small check writers are among the most helpful and, and anyway, I think that's part of the pitch is, is getting, allocation because of the value that you get from, from those folks who are typically still operating at companies.

[00:36:36] Rahul: Yeah. Yeah. This goes back to what we talked about actively supporting the portfolio companies, right? And building a track record of doing that.

[00:36:45] Brian: Exactly.

[00:36:46] Rahul: Yeah. So, but how do you manage risk? So in terms of making invest, in terms of making angel investment, is it just about Having a portfolio or, and [00:37:00] also it does support play a part, in reducing the risk.

[00:37:04] Brian: Yeah. I mean, so on the first question, yeah, you got to diversify. You really do not want to make concentrated bets in a high risk asset class. In my, in my opinion, it's just by virtue of the fact that it's high risk. It means most of them will fail. And so if you put, you know, two big checks into companies that fail, then you're done.

[00:37:28] Brian: But if instead you diversify that across, you know, 30 to 50 plus companies, you know, your chances of one outsized outcome is way, way higher. and it turns out, you know, first round capital did a study of their own investments and their conviction, had no correlation in the outcomes for the, for their, their, For their portfolio.

[00:37:50] Brian: And so if you think you have better conviction than first round capital, which is like the best seed stage fund, one of the best seed stage funds, [00:38:00] you, uh, then go ahead and make some concentrated bets. But I would not do that. And I think supporting companies definitely helps and increases their odds of maybe making it to the next step of the ladder.

[00:38:11] Brian: But I don't think you can really point to that as like a quantitative increase in, success rate. you know, there's only so many introductions that you can make and so much help you can provide. At the end of the day, that company is going to need to, make it happen on their own. And, and so I, I wouldn't, I just wouldn't factor that into the risk, uh, equation.

[00:38:34] Rahul: Yeah. But, uh, how would you, approach, the exit strategy for your investments?

[00:38:42] Brian: I don't really, I don't, I think, you know, these precede seed stage companies where I'm, I'm coming in. I think it's way too hard to forecast who's going to buy this company. Like at the end of the day, I'm thinking, can this company get to a hundred million dollars in ARR? That's it. If that's true, [00:39:00] if they get there.

[00:39:01] Brian: Exits won't be a problem. They're going to be fine. So, I don't think about who would, who the acquirer would potentially be. I don't think about, is this something, you know, that could potentially IPO? The only thing I think about is revenue down the road. Can they get there? And by the way, I think revenue plus unit economics, like, can this be an efficient company, right?

[00:39:23] Brian: If you're, if your revenue is coming from something that's, you know, costing 90%, you know, 90% of your margin and you're only keeping 10. Yeah, that's, that's not what I'm looking for. I'm looking for the opposite. like really high margin, quick, quickly scalable companies.

[00:39:41] Rahul: Yeah. And at what point do you decide to, you know, sell your stake?

[00:39:47] Brian: Um, good. I'm, you know, good question. I've never come across that, so far. And I think that will really be kind of a personal type of decision when it comes. But for the most part, [00:40:00] you really kind of want to ride those winners all the way. And, you know, once they, once they exit, maybe they're acquired, then the decisions made for you versus, you know, if they IPO and then, you know, you have probably a lockup window, some, some duration, you know, then you have to make a decision about when you want to sell, but I think.

[00:40:22] Brian: In general, since this is a game of just outside, it's the power law game, you want to make sure that you're taking advantage of the power line. So let your winners ride is probably the best move.

[00:40:33] Rahul: Yeah. And, do you do follow on investments if you get, locations in the follow following rounds of investments?

[00:40:41] Brian: Yes, I do. but I would also think deeply about that strategy. There's no right answer. And I think in some cases, you know, you may pile on, let's say, let's say on average, you invest 50, 000 out of a fund, And then there's an [00:41:00] opportunity to follow on, but to keep your pro rata, it's 500, 000. So you could either put that 500, 000 into that company that's doing well and you're following on, or you can invest in 10 other companies with that 50k check, 50k checks. So what do you think the right move is? I don't, it depends on your strategy. but you may very well lose that 500k, right? It's again, a concentrated bet. A company is doing well, you know, you're, you're. Trying to, to keep your stake the same, but that, that company can easily, easily, depending on how early stage it is, that's a series a, you know, that can really turn pretty quickly.

[00:41:41] Brian: And so you got to be careful with that strategy.

[00:41:44] Rahul: Yeah. And as an angel investor, is it important for you to be, stay, stay informed about emerging tech, trends, et cetera?

[00:41:55] Brian: Yeah, totally. 100%.

[00:41:57] Rahul: How do you do that?

[00:41:59] Brian: [00:42:00] Yeah. Well, you know, that's a good question. I think the best way to do that, in my opinion, is just keep talking to founders and what they're working on, because. They will kind of poke through the noise and show you like things that you probably didn't know and these founders are coming from, you know, ideally, these are our founders who have some sort of earned insight from their work that they were doing in a space and they're like, I was working on this because of that I was working on it for 10 years.

[00:42:32] Brian: And because of that, I know. That this is something that, that needs to exist. And the timing right now is perfect because of this regulatory change. That's what you want to hear. What you don't want to do is just go on Twitter and listen to the mob. Tell you that, you know, web three is the next big thing.

[00:42:47] Brian: And then AI and then semiconductors. It's like, you're just going to become one of. The sheep, right? Like you don't want to get sucked into these different hype y [00:43:00] moments and then you're paying up, you know, in the worst way possible when you're making your investments. And so that's a, you know, it's easier said than done to avoid, you know, getting sucked into the vacuum there, but, that is what you want to do.

[00:43:14] Rahul: Yeah. Yeah. Everybody falls for the herd mentality.

[00:43:19] Brian: It's, it's wild to see, you know, I, that's why I'm really regretting what I said originally about like, be like a VC. I think I like, I totally take that back and say. Be like what VCs wish they were. Can I say that?

[00:43:34] Rahul: Yeah. Yeah. Yeah. And, uh, you also talked about, supporting,something that needs to exist, exist or supporting a, friend who's starting a new business. So how do you, so how do you balance, you know, some of the investments you make, in hopes of a financial returns and there are others that you make, you know, because you want that, thing to happen, or do you want to support somebody?

[00:43:57] Rahul: Yeah. How, how do you balance that?

[00:43:59] Brian: [00:44:00] I mean, at the end of the day, you're going to need to make money to keep doing this thing, right? So I think you really want to overweight here on making smart investment decisions. And then when you feel called to go a different direction and just be supportive, I think you should do that. When appropriate, but it should be a very small percentage of your approach.

[00:44:23] Brian: Again, that's a personal thing though. Like if you just, you just have more money than you know what to do with, then just do it. However, you probably, you're probably not listening to us talk about this right now and you're just doing it your way anyway. So I think for the rest of us, we should probably be careful with that.

[00:44:40] Rahul: Yeah. And could you share, you know, one piece of advice or a lesson that you wish, you had known when you actually first started making an investment?

[00:44:50] Brian: So I think there's a lot there. I think the number one thing that I would recommend to somebody new to angel investing [00:45:00] is to figure out your framework for making your investment decisions and be extremely disciplined about following it at least for the first 10 investment opportunities that you're reviewing.

[00:45:14] Brian: So that means Create a Google sheet or whatever you like to use a spreadsheet and put basically a scoring rubric into place. We actually still do this at Hustle Fund where we score the companies. and you go, you know, you, you probably at the top, it's like, you know, product, market, team, solution, what other competition, whatever else matters to you and how much, how much those things matter to you.

[00:45:42] Brian: And then score them. When you meet with a founder on a scale of one through four is what we do at hustle fun. So you have to, you can't be a, you know, a three out of five. Nope. You gotta be three out of four or two out of four. And you're tilting one way or the other. And on a company by company basis, you [00:46:00] can score it.

[00:46:00] Brian: And so when you get off that call with the founder and you're super excited and you're like, Oh man, I definitely want to invest in that company. You go back and score and you're like, wait a second. This is actually. Not, you know, maybe this is not a true, you know, pain, super, super painful problem. This is actually more of a nice to have.

[00:46:22] Brian: And so you're never, you're never going to be able to acquire customers because of that. And maybe that, that part of your framework is like extremely important for them that have built, you know, a solution to a hair on fire problem is what some people call it. Right. So if they don't, maybe they don't score high there.

[00:46:38] Brian: You should, you should actually pass on the deal if that's something that you really care about as part of your framework, but you would not, most people would not actually caught catch themselves without writing it down in a four in a formalized fashion. and so that would be the advice I would give is, is put pen to paper and actually score companies.

[00:46:59] Rahul: [00:47:00] Yeah. Yeah. You know, the last podcast that I published, was with John Saratsky. Um, he developed this, oaths, scorecard, which does roughly what you're saying, when he was, working, working at, Google ventures. Yeah.

[00:47:13] Brian: Cool. I love it.

[00:47:15] Rahul: yeah. Now, now let's get to the, the most important question, right? Like why do this?

[00:47:22] Rahul: Why angel invest? Because, you know, I read somewhere that most of the, most of the investments, angel investments never make any money. So, yeah. Why is it important, to do this?

[00:47:35] Brian: Well, you know, I think. History has told us that investing number one is where money is made, right? You, your salary is not going to ever really make you wealthy. The way that you make money is through investing. And, and so that could be investing in all different types of asset classes. And so you should definitely check all the boxes.

[00:47:59] Brian: The ones that are [00:48:00] probably most, you gotta be careful, I guess, with your portfolio approach, but you probably want to own some real estate. You definitely want to own some index funds. Right? Like that's probably like right now, like take advantage of the, you know, money market accounts that are at like five plus percent interest.

[00:48:18] Brian: But if you have all those things covered, you got your singles and doubles covered, then you probably should take some home run swings if you can afford to. Because that's where the outsized returns can come from. And yes, most of them will fail. That's the, that's kind of the point. It's a high risk asset class.

[00:48:37] Brian: And so with that, there's also the high reward outcomes that can, can happen. So if you're not playing the game at all, then you don't have a shot at those high reward outcomes. And so, I think, financially, it makes sense to allocate some percentage of your, your net worth into this asset class. You know, maybe it's 5%, maybe it's [00:49:00] 10%, maybe it's more.

[00:49:01] Brian: so, so that, from a, just a financial perspective. Is is the case that I would make, but I also just think it's really fun and it's exciting. You're, you're talking, you're learning from the people who are trying to build the future, the, they're trying to solve real problems and they're coming and they're coming with it, you know, they're quitting their job.

[00:49:23] Brian: To start a company, they know it's going to suck probably for the next 10 years, but they can't help themselves because this is a problem. There's a, they're so convinced needs to be solved and they're convinced that they're the right person to solve it. And they're going to sacrifice a ton, right? Like they're not going to get paid for a long time.

[00:49:40] Brian: Very well. Their, their relationships will suffer because of this. Like being a founder sucks. I've done it. It's, it's hard. And that's part of the excitement is like, I love hearing from a founder, why they have to, they just have to do this. And so part of me is just like, you should do it because. You get to learn from [00:50:00] really, inspiring people and get excited about, you know, the future that they see, that they think is possible.

[00:50:06] Brian: And I think that's just a contagious energy that I like to be part of.

[00:50:10] Rahul: Yeah. Yeah. Founders are special people, you know, so I've noticed this, you know, some, some people just wants to, do angel investments. Just to be associated with the founders. It's like, you know, owning a luxury car or something.

[00:50:24] Brian: yeah, sure. Yeah, totally,

[00:50:28] Rahul: and also human progress is really a function of the number of experiments that we do in terms of like on technology and innovation, right? So a lot of Impact and you need to have like a pool of people who are willing to fund things from that perspective Having a large pool of angel investors is really helpful, right? Um, yeah, and also, you know, you're very passionate about it because you did a, you know, the angel track with first round [00:51:00] and then you did a similar thing with, on demand. Hey, was it on demand or on deck? Yeah. On deck angels. And, and now again with angel squad with a hustle fund. So why are you so passionate about this?

[00:51:13] Brian: Yeah, yeah. So yeah, just to recap my journey, you know, I started this lift syndicate that I talked about. And then because of that, I was selected into this really, really hard to get into program first round capitals angel track program. And, you know, I did it with people who were just so far, outside of my like, I did not deserve to be in the same room as these people.

[00:51:38] Brian: but I got in and, and I, from there I really, you know, was able to run with it. And so, so basically what happened next was I was working at a company called on deck on deck is helping found was at the time really focused on helping founders, you know, build their next thing. It was kind of like a startup accelerator, but a different [00:52:00] model.

[00:52:00] Brian: And I got really excited about that. And then I. I was, so, and I was an employee at on deck, but I was like, wait, so we have all these founders building cool things. What about. Like having angel investors to invest in, in those cool things. And so we built on deck angels. I, I started that at on deck and we did two cohorts of that while I was there where, we brought in a really high caliber set of angel investors, a little bit like very similar demographic to the.

[00:52:26] Brian: The folks who did first round capitals, angel track. And we kind of tried to connect the dots between the founders and the angels. And I thought that was cool. But when I got really passionate about from running my syndicate, and opening it up to anyone on the angel list platform. So it was exclusive to lift alumni at first, but then I opened it up to anyone.

[00:52:48] Brian: I started to see just people all over the world joining. I was like, Whoa, this, you know, neurosurgeon. Boston's joining like so many different types of people. And I was like, what if a [00:53:00] fund took their knowledge and shared it with new people? Everything else that exists has really been focused on angel investors who've already made 10 plus angel investments and are in the game.

[00:53:13] Brian: They have their own deal flow. What about everyone else? That's most people. Right. And that's how we started this podcast, which is like, who should be an angel investor? It's like everyone who wants to should be. And if you can become accredited, which you can, even if you're not financially accredited, you should be an angel investor too.

[00:53:31] Brian: And we want to show you how to do it. We want to help you set the bar high. because, you know, we don't want you to lose all your money investing in companies that we definitely would have passed on. So, can we show you how we do it at a fund and then give you access to invest alongside us so you can kind of set your bar pretty high?

[00:53:49] Brian: And so, I left OnDeck to create this with Hustle Fund, and that was, that was back in October of 2020 that I, I quit my job at OnDeck, [00:54:00] running OnDeck Angels to build what we then, Built at Hustle Fund, which is the Hustle Fund Angel Squad. and I, you know, I'm super excited about what we, we've built and how, you know, welcoming, it's been to so many professionals from all walks of life.

[00:54:16] Brian: Students have joined too. It's, there's over 1, 500 people who have joined to date. and we've deployed as a group, like 25 million, into, into over 60 companies now.

[00:54:28] Rahul: Yeah. One last thing. I was thinking about this. I don't have answers for this. By the way. Who do you think is the most, most, prolific angel investor, in the world?

[00:54:36] Brian: in the world, you know, that's tough I would I'll go with somebody close to me and and and who I work with which is Elizabeth Yin who I think is probably invested now in like 600 plus

[00:54:49] Rahul: 700 plus.

[00:54:51] Brian: 700 plus okay 700 plus Damn. so she's invested in so many companies. She's been in the game for so long.

[00:54:58] Brian: And by the way, [00:55:00] that's part of why I thought hustle fund was the perfect partner to co found a angel investor program with Elizabeth works at hustle fund. She's invested in over 700 companies. She's really, really smart. She's a, she's a former founder. She is a great teacher. Like find me somebody better.

[00:55:19] Brian: Then Elizabeth to be in charge of, you know, in educational program for angel investors, you just can't. So that's, that's kind of why this exists. And that's why Elizabeth is, you know, somebody who I really, really admire. Of

[00:55:33] Rahul: This was fun. thank you so much for taking the time to do this.

[00:55:37] Brian: course, man, this was great. Thanks for having me.