Why founders should also be investors with Jyri Engeström from Yes VC

[00:00:00] Rahul: Welcome back to Understanding VC. I'm your host Rahul. Today we'll explore why all startup founders should also be startup investors. Joining me is Jyri Engstrom, co founder and partner at YesVC, an early stage venture capital firm based in San Francisco. Jyri is an early stage investor who has backed many successful companies, including Unity, Dapper Labs, and Aura.

[00:00:19] Rahul: And before starting YesVC, he founded two companies, one of which was acquired by Google, the other by Groupon. Now let's talk about it. Hi, Jyri. Welcome back. Thank you so much for joining me again.

[00:00:32] Jyri: Thanks. It's great to be here.

[00:00:34] Rahul: So, I just checked out your, deck, the one that you created for, you know, startup founders, encouraging them to invest in startups, Now, why did you make this?

[00:00:46] Jyri: Well, I mean, I think that over the years of, of both being a founder and then, turning into a primarily an investor myself and now running a venture fund, yes, VC, [00:01:00] and having a few funds under a belt, I've realized that the founders who are the so called dual threat CEOs, people who, are actually doing multiple things simultaneously, and particularly who are angel investing.

[00:01:14] Jyri: They just tend to perform better. So it's not really anything other than my, my math and noting that this is something that seems to indicate high performance and therefore we should have more of it.

[00:01:27] Rahul: So you mean high performance, both as a startup founder and also as an investor?

[00:01:34] Jyri: Yeah, all our best founders, the best performing portfolio founders are investors too. you know, it used to be that they would start investing after their exit. And now they're already prolifically investing before they exit as they grow their companies. And some of them even have their own venture funds.

[00:01:56] Jyri: While they're still CEOs of their startups. And [00:02:00] we actually liked that were LPs in several of them ourselves. and they, the funds seem to be doing well. So it's just another sign of what I think is going on is that these people are by nature, they've realized that this is a game. Largely about information.

[00:02:18] Jyri: And if you are an intelligent, if you're smart, essentially, if you, if you're savvy, you can make it, you know, you can take advantage of the information you get. And this is just one of the ways that you maximize your surface area to, you're, you're basically improving your network. You're increasing your network.

[00:02:35] Jyri: You know, you, you get to know more founders. maybe they're successful. Maybe you make some money off of them. Maybe they're not, but they might have some superstars working in their companies that you can then hire that you get to know this way. And there's just multiple ways that I think this is compounding to improve your chances of success.

[00:02:52] Jyri: So I'm recommending it as. Something that you should think about if you're a founder,

[00:02:57] Rahul: Yeah, but it's, it's [00:03:00] surely not for every founder, right? I mean, we, like, this involves, investing money, but then, a lot of early stage might not have the cash to invest, and also, yeah, I mean, how would you qualify, like, as to which startup founder should be doing this?

[00:03:16] Jyri: I think everyone should, if you're serious about it. you know, like we just had some interns at SVC who were like 19 years old, they're fresh out of high school, just applying to college and. You know, my recommendation to them was start investing early because it takes a long time. Even if you invest in a great company, it can take 10 plus years to make a return.

[00:03:42] Jyri: So if you're 19 now, you might be 29, 30 before you actually see any liquidity. and the bets can be very small nowadays. That's the other thing. The ticket size can be just, you know, you know, 5, 000 or even less. or you, if you have zero cash, you can [00:04:00] oftentimes strike a deal where, you know, you're working for equity, you're advising, you're doing something, essentially, you're just helping the company and figuring out a way to get on the cap table such that if that company is successful, you're sharing part of that success.

[00:04:15] Rahul: Yeah. Yeah. So a couple of months ago, I read this blog by Flex CEOs where, I mean, and they make the similar arguments that apparently returns are better. and also you talked about information, but then the more important key is the access, right? Apparently founders who are, operating companies have better access.

[00:04:36] Rahul: Would you say that is true?

[00:04:38] Jyri: I think that's. A little bit of a bruise, honestly, there are some amazing founders who operate amazing companies who are very prolific, very out there, who become well known that just tends to be a function of access right there is, is how well networked you are [00:05:00] essentially. Do you get invited to deals?

[00:05:03] Jyri: And, but the thing again, here is you don't get invited to deals unless you start somewhere because. Nobody knows you're investing. People just ignore you because you're not playing the game. And so again, I think it's, uh, you know, kind of a self feeding cycle in the sense that as you make more investments, you get exposure to more deals, the people that you've invested in mentioned you to their friends as someone who has been helpful, hopefully. The people that are your co investors notice you on the cap table and they're like, Oh, Rahul is on this, you know, company, you know, Oh, he, I didn't know he invested in air table. Oh, that's great. Like maybe I should invite him to my next deal and we should syndicate something. So that's just naturally the way it works.

[00:05:49] Jyri: And you're kind of missing out if you're not taking part in that. That's what Silicon Valley is all about. It's that social network, right? Where deals get shared, new [00:06:00] ideas get shared, you know, there's some new. You know, person who's working on something really amazing who shows up on the scene and how do people hear about it?

[00:06:10] Jyri: Well, they hear about it from their friends, right? And who are you going to tell about it? Well, you're going to tell those of your friends first who you think would be most helpful. Maybe they're the ones that could potentially angel invest in it. And so again, if you're not seen as someone that is actively angel investing, you're probably not going to hear about that stuff.

[00:06:31] Rahul: Yeah. And, they also make this argument that, you know, it's an easy sell, to founders, but then they are, it's, it's a, it's a harder sell to the LPs. But you just may, said that, you know, I mean, you supported founders with their own funds. so what do you think about how LPs sees this? Because you give, you know, funds for them to do this with full commitment, right?

[00:06:57] Rahul: But then you're also running a company.[00:07:00]

[00:07:00] Jyri: look, typically the funds that are run by founders that are, you know, where the founders are, the GPS, there are in my experience, more like angel funds, they tend to be fairly small and the LPs are mostly other founders and investors. I mean, there are some funds of funds and institutional LPs, definitely family offices that like these funds.

[00:07:27] Jyri: But again, these are more like they're vehicles for essentially institutionalizing your own practice of angel investing. And again, growing your network is if you think about it, fundamentally, what I think this is all about is that it's a function of you developing access, access to capital access, meaning that you basically get to know other investors who trust you access to talent, which means other founders and operators that are out there in your company. [00:08:00] That you get to know this way, and then sure, yeah, maybe later down the line, perhaps you end up raising large real funds. perhaps you turn into a VC, access to LPs, the institutional LPs. but less so, I think these are, you know, this is more, it's just a way of, of expanding your network. and I think that's, that's the way that, you know, the, the, the LPs that usually join these funds, look at it too.

[00:08:28] Jyri: and so, you know, I look at it as like, you know, let's take, I don't know, Rahul Vora, for instance, founder of Superhuman, who is a CEO of Superhuman, one of our portfolio companies. He has an angel fund together with his friend, Todd, you know, it's the Todd and Rahul angel fund. I think they have several funds, maybe at least four or five funds, and.

[00:08:49] Jyri: You know, that's actually a fairly common situation where they're partnering up. Todd is probably doing more of the investing work than Rahul, [00:09:00] but Rahul is certainly pulling in a lot of deals because Rahul is very much out there. You know, superhuman is kind of a great company and a lot of people appreciate and you know, they're a partnership, right?

[00:09:11] Jyri: And so. I mean, there are also, we have some like Martin Varsavsky, for instance, another portfolio founder of ours, very prolific investor, you know, he's kind of the sole GP of his funds that he runs on the side. he can do that. he's, you know, kind of a senior guy who I think has an excellent way of managing his time.

[00:09:32] Jyri: He's got multiple companies simultaneously. He's been doing this for years. you know, I think that's kind of like the level 10, you know, super, dual threat, you know, he's probably like not dual threat, but more like quintuple threat CEO. so yeah, you know, so I would say, you know, you look, you start with, if you're starting from scratch, and you have. You know, you don't have a lot of, liquidity on your bank account. I think, you know, firstly, you do need to build [00:10:00] some. But typically, you can do that simply by living frugally and getting paid at a job, right? You can have some savings. You know, take a chunk of those savings and this is what I've told my interns.

[00:10:11] Jyri: This is what I tell many of the young people I meet. you know, maybe, maybe it's only 10, 000, right? or even less. But whatever that chunk of money is that you know you can allocate to this, without basically destroying your life, even if you lose that, you know, you gotta be okay losing that because it's, it's going to be going into illiquid investments that you're not going to see any of that.

[00:10:36] Jyri: Capital returning anytime soon, right? Even if you make great investments, probably so, and then what you do is just like I do, or just like any GP does for a venture fund, you know, as you create an investing period, you say, okay, this 10, 000 or 5, 000, whatever it is. 100, 000, depending on your level of wealth or liquidity.

[00:10:59] Jyri: [00:11:00] I'm going to set this up as a, I don't know, two year investing period, let's say, and during those two years, I am going to make, you know, let's say reasonably. Five investments a year. I'm just making this up. Maybe you should make more, but you know, let's pretend so that's 10 investments over two years, you know, so roughly one a quarter because two years is eight quarters.

[00:11:24] Jyri: Right? and then that's your cadence. And now, you know, okay, I've got 10, 000. I'm making 10 investments. My average tickets going to be 1, 000. Sounds like a little, but you know what? Who cares if you are. Delivering value. then any founder would be a fool to not take you in on a safe on, you know, whatever, you know, in the round, because you're not essentially taking up any of the allocation from the round. It's only, you know, beneficial for them to allow you in because you're not really competing with anyone else. And who knows, maybe you're going to be super helpful to them. Oftentimes [00:12:00] it's the smallest investors who ended up being the most helpful to companies. This is certainly the case. For my companies, you know, of course I had, you know, especially with Ditto, I had John Callahan, GPO at True Ventures, who was amazing, but I had some tiny investors, you know, I don't know, my first company, you know, who just loved the company, made great interactions, really worked hard for me.

[00:12:24] Jyri: and that's, I think pretty much more of the rule than the exception. It tends to be that the very large investors. They're professional investors. You're just one of their maybe 12 board seats or, you know, one of their maybe a hundred investments, they have a huge portfolio, the chances that they're going to pay any attention to you are fairly low, except if you become like a superstar, you know, if you've become another Airbnb.

[00:12:51] Jyri: Another Facebook, another Google in their portfolio. Of course, they're gonna start paying attention to you then, but more likely you're gonna get more attention from the little guys. You [00:13:00] know, maybe they're our age, maybe they're younger, maybe they're dynamic. so I would just, you know, ex you know, and I, I, I had this, you know, I, my first company, or actually my second company, I remember did I, you know, I had a few people that I really liked.

[00:13:11] Jyri: Were like, please let me invest on, I'm like, I wanna keep the cap table clean, you know, you know, I was like in my twenties and I thought that's, you know, that I should just, shouldn't have too many investors. I was a fool, right? What I should have done is what I learned from another great investor, Tony Conrad, who's in, you know, a lot of great companies, including slack or, blue ball coffee, you know, he's right now, you know, modern animal, which is another great company.

[00:13:39] Jyri: you know, when TC, when Tony Conrad was doing his company about dot me. He called me up and said, here, I'm, I'm giving you some shares. I'm as an, you know, become an advisor. I'm like, why, why are you doing this? Because shouldn't I at least be investing? Well, it's like, you know, I'm, I think, you know, it's fair because I know you're, you're a founder [00:14:00] and you're kind of young and you're, you're just working hard and you may, might not have that much savings, but I'm expecting you when I ask you.

[00:14:07] Jyri: To retweet something that I tweet or, you know, do something for me, maybe you can be helpful to me. And I'm like, Oh, sure. Yeah. And I didn't realize it at the time, but he did this to like, you know, 25 other people who were kind of rising stars in their own spaces. you know, it was like, you know, I remember Kevin Rose and like people like that, you know, people who had liquidity too, but, you know, Tony just wanted them on his cap table because he wanted us on his team because now are we going to invest in his competitor? because we're supporting him. Are we going to help him very much more likely. So when he asks us to, because now we have something in the game, right? We were going to benefit from it if he does well, which he did, you know, the company ended up being sold to AOL. this was, you know, long time ago, but it taught me that by being generous.

[00:14:57] Jyri: You're actually being selfish because what [00:15:00] you're doing is you're developing this. And there's actually a wonderful sociologist, Bruno Latour, French guy. you know, this notion of actor network theory that I learned about when I was studying sociology for my PhD, which was like, you know, it's called, you know, you're basically developing this actor network.

[00:15:15] Jyri: You're enrolling people, you know, to your cause. and that's a wonderful way of doing it. It feels very generous. But it's actually selfish. And so once again, you know, what you want is to make sure that you bring on these people. This is why I think it's smart for founders, even between rounds to have a safe note open and just, you know, just what Rahul did.

[00:15:35] Jyri: you know, for example, after raising capital from first round for superhuman. every once in a while when he met someone he thought would be useful to him, he would allow them to invest as an angel, even between rounds on a safe with a cap, a fairly high cap for, you know, but you know, if you're really like, wow, this company, this company is going to be [00:16:00] great. And I really want you to be a part of it. Oftentimes, these angels are not even super price sensitive. You're not going to have a huge debate. You know, it's, it's very lightweight with these instruments. And, you know, for me or for an angel, it's great. You know, I still got in, I've, you know, it's out of 10 X or whatever.

[00:16:16] Jyri: I'm good, you know, and so I don't need to make a hundred X on it. Now, the other thing I learned over time though, is that. If you keep doing this and you're smart and you get into things early, you are actually going to make a hundred X and actually more than a hundred X on some of these investments.

[00:16:34] Jyri: and they're actually going to return potentially even more capital than your own company might, which is what happened to me. You know, like I did well with my. First two companies. And that allowed me to build enough of a war chest and cash to be able to, you know, become a prolific angel investor. But if I look at the returns, I've made more money from these tiny checks.

[00:16:58] Jyri: You know, my first [00:17:00] checks were like. I don't know. I put in like 14, 000, it wasn't even like euros at the time into, unity that, you know, ultimately I sold when unity was worth like 33 billion, you know, and it was worth millions, or, you know, 50, 000 into Aura and a million posts, you know, that's like.

[00:17:19] Jyri: All worth a lot of money right now. So these kinds of things you don't realize the time, but then as time goes by, and these are like, you know, 10 year plus old investments. Now I look at them. I'm like, well, thank God I made that bet. Cause I missed out on Spotify. I missed out on Pinterest. I'm, you know, I missed out on a bunch of, you know, my friends that were building companies who I easily could have probably invested in.

[00:17:38] Jyri: Somebody even asked me, but I was like, I'm, I'm doing my own thing. You know, I need, you know, I don't really have a lot of money. And now I'm like, God, like if I had just put in, you know, 1, 000 into Spotify in 2006, you know, I probably own a yacht.

[00:17:54] Rahul: Yeah. Yeah. But, does it also help you run your startup [00:18:00] better in the sense, like when you're also investing, you're also building a network of investors, it could help with fundraising. It could help with, you know, being stay, staying up to date and, you know, best practices in terms of strategy and things like that.

[00:18:15] Rahul: So

[00:18:16] Jyri: I mean, you're still going to need to, I mean, okay, look, let's start from the basic fundamentals. If you're the CEO of your company, in my opinion, you only have three jobs. One, communicate the vision, two, raise the financing, three, hire the best people. And that's really what you should be spending 100% of your time on. And if you do that well, guess what? You're actually going to have time left over for other things. This is what the best founders in the industry are doing, by the way. Everyone knows Elon Musk works like a maniac, guy is a maniac, but everyone also knows that he has like eight companies going on simultaneously.

[00:18:59] Jyri: How is he able to [00:19:00] do that? Well, mostly because this is the three things he's focused on. if you are successful at that, then you are going to hire someone who's almost certainly better than you at whatever operational task needs to get done, whether it's growth, sales, engineering, product design, anything.

[00:19:22] Jyri: Right. So, and that's what I spent a lot of time on in my companies. Where, you know, I've learned now it's okay to be a CEO when I find an idea and I can't find a top team, you know, and here's the thing, like I just had a team here before we're pitching a medical company and I'm like, well, maybe you should think about this.

[00:19:45] Jyri: Like I'm thinking about it, like pretend that you're investors. And this is actually a very good exercise for any founder is to look at your own company from the outside and just think about it. And we have this thing with Katarina Fick, my co founder and partner at [00:20:00] YesVC, where she's often, Oh, I think that founder cares too much. And it's weird when you say that about a founder caring too much about their company, because shouldn't founders care more about their company than they care about anything else in the world?

[00:20:14] Rahul: yes.

[00:20:14] Jyri: point is. Almost certainly. And, and Todd Jackson, who I work with at Google, just recently he was at first round, just, I noticed posted a really nice post about this on LinkedIn where he's like, don't get, don't fall too much in love with your first idea because almost certainly you're going to pivot at least once.

[00:20:32] Jyri: Right? And so if you're looking at it more from the perspective of investor, then you might just, you know, like, for example. This medical team that we were talking about, or I was talking with earlier today where they're like, well, then there's this, adjacent companies in this adjacent vertical that is doing something that's pretty similar, but they're not, they're targeting like beauty, not doctors. And I'm like, well, maybe they could expand [00:21:00] into the doctor's vertical. and they're like, yeah, we maybe I'm like, well, why don't you think about it? You know, this way, like pretend that you've, you know, discovered this idea for the doctor's vertical, which you have, but instead of immediately deciding that you must be the builders.

[00:21:17] Jyri: Who create this startup? Just think about yourself as investors and say, okay, we think this is a good idea worth investing in. What's your next job? Well, it is to discover the best team you think that can actually do the best job executing on that idea and generating a return because that's where you want to put your dollars.

[00:21:38] Jyri: So what are you going to do? You're going to look around and try to find candidates. Maybe you're going to see this adjacent company that's doing that for beauty and say, Oh, okay. Well, their execution is stellar. The investors are really smart. The CEO is brilliant. maybe what we should do is talk to them and [00:22:00] see if they're going to do this in the next two years. maybe it's in their roadmap. And then, maybe we should just back them. Meaning, maybe we invest in their dollars if we don't have a lot of money, maybe we go and we work there. Because now we see, oh my god, this company is going to be huge. Once they expanded this new vertical, that's often a great way to make money.

[00:22:19] Jyri: When you start is to pick an employer, you know, it's going to be a rocket ship. And what's even better is if you go into that employer and get to be one of the leaders that actually makes it successful, because you've got this vision of your own, right? It's like every CEO. Is looking for these stellar employees.

[00:22:38] Jyri: It's what, you know, like Keith Robb always talks about. It's like the, you know, you have the barrels and ammo, right? You want to be a barrel, right? And so again, so if you're, if you're thinking about the world in this way. It becomes much more fun because you know what you're no longer trying to like, you know, raise capital and, [00:23:00] you know, hearing no, no, no, all the time, or, you know, you're not trying to somehow make something for something to succeed in the world.

[00:23:07] Jyri: You're more like surfing the waves, you know, because you can say, oh, well, maybe the right choice here is to back this adjacent company. I've done this myself, you know, I've got to work at places. just because I was like, Oh, this is the best way for me to get equity in this company and be influential there.

[00:23:24] Jyri: I've sold companies to other companies where I say, Oh my God, this company is going to be a rocket ship. I want to be a part of that. How am I going to do that? Well, I'm founding a company that then, you know, they buy and I get shares in that, in that rocket ship this way. And then I also get a position there.

[00:23:42] Jyri: So you can do these things. If you're strategic about it, you don't always need to just, you know, think you have a hammer and I'm looking for a nail thinking like, Oh, I have to be the founder of a startup. that's more like the investor mind working, right? And ultimately, I think you're going to find yourself [00:24:00] being in multiple roles simultaneously if you execute on this well, which is exactly what the top founders are doing.

[00:24:06] Jyri: That's what Martine Warsawski is doing. That's what Rahul is doing. That's what, you know, Sam Altman is doing. That's what Elon Musk, that's what Reid Hoffman is doing. You know, this is the way that the world works is that as you become more successful, you have more opportunities in order to take advantage of those opportunities.

[00:24:21] Jyri: You take up more roles. You do that in parallel, not not, serially. So I think this notion of a serial entrepreneur is a little bit flawed because what we see the top people doing is they're kind of

[00:24:32] Rahul: it's bad luck.

[00:24:33] Jyri: parallel entrepreneurs, right? You know, and part of that integrally involves, you know, investing and being on the cap table of your friends.

[00:24:44] Jyri: because that's how you support them. And that's ultimately, you know, that allows you to, generate better returns than if you only. You know, you've got all your eggs in your own company's basket.

[00:24:55] Jyri: Yeah. Yeah. I think the key word is that you [00:25:00] need, really need to be good at, you know, what the role of a founder is to do this really well. Right. Yeah, if you get too stuck in the nitty gritty and you're not able to hire people, then you're not going to be able, you just don't have time because you're spending all your time fixing problems that you probably shouldn't be fixing. And it's okay when you start out with something, of course you need to build the first prototype, you know, but again, you know, time box things and understand that it's not ever going to really scale unless you evolve. into these three roles that I said, which is, you know, becoming an excellent person at communicating your vision, which, by the way, makes everything else easier or unnecessary, because then when you communicate some kind of a compelling vision, people are going to take note. They're going to go, Oh, that's actually really kind of amazing.

[00:25:51] Jyri: your next job, which is to raise financing becomes easier because now people are like, Oh, I like your vision. You must be smart. Can I fund it? and thirdly, [00:26:00] hiring the best people becomes easier because the best people guess what they don't want to work on non compelling visions. They don't want to work on shitty ideas.

[00:26:09] Jyri: They want to work on the best ideas. They want to work at SpaceX. You know, they want to go to Mars. They want to, you know, work in the best companies. And so once you've got financing and a great vision, You It's not that difficult to hire great people, actually. And so this is actually a great litmus test for figuring out what to work on.

[00:26:32] Jyri: And I think oftentimes the problem is that there's too many factors pulling people into this founder identity or more like, you know, it's kind of like pushing them there rather than things that are pulling them to an idea. They just need something because they want to be an entrepreneur. They just want to be a founder.

[00:26:50] Jyri: and they're not willing to kind of suffer the anxiety and pain of. Allowing for something to emerge. That's truly compelling [00:27:00] by cycling through lots of ideas rapidly. And I think that one way that becomes easier is if you think, you know, kind of adopt this investor mindset and take a look. It's not the be all end all, I can even start multiple companies this year and it's okay if one of them doesn't work out.

[00:27:19] Jyri: you know, you care less in a sense and I think ultimately what you're doing is you're, you're more caring because now you are optimizing and being mindful of the fact that where you really want to get to is to building a successful company quickly. Rather than building something that ultimately ends up being a waste of your time.

[00:27:43] Rahul: Yeah. And also like, just, just because even if you're a great founder, it does not mean that You can also become a great investor, right? So that's also a skill that needs to be developed. so yeah, I mean, what are, what are some of the best practices [00:28:00] and what are the common mistakes that you see?

[00:28:02] Jyri: Well, one thing is that once you do start investing, a best practice is to do what I mentioned, open a spreadsheet, an empty Google sheet, you know, put in rows for how many companies you're going to invest in. Decide on your investing period, which is like, whatever, three years, four years, two years and say, okay, I'm going to fill these empty slots and then distribute your capital into an average check, whether it's, you know, 5K, 10K, 25K. And I say, okay, well, I need to make at least, at least, let's say three X this. It's my fund. It's my, it's my, you know, play fund. It's not maybe a real fund because I'm the only LP I can just invest my own money, but I think about it as a fund and as an aggregate, I want it to return at least three X, which is, you know, a baseline for any VC fund or angel fund.

[00:28:58] Jyri: and then, you know, that means that. [00:29:00] You know, basically you do the math and if there's only two, one or two companies there, if you only make 10 bets, it's going to be unlikely that you have more than one. You'll be lucky if you have even one. I think it took me like 40 investments before I had a single success that actually paid back for the rest of them.

[00:29:20] Jyri: So this is the other thing that you then begin to appreciate is that this is a long term game. It's not something that's going to happen overnight. I'm going to need to consistently be doing this for years. It's almost like your health. You know, if you're like looking to lose weight or you're looking to take care of your body.

[00:29:40] Jyri: You know, this is going to be a long term commitment that you're going to have to work on consistently over time. This is the same exact way, right? Except now you're taking care of your finances and you're taking care of your social capital in this tech industry, right? And it's, it's, it's a long process.

[00:29:59] Jyri: And if [00:30:00] you are doing it haphazardly, it's kind of like, you know, you're eating junk food or, you know, you're skipping meals or you're just kind of like, you know, you might You know, feel awful. Right? And similarly, then you wonder, like, why, why is it that I have all these problems? Or you wonder, why is it that I'm not really having any traction or success?

[00:30:20] Jyri: And frankly, a lot of that is a function of how good you are at developing your network. And that network comes, at least in my case, it has come from our understanding that in this world, in Silicon Valley, at least. Capital is one of the things that you use as a fuel, as a social object, if you want, you know, to kind of develop these relationships.

[00:30:49] Jyri: and so, yeah, like that. So make that spreadsheet, develop a fund. there are even programs for angel investors that where you can kind of learn about it. and then, you know, now [00:31:00] you can, and then the other thing is like when you see something interesting, particularly like, here are some of my rules.

[00:31:05] Jyri: If there's ever anything that I noticed on the new app that I put on my home page on, on my, on my home screen. I shouldn't invest in that app, right? Because now it's something that I'm using every day and I'm probably one of a million people that are going to do the same soon. if I find it that useful, I should probably be on the cap table.

[00:31:24] Jyri: or just about anything else that you find really useful that you get excited by. is this something that I can get associated with? Like, you know, or when you hear your friend, you know, like, I'm at slush and, I was, we were like going to swim in the Baltic Sea with,You know, our friend Tony Fidel and I'm like, Tony, you seen anything interesting recently?

[00:31:43] Jyri: We're like in the sauna, you know? and he's like, Oh, there's this company. I just took the scan, and three of my friends did it. And two of them found that they had something wrong with them. maybe it was a tumor. Maybe it was something else like, Oh, that's really cool. What's it called?

[00:31:58] Jyri: It's like prenuvo.

[00:31:59] Rahul: [00:32:00] Prunova. Yeah. Oh, even I know, even I know that.

[00:32:03] Jyri: Right. So, and then I'm like, Oh, I love it. Like, can I invest? So I, you know, immediately like, Oh, can, maybe I can, fit in, in the round. and this is then, you know, the other thing is like, when you're operating in this mindset, you just end up making connections because now you're looking at the world and thinking everything is an opportunity.

[00:32:26] Jyri: There's, a war breaks out in the Ukraine. it's a shitty deal, but at the same time, you're like, Oh, like who can build something that the Ukrainians can use to defend themselves. So you end up thinking about everything as an opportunity. When a pandemic breaks out, I started a company, primary health.

[00:32:46] Jyri: We just actually, it was the first substantial exit for our front one. you know, because I saw COVID as an opportunity. we started testing people distributing vaccines. Everybody else was moving kind of slowly. So the company got really big very [00:33:00] quickly. I ended up returning, really, you know, great multiplier on our small capital that we invested simply because I have a prepared mind and I'm not afraid to, you know, if it doesn't work out.

[00:33:12] Jyri: It's just the cost of doing business. I'll try something else. so again, you can be a better founder. I think if you adopt this attitude and you're kind of willing to let yourself fail, you know, it's good to persevere. And we have all these heroic stories about, you know, whatever, like the Stewart Butterfields of slack, kind of persevering and making it work and pivoting and pivoting again.

[00:33:33] Jyri: or, you know, the Tesla's, you know, these companies that almost everybody goes, you know, through some near death experience. Right. but what we often don't hear about is that almost all of those founders also had companies that failed. but they kept going, you know, because. You know, they're like, Oh, this is the cost of doing business.

[00:33:52] Jyri: And maybe they actually had companies in parallel, like if you think about now, um, and it's just, you know, the fact that they fail means that we often don't [00:34:00] hear about them, but that doesn't mean they don't exist. Actually, what happens is you tend to end up having founders have a high success rate when they try out more things.

[00:34:11] Jyri: if you just try out one thing, it's like, you know, I tell this story sometimes, like Cody Steele, who I went surfing with when I was growing up in San Diego and You know, Cody became like a, basically a pro surfer. I didn't. Why? Because every time we went out, he would take, you know, every wave and I'd just kind of wait for the perfect wave.

[00:34:27] Jyri: And so I'd end up, he'd end up taking like four times more, more, you know, just surfing more, more rides than I did. it's the same in entrepreneurship. If you're trying out new things constantly, then, you know, you just become better at recruiting and you just become better at communicating your vision.

[00:34:44] Jyri: You become better at noticing this is not going to work and pulling out of things without wasting a lot of time trying to make something work that inherently has upside down unit economics. so I think that's actually one of the greatest unspoken values in [00:35:00] angel investing is that you just kind of start to see.

[00:35:03] Jyri: Under the hood of your peers companies more because now you're seeing how they're performing. They're raising new rounds. They're, you know, maybe they're sharing some financials with you. Oftentimes they don't with angels, but it's good to you kind of have access to that. At least you can ask. because you're on the cap table, you know, you kind of have the right to ask.

[00:35:21] Jyri: and so, you know, it just allows you to learn to be a better entrepreneur at an accelerated pace because you have access to more information.

[00:35:31] Rahul: Yeah. And in terms of investing stages, I think you should try to invest across stages, right?

[00:35:38] Jyri: Yeah. I mean, look like with investing, the key thing to understand is. It's a power law game. There are some companies that are going to just get enormous and most companies that are actually not going to ever return anything meaningful. So what you want to do [00:36:00] is have even a tiny, you know, like famously, like when my partner, Katarina's, fun founder collective invested in Uber.

[00:36:08] Jyri: I was like, you know. It was Bill who made the investment. It was like 90K that was worth whatever, like 300 million at exit, right? It's these, you know, stories of these fabulous returns for some tiny, tiny ticket. and that's just the way it works. And so what you want is to get even a small piece of something that becomes a rocket ship.

[00:36:27] Jyri: and so if you, even if you like, you know, I remember when Uri Milner, my namesake invested in Facebook at an about 11 billion post valuation. I remember it was also Mark Sammerer, this, guy I know who invested around the same time. And I'm like, Mark, this is really ridiculous. Like 11 billion, like, like what are you thinking?

[00:36:51] Jyri: and obviously it was a great deal considering where Facebook is. Invalidation today are meta, but, you know, so again, [00:37:00] when you find something. You have a reasonable reason to believe is going to get huge stage. Doesn't really matter. It's sort of like, you know, the founders fund tenant that claiming a high valuation as the reason why you pass on a company simply means you lack conviction. so, you know, it's kind of a reduced way of saying the same. and again, if the company is not so awesome. Maybe you shouldn't be investing in the first place, even if it's a low valuation. So common mistakes, people make these, I made all these mistakes myself. You wait too long to start angel investing.

[00:37:45] Jyri: I would say this is the most common mistake I waited till I had my first exit, which was like, I was like 28 years old already, you know, and looking back, I should have started investing when I was 19. I mean, I, [00:38:00] my, my, we started our first company when I was 15, right? So by 28, I had, you know, 13 years, I was like an internet or, you know, kind of like a computer career veteran. And I just started angel investing that what a fool I was, you know, I was making money. I was spending it, but I was also saying, and I bought a home, I did other things, right. But I easily could have taken a little bit of that cash and invested it into my friends. You know, into these companies, like, I don't know, F secure, Spotify, supercell, you know, all these, you know, Flickr, you know, like LinkedIn, all these, I knew all those founders, Zynga, right.

[00:38:42] Jyri: But I just didn't consider myself, I wasn't an investor. I was a fool. So start early, don't start late, even if the tickets are tiny. There are ways now it's much cheaper to angel invest than it used to be. You can use these platforms. You can use [00:39:00] safes. founders are more accepting to small checks.

[00:39:02] Jyri: There are many reasons why you can do this. the other thing is I didn't, work with a friend, which is the other thing you look, look at why is it, it's not just Rahul of superhuman, it's Todd and Rahul. Or with Air Angels, it's, it's Daniel and Lenny Raczycki, you know, these partnerships are great.

[00:39:24] Jyri: You know, my friend, Finnish friend, my co founder Petteri Koponen teamed up with his friend Timo Ahopelto. They have Lifeline Ventures, which is one of the best performing funds in Europe. so it's oftentimes that you find these partnerships, you know, in the olden days, it was like Joey Ito and Reid Hoffman or.

[00:39:41] Jyri: You know, it's like Pinkerson, Mark Pinkerson, Reid Hoffman do a lot of, you know, investing together. So oftentimes you have these, couplings where you have someone that you like and it's, everything just becomes more fun when you're doing it with a friend, right? So that's the other thing is, is if [00:40:00] you, it's okay to go out, go out alone, but it's more fun to do it with a friend.

[00:40:04] Jyri: And then you can also bring in more capital. You can show more deals. It just exposes you to more things. the third thing is. That I see people do often and I always caution them against this and they never listen is they put in too much Into their first deals. So you're thinking my god. I mean, it's embarrassing to say I can only invest 4k So I'm gonna do 40 Which is like basically already all of their budget and more. And what are the chances that company is going to succeed? Well, fairly small. So that's why I'm saying, take that spreadsheet, tell people what your average check is your each check. You're going to determine like, okay, like maybe if my average check is four. I think this company is particularly outstanding.

[00:40:53] Jyri: I'm going to do six. So my next ticket to something else is going down to two, right? But you have like something, you understand what you're playing with.[00:41:00] you know, because you need to be doing this diligently over time. It's not okay to just do one deal or two deals. And then sit out, which is what I did.

[00:41:10] Jyri: Right. So after I got liquid, I sold my first company in 2007, bam, boom, I was, you know, angel investing left and right all of a sudden, cause I felt rich, right. I was liquid. I had a lot of cash, which I didn't have before. And I made some great bets, but what happened was, you know, then, Oh, the 2008 crash comes, whatever, suddenly like, you know.

[00:41:31] Jyri: My money manager invests in Lehman brothers or whatever. And I lose like hundreds of thousands of dollars. And I'm like, Oh my God, I'm poor again. You know, I've just bought a house and now the price is going down. I don't want whatever reason, right? People go up and down in their finances. And I'm like, I can't invest now, because I'm going broke.

[00:41:48] Jyri: and so I sit out, which turned out to be the best vintages ever, which is like 2009, 2010. Luckily I made some bets like Quora. But, you know, what I should have been doing is [00:42:00] consistently investing because I should have just set this allocation and invested regardless of, you know, what's happening in the macro.

[00:42:08] Jyri: so that's the other thing is, is don't take breaks, have a consistent cadence like the professionals do, because that way you expose yourself to vintages, you know, as the macro goes up and down. Um, okay, maybe there's a moment where you're like, fuck 2021. I got to hold back now. It's fine. Like, you know, when the valuations are up, up, up, you've actually probably want to pull back a little bit and see if you can actually work to make some liquidity happen by maybe selling secondaries or something else in the companies that you've already invested in before, but you know, good companies are started each year, so.

[00:42:42] Jyri: You want to be in those regardless of what the other market, you know, what the market's doing. and then, there are more mistakes. one of the ones that I realized was maybe, you know, in hindsight, most foolish was I never went [00:43:00] back and invested more into a company I saw taking off. you know, I remember, I think it was Joel's talking about this from a general catalyst one time where he's saying, In our 1st fund, the 1st GC fund, you know that they had, you know, basically they had a winner.

[00:43:20] Jyri: They had their 1st clear winner. you know, and they went to present it to their LP. And the LP said, instead of being excited, was kind of aghast and said, how come you guys didn't invest in the series B? And they're like, Oh, we're an early stage fund. Like we don't do serious be like, how much money did you leave on the table by passing on this round where you knew the company was a winner and you should have doubled down on my money that I've, you know, basically given you to manage.

[00:43:51] Jyri: and you passed on it. And so this means when you've got something that takes off, maybe that's a one in 100 or [00:44:00] 150, like it was for me, I should have immediately turned around and doubled down on that company. I said, okay, I'm taking two of my, you know, tickets, three of my tickets into early stage, and I'm doubling down on this because it's still early.

[00:44:15] Jyri: Even though it's now more valuable and I really can see this thing becoming huge. So, don't forget that it's your responsibility once you've made these tickets to basically manage them, manage the investments, which means when something is starting to double, double again, double again, triple, you should be eating into it more and simultaneously when it hits a certain level.

[00:44:43] Jyri: And I've done this too. Is you should be beginning to exit from it, probably through secondaries in a, in a controlled manner. Right? So, you know, I look back and I've always had this debate with my friends to like, I often invest with my [00:45:00] friend Petri where I'm like, you know, you know, he's very frugal about this.

[00:45:04] Jyri: He will do this. Like, he will invest like he is a pro eyes. 1 of the, you know, he's One of the best investors I know and, you know, he will consistently invest more into something that is taking off and then he will also start to consistently sell, later versus someone else who is all in and takes all the risk.

[00:45:25] Jyri: Like, you know, my friend, you see, he was in. I remember having this debates and I'm like, dude, you should, you should sell, like sell at least 15% now in the secondary. It's like a series C or a series D man. We don't know what's going to happen. It might go out and be a tank on the stock market. Like you can't live all your eggs in one basket.

[00:45:43] Jyri: He's like, no, no. Like I'm staying in, I'm a believer. He worked in the company. and it turned out that was the, that was the right call for him. I mean, he made an enormous amount of money. by holding his position fully, but I don't regret the fact that, you know, [00:46:00] I and my friend sold on the way because I've now seen it, especially with the crypto assets where, you know.

[00:46:07] Jyri: I don't know. I held, too much. Right. Cause I was like, wow, every time, you know, I've like sold too early in every company, like, because I'm, I've been like a little bit risk averse. I'm like, oh, I might not succeed. And then, you know, for the last 15 years, basically everything was just going up, up, up, up, up into like the, you know.

[00:46:24] Jyri: You know, even Sequoia thought unity would be worth whatever, like 45 billion, and it turned out it was worth, you know, almost 40 top, like 33 billion. so they had on almost 10 X, discrepancy between where they assumed it might end up and where it actually got, that's not really happening now. so there was this kind of inordinate period during which we got these insane valuations and people profited from it.

[00:46:46] Jyri: But now we're in this period where, you know, I included and, you know, a lot of other people, friends of mine, you know, didn't sell into 2021 and are now really, you know, hurting because, you know, all [00:47:00] those valuations are down, particularly in crypto. Right? so it goes both ways. So you should be, you know.

[00:47:06] Jyri: Doubling down on the ones that are doing well on the winners, but then also remembering as an angel that you need to also get liquidity back so we can recycle that into new deals. And you should start doing that once you've hit a certain multiplier. Maybe it is that you can now return your investment 10x, or maybe you can return your fund 1x, your, your, your play fund, you know, you should set these thresholds for yourself and then you should stick with them.

[00:47:32] Jyri: because if you get too greedy, eventually it's gonna, it's gonna burn. It's gonna burn you.

[00:47:37] Rahul: Yeah, yeah, this is what I, I mean, based on my conversation, this is what I felt like a lot of people, they don't even think about exits.

[00:47:46] Jyri: Yeah.

[00:47:48] Rahul: I think that's a mistake that a lot of people make. Yeah. So in terms of, you know, AngelList had a big role to play in terms of building out infrastructure to make all this happen.

[00:47:59] Rahul: Right. [00:48:00] But it's mostly in the US. So, what is the infrastructure situation in Europe and other parts? If you know.

[00:48:10] Jyri: Yeah, I mean. A lot of this is U. S. centric and my perspective is U. S. centric too. I mean, I'm, I was born in Finland, but I've, you know, since selling Joykitty Google, my home base has been in San Francisco, but I split the year. I spend, you know, summers in Helsinki and Paris, and I'm an investor in a lot of European companies.

[00:48:31] Jyri: it's definitely nascent compared with the Silicon Valley.

[00:48:35] Rahul: so I feel like every time I'm in Europe, it's kind of like, Oh, it's kind of, you know, bespoke and.

[00:48:39] Jyri: Yeah. you know, it's kind of antique and, you know, it's kind of cute and picturesque in this way where it's like, you know, now we have to like, you know, we have to like do everything on pen and paper or most. and it's, it's, I don't think it prevents you from doing any of this. you know, in Europe, like in the US, you have to be a qualified investor to invest in private [00:49:00] companies.

[00:49:00] Jyri: There's been loosening. So that regulation now. You know, in Europe, you know, it's, it's a different, it's a different story. So I would say there's nothing preventing you from doing it. It's just that maybe you can't do it quite at the scale that you can buy. Like I'm an investor in like stonks. That's just recently rebranded to, Sandhill markets, for instance, which is really focused on secondaries.

[00:49:25] Jyri: Most of those companies are. so you can go on these platforms like Stonks or AngelList, you can do like as, as a European, you can definitely be an investor in deals. my understanding is that, yeah, like we've done SPVs on AngelList into European companies, like we've done some in like Aura and, and others, they have a separate entity at AngelList that'll service you if, if you're doing, well, I think it's for doing secondaries.

[00:49:54] Rahul: but you can definitely. Use AngelList, even if you're in Europe, both as an [00:50:00] investor and as a company. So yeah, maybe just to use AngelList,yeah,

[00:50:05] Jyri: and it's not going to solve your, your deal flow problem. It's not going to solve the fact that you still need to go out and, and, be active, you know? and I think that's really more of the discovery part is like, yeah, like, you know, have to be kind of a curious mind, I think.

[00:50:22] Jyri: if you're not, then, I mean, look, there's people like Daniel Eck who. Annoyingly, never invest in anything or kind of historically, even though I called Daniel a friend. you know, over the years I kind of learned, Oh, well, you know, it's kind of like, I was like, what about Daniel? Like, maybe he'd like this.

[00:50:37] Jyri: I'm like, no, no, like he's just doing Spotify. But what he's been doing recently with Primo Materia is then very selectively. picking early stage ideas that he invests in almost as, as the founding investor, like, and it can be like a hundred million dollar check, like it [00:51:00] was into the, what's it called?

[00:51:01] Jyri: Helsing. I think the, defense company. So even the people that are sort of the sticklers who are top founders, I think eventually capitulate and end up becoming parallel founders, like even Daniel, who I would say has been like holding up like the longest, now has five, you know, he's got Nico, the body scan company.

[00:51:28] Jyri: so there's, you know, we're, we're seeing this happen. You just can't resist in the end. And I think that's, that's. There's nothing wrong with it. there's only, there's only benefits. I mean, you will notice people who, if you don't have things under control in the sense that you're wise about how you're spending your time, you're probably doing, you're wasting, you know, you're probably out, like, watching TV or going to sports games or, you know, playing a lot of video games or [00:52:00] whatever, like, you know, it's like, you know, you're wasting your time in other ways.

[00:52:04] Jyri: someone told, came to me and said, Oh, look, I'm not going to invest in this founder because he's like out angel investing in other companies, I'd be like, well, I can imagine many worse ways that you could be spending your time. So, you know,

[00:52:18] Rahul: yeah. And I think even at Yes VC, you also incubate, your own startups and invest, right?

[00:52:25] Jyri: yeah, yeah. I mean, what we really like and what I think, you know, we're not the only people is as, you know, entrepreneurs got entrepreneur, if you're a founder background person, then you have those skills, right? You've learned them the hard way by being a founder. And the skills of an investor, as we've now illuminated on this podcast are very different.

[00:52:47] Jyri: You tend to look at the world in this different way. You're not a believer, right? You are a skeptic a little bit, you know, which is good because now you are [00:53:00] thinking about it strategically and you're saying, Oh, I might believe in this idea, but I'm going to, you know, I'm going to look around and figure out who I think is going to be the best.

[00:53:11] Jyri: Team to actually run with that idea and, you know, whatever, you know, it turns out that this is actually a good founder mentality as well. And. you know, like, yes, we see, we do this and some of the companies we recently started is like, we started a nuclear, small nuclear reactor company that makes district heating, you know, it's like generates heat, not electricity, but, you know, it was more like, you know, working with an entrepreneur who was not an entrepreneur and saying, look, we will fund this, we will bring in, another great investor.

[00:53:52] Jyri: Lifeline. here, let's do this because we believe in you. you're the best team to do this. We've done the work and we think this will work. and so [00:54:00] you can sometimes you have to kind of like urge things into existence. it's a form of co founding, I would say, where you're more like the finance founder, the person that sees it and is able to nudge something into existence that probably otherwise would not have happened.

[00:54:16] Jyri: Not at least not quite as quickly.

[00:54:18] Rahul: Yeah.

[00:54:19] Jyri: Other times it's where I will see an idea and I just can't find anyone who's executing on it and then I'm like, fuck it, I'll just do it myself. and I'll be the CEO initially. But then ultimately what I want is to hire someone to run that company. And I think previously I've sometimes like thought, you know, especially in fund one, we, I think we needed three companies and I was like, Oh, well I should like immediately find someone and quickly exit because I'm really this VC.

[00:54:51] Jyri: I shouldn't be the CEO at the same time. And I think I was a little bit too rushed where, you know, I think now I'm realizing like, look,[00:55:00] again, like if. I'm working on the right things, I'm hiring the best people, I'm communicating the vision, and I'm bringing in the financing, then, as long as I can do that effectively, it's okay, so I, I mean, that's the thing is like when you are an investor and you can get in on a company as a founder investor, you tend to be able to access more of the shares, you know, just, you valuation, right?

[00:55:29] Jyri: Right. And then you have more control over who you bring on as the investors that are on top of you in the cap table and everything. so it's not for everyone, but if you can pull that off, like, you know, Jack Abram with, atomic or, you know, pre Hyde, you know, Henry Gurglin, you know, there's, there's a bunch of these venture studios that are just outstanding at this, but they're oftentimes formed around a single exceptional founder, who can just [00:56:00] basically.

[00:56:01] Jyri: generate good ideas and has the unfair advantage of being a great communicator, having access to capital and having access to a broad network of top individuals to recruit. And so if you have worked to put yourself in that position, then why not start new companies in a venture studio way, kind of as a factory, because guess what?

[00:56:27] Jyri: You can. and so. You know, I think that's one of the kind of highest levels of entrepreneurship that you can reach. You know, it's not just that. You know, you're, you know, Brian at Airbnb, which is amazing. It's amazing to be, uh, and this incredible, powerful founder, who has one company, but I think it's equally amazing.

[00:56:51] Jyri: If you can create many successes, you know, even if you're not singularly known for any single one of them, [00:57:00] you know, many people don't know Jack Abraham created hymns or whatever. Right. You know, because they're more like venture studio companies, but, you know, and of course they are team place, but behind all of it, there's a brilliant mind.

[00:57:17] Rahul: Yeah. Yeah, you know, this is really great. and I had all these arguments on why people shouldn't do this,but yeah, uh, at the end of the day, I like, I mean, I'm totally sold on this idea and I want to be one of these founders.

[00:57:29] Jyri: Yeah. I mean, it's a fun idea. Like, right. Cause you're getting to, it's just so much fun to be able to kind of, you know, even the, like I was just talking to a friend of mine who's doing his, it's his like third company now, but he's very much a serial entrepreneur. And you know, there are tough times, that companies go through particularly in this current climate and it can really start to kind of grind on you.

[00:57:52] Jyri: And if that is the only thing you've got, then. There isn't really much else going on. and I think that [00:58:00] there's something to be said also for, you know, again, it's not about not caring, but it's just like, you know, the fact that you can go to your home after work and, and not worry about work, which is impossible for a founder, but at least you might have something else at the same time that's doing well.

[00:58:18] Jyri: and it just helps you psychologically, you know, not get depressed basically. cause, yeah. The wheel keeps turning and then at some point the times are going to get better.

[00:58:30] Rahul: Yeah. You've diversified all of the risk.

[00:58:32] Jyri: Yeah, yeah, yeah. and it also, I think makes you more accepting of failure. it's easier to let go of something you feel when you've still got others in reserve versus if it's the only one, like I certainly felt that way about my first company. When we sold JICA to Google, I cried and I was like, this is it.

[00:58:52] Jyri: My life is over. You know, I have nothing left. everything's been. Signed off to Google, which it kind of was. [00:59:00] And I think that, again, my mistake was that what I should have been doing is investing in Spotify simultaneously, whatever it took me like a year. And then I'm like, suddenly like in angel investing left and right.

[00:59:10] Jyri: And I think it kind of liberated me psychologically too, because I felt like, Oh, okay, I'm no longer responsible for this company. Now it's owned by this big company, even if I'm still managing it there. And now I'm free to. Explore the world. so we are our own worst enemies. You know, we are the limitations that we set on ourselves are the only limitations that actually prevent us from accomplishing great things.

[00:59:37] Jyri: And if we can, hack them this way, and allow ourselves to flourish and actually just kind of. Have more fun than what's not to like,

[00:59:48] Rahul: Yeah.

[00:59:49] Jyri: I'm a happier founder now than I was back when I was actually, you know, doing, doing, my first companies for sure.

[00:59:57] Rahul: Yeah, yeah, that's a great [01:00:00] note to end. This is great. Thank you, once again for taking the time to do this.

[01:00:05] Jyri: Yeah. Thanks. It was great being on. Appreciate it. Rahul.