Episode 118: From Zero to Angel: How to Get Started in Angel Investing and Spot the Next Unicorn
Episode 118: From Zero to Angel: How to Get Started in Angel Investing and Spot the Next Unicorn
In this episode of Product Thinking, Melissa Perri talks with Brian Nichols, Angel Squad Co-Founder of Hustle Fund. They dive into the world of angel investing, discussing the most effective strategies to invest and what to look for in assessing an early-stage startup.
Brian has an impressive track record of entrepreneurship and corporate leadership. Upon earning his master's degree from USC, he launched two successful ventures, Date Simply and RewardTag.com. He then joined Lyft in 2014, where he spearheaded the growth of the California Markets, which accounted for a staggering fifty percent of all Lyft rides at the time.
During his tenure at Lyft, he played a key role in scaling the company's local teams nationwide, contributing to the expansion of Lyft's employee count from 250 to 2,500. Brian continued his professional journey by founding the Lyft Alumni Angel Syndicate, a network that comprises numerous early Lyft employees. Before joining Hustle Fund, Brian held positions at esteemed companies such as On Deck, BlackBird, and Zoox, where he undoubtedly contributed his expertise and skills to further their success.
You’ll hear Melissa and Brian talk about:
After more than a decade of working at startups, Brian discovered his passion for helping aspiring founders who are paving the way for the next big thing. He finds it fulfilling to support those taking a considerable risk with their lives and careers, making sacrifices along the way. Brian is dedicated to finding ways to accelerate their journey toward becoming successful founders.
Angel investors typically invest between $1,000 to $3,000 in startups rather than writing larger checks of $25,000 or more. This investment activity is accessible to most individuals, as they can put small amounts of money into early-stage startup companies. Although this approach carries a high risk, there is also the potential for significant returns.
Diversification is key in investing in early-stage startups. By investing in a range of companies and spreading out the risk, the likelihood of finding a successful venture increases. Being part of a network that provides access to high-quality companies further enhances the chances of success. Therefore, investing in early-stage startups requires careful consideration and research but can potentially lead to significant financial rewards.
Assessing an early-stage startup requires considering various factors. Firstly, it's important to evaluate the market's state, including its size, potential for growth, and any relevant regulatory changes. Next, it's crucial to assess the experience and capabilities of the team behind the startup, as they will be instrumental in driving its success.
In addition to these fundamental factors, there are other critical aspects to consider. For instance, it's crucial to determine whether the business is high-margin, as this can significantly impact its profitability and long-term viability.
When investing, don't rely too heavily on signals that aren't the right ones to consider. For instance, the fact that other investors are putting money into a company isn't necessarily a good signal for you to base your investment decision on. As a new angel investor, you might hear that a fund is investing in a particular round and assume that this is a positive signal. However, without knowing how much the fund is investing and the reasons behind their decision, you could end up following the wrong signal.
Instead, focus on the business itself. How is the company performing? Is it a legitimate business with a customer base? How many customers does it have, and how fast is it growing? What is the current valuation of the company? These are the key factors to consider when making an investment decision. It's also important to diversify your investments against high-risk assets, particularly if you're investing in earlier-stage companies.
If you enjoyed this episode, make sure to subscribe, rate and review us on Apple Podcasts, Spotify, and Google Podcasts. Instructions on how to do this are here.
Resources:
Brian Nichols on LinkedIn | Twitter
To access the free course on Angel Investing for Product Leaders, go here: Hustlefund.vc/melissa
Transcript:
Brian Nichols - 00:00:00:
There’s a lot of overlap between the day-to-day of a product leader and what you would need to be good at to be a good angel investor.
Host - 00:00:10:
Creating great products isn’t just about product managers and their day-to-day interactions with developers. It’s about how an organization supports products as a whole the systems, the processes and cultures in place that help companies deliver value to their customers. With the help of some boundary-pushing guests and inspiration from your most pressing product questions, we’ll dive into this system from every angle and help you think like a great product leader. This is the Product Thinking podcast. Here’s your host, Melissa Perri.
Melissa Perri - 00:00:46:
Hello and welcome to another episode of the Product Thinking podcast. Today we’re joined by Brian Nichols, the co-founder of Hustle Fund's Angel Squad. In the past, Brian started two businesses right after getting his Master’s from USC: DateSimply RewardTag.com. He also ran the California markets for Lyft starting in 2014, which accounted for 50% of all Lyft rides at the time. From there, he helped launch and scale local teams nationally as Lyft grew from 250 to 2500 employees. After that, he founded the Lyft Alumni Angel Syndicate, which includes many early Lyft employees. And now he dedicates his time to angel investing and getting people into angel investing with Hustle Fund. Welcome, Brian.
Brian Nichols - 00:01:27:
All right. Thank you so much for that intro.
Melissa Perri - 00:01:29:
So, Brian and I met, for those of you listening, because I actually joined Angel Squad and started angel investing with them. So I didn’t know much about angel investing. I didn’t know how to get involved with it. And it was a great program that really taught me the ins and outs. So, Brian, I’d love to hear about why did you get an angel investing? You’ve had such an illustrious career. You really could have done anything. You’ve worked at some of these big companies. Why angel investing?
Brian Nichols - 00:01:53:
It’s a really good question. And first off, Melissa, thank you so much for joining Angel Squad in the early, early days when we were just kind of figuring out what we were doing. But I guess to your question on angel investing, having spent about over a decade working at startups and being a leader at some of the startups, as they grew, I started to realize that while I love building, I also love getting involved in helping the founders who are building the next thing. And I honestly, I founded two companies. I am not the best founder, I don’t think. I’m not one of those top 1% founders. But I do think I can help those founders. And I started to just do it and found that I love it. I find it to be very rewarding to be supportive of people who are kind of taking a big risk with their life and their career and making some big sacrifices and trying to help them find ways to kind of accelerate their path to becoming a successful founder.
Melissa Perri - 00:02:54:
I love that. I feel very similar. I am not the best founder, but I really like helping scale companies or helping them get better. So that’s kind of what attracted me to Angel Squad, too, was like, hey, this is something else I could do to help, but I don’t necessarily have to start the company myself.
Brian Nichols - 00:03:11:
Yeah, it’s pretty fun to help 20 other people who are starting companies, and it’s a lot less fun to be the person starting the company unless you just love that pain. And there’s a lot of that pain, but it’s also there’s potential for high reward if you’re that founder and you do it right. So I applaud those folks, and I’m here to help.
Melissa Perri - 00:03:32:
Yeah, it’s a really hard job. And, I mean, you were a founder too. You’ve done it twice. So when you were doing those companies, how did you learn about angel investing? Did you learn it while you were a founder? Was it after before?
Brian Nichols - 00:03:44:
Good question. When I was starting my own companies, this was in 2010, right after college, there was the opportunity. I talked to VCs. I kind of explored the path a little bit, but the game was a lot different 13 years ago than it is today, and we decided to just bootstrap both of those companies. It was hard to go that path, but it was along the way, really, at Lyft, where I started to see the impact that investors had on companies that they were funding. And so you look at Uber and you look at Lyft, and just the massive gap between the funding totals on each side and then the people who were involved as investors on each side, and how that trickled down through the company itself. And that just kind of piqued my curiosity. And then I still have some memories of lunch conversations with people who are like, we’re playing the wrong game here, just working inside this company. It’s the people who are giving this company all the money that they have a lot more power and influence in what’s happening in this ecosystem than we do as the people who are building it. And so that piqued my interest, and I wanted to learn more, and I was very happy with what I found out.
Melissa Perri - 00:05:08:
So I feel like a lot of people are kind of daunted by angel investing. When I heard about angel investing for the first couple of times, I heard it was only for people that made, like, millions and billions of dollars, and they could afford to lose, like, a million dollars here and just throw it at a company that’s probably not going to make it. But when I came to join Angel Squad, I learned that that’s not quite true. So for those out there, can you explain a little bit about what actually is angel investing? And what does it typically look like? And how do you get involved as an angel. How do you become an angel?
Brian Nichols - 00:05:43:
Yeah, right. It’s such a good question and it does have that stigma, but I do think we’re hopefully having an impact on really reducing that stigma and that association with it being like an elitist activity. Because frankly, the reality is that most people who are angel investing are investing $1000 to, let’s say, $3000 in startups. It is not people writing $25,000 checks. It was probably ten plus years ago. But there are now so many different ways that really lower that barrier to entry so that really most people can participate in this activity of putting small amounts of money into early stage startup companies. And of course, it is high risk and then there’s the potential for massive reward, but it’s not. And so you absolutely might lose a lot of the money that you invest. But the idea is if you invest in enough companies and you diversify across, let’s say, 30 different companies and you put $1,000 checks into all of those, there’s a high chance that you will find one. If you’re associated with a network where you’re able to get into high quality companies, there’s a chance that there’s just an outsized return. The seed investors in Uber, they 5000 x’d their investment. So if you put in 5K into Uber, you made 25 million. And so I think that is the work we’re trying to do, is change that kind of image and make it known that if you are interested in, over the span of the next five years, investing a total of, let’s say, $30,000, that’s absolutely, you can be an angel investor, too. And we want to help people get there.
Melissa Perri - 00:07:40:
So before you started Angel Squad, you did start a couple of different syndicates too. Can you tell us a little bit about you started an early Lyft one. Tell us about why you started that, how it came about, who was in it and what you did.
Brian Nichols - 00:07:54:
That’s a perfect follow-up question because I also didn’t think I could angel invest. And I was kind of right because even after Lyft, I didn’t have that much money to go around writing big checks. And so how could I really kind of put my shoulder against this interest of mine in investing in early-stage startups? And what I found was if I aggregated a group of people who are also interested in investing in startups, but maybe they didn’t really want to do all the work to source good deals, or maybe they just weren’t plugged into the right networks, but they did want to start. Well, I’ll do the work. I’ll go find those companies. I’ll explain why I like them. And then you can just invest as little as you want, as little as $1000 into those companies. And then we can pool together our capital and invest as, let’s say, one $100,000 check into a company made up of, let’s say, 50 different people. So that’s called a syndicate. It’s pulling together that capital and making it much easier for the founder on their side from an admin perspective just to receive that, let’s say $100,000, or maybe up to a million dollar investment from just a bigger group of angel investors. So that was kind of the first reason is like, I didn’t really think that founders would want to talk to me and do the legwork of bringing me onto their cap table with $1000 check or a $2000 check, which is what I started out with when I first started angel investing. And so I thought, well, if I’m going to aggregate a group of people, what better group of people am I associated with than all of my colleagues that I just worked with at Lyft, who many of whom I think are really talented. And if we invest together in companies, then we are motivated to help those companies with the things that they need help with.
So turns out a lot of startups need help with introductions to potential customers or clients, right? Or maybe they need help recruiting a product leader to come in early on and help with scoping out the next few products that they should release. Well, it turns out the people who are investing in those startups through the Lyft syndicate, they are motivated and they’re the right people to then roll up their sleeves and make those introductions or even sometimes join the companies that they invest in full time. Or if they don’t want to do full time, they could do consulting gigs, things like that. So the per-dollar impact that we are able to have as a group is very outsized and I would argue is actually the best per-dollar value that a founder can get. And so I definitely believe strongly that it is actually those smaller check writers that make the biggest difference on a per-dollar basis.
Melissa Perri - 00:10:54:
So when you were starting the Lyft Syndicate too, did you just go around to other Lyft employees and be like, hey, you want to do this with me? Do you have to do anything special to start something like this?
Brian Nichols - 00:11:04:
Yeah, it’s a good question. It’s a lot of work. I basically did the version of that on LinkedIn. So I went through all of my Lyft contacts from LinkedIn and I said, hey, I’m starting this syndicate. I want to break into venture. I’m going to do a lot of work finding good companies. It’s free for you to just join it. And here’s the link. And so one by one, colleague by colleague, they started to join it. And then the coolest part happened, which was some people started leaving Lyft to start companies. And those were really high caliber people who then came to me and they were like, hey, I heard about this syndicate thing. Would you guys be interested in investing in my company? And we would say, well, what are you working on and if it sounded great and we think we could be valuable on the cap table, then we would invest. And so we’ve invested in, I think, maybe ten different Lyft-founded companies at this point.
Melissa Perri - 00:12:03:
That’s cool. That’s really cool. So you were also doing a lot of the legwork in the early days to evaluate these companies. What types of things were you looking at and bringing back to the syndicate to tell them, like, hey, I think this is good, or, no, I think we should pass on this?
Brian Nichols - 00:12:19:
Yeah. And that’s the ultimate crux of the question. And frankly, when I started, I didn’t know anything. Where do you go, right, when you want to learn what to look for in assessing an early-stage startup? And honestly, so we’ll get to this later, but that’s why I started Angel Squad, because when I started, there was nowhere to go. I got lucky. I turned to Ann Miura Ko, who’s a GP co-founder of Floodgate Capital. And Floodgate is one of the best venture funds in the whole game and they’re seed stage investors. They were one of the first investors in Lyft and Ann Miura Ko is on the board of Lyft. And so through all of that, I was like, I’m starting a Lyft syndicate. Can you teach me how to invest? I’m going to do this and I need to learn how, so please teach me. And she was like, great. And she took me under her wing. She still is taking me under her wing four years later. And we review deals together all the time and basically it started with her outlining to me. All right, here are the things that matter when it comes to assessing an early-stage startup. You need to look at the market. How big is this market? Is it growing? Are there regulatory changes that are either a headwind or a tailwind? Is there a good “why now?” And that might be the regulatory piece, but maybe it’s COVID that was a good why now for maybe investing in remote tools, things like that. So, market the team. Is this the right team to work within this market and to build the product within this market? So looking at all the elements of what have they done that’s relevant? Do they have some earned secret from working and spending a ton of time on this space that maybe is overlooked by most people because they just aren’t as close to the problem? Other things that I generally look for is this a high margin business. Software is good, hardware is very hard, and so some people think that makes it more attractive to me, especially in the market that we’re in today, Q2 2023, that capital is harder to come by making hardware startups harder to build, because you need more and more capital. So I’m looking for things that are a little bit require a lot less, so they’re less capital intensive.
So I mean, those are just some of the things. But part of what we do at Angel Squad is we kind of lay out all of the different possible components within the framework that anyone might want to use in terms of assessing a startup. And then we really encourage people to take that framework and make it their own. Like, what are the things that you think about based on your lived experience? What would you look for in a founder? Do you want somebody who’s ultra resilient, who can battle the battle to get through the tough times as a startup founder? You know, some people care a lot about that, other people care less about that. So every investor can kind of weight things the way that they see fit. And I think we at Angel Squad are often just trying to help them kind of get to that point.
Melissa Perri - 00:15:35:
So tell us a little bit about Angel Squad and Hustle Fund. How did you get involved and decide to start this?
Brian Nichols - 00:15:42:
Yeah, I’m sorry, I already jumped ahead and pointed to it a couple of times, but it’s so woven into my life now and really my obsession that I can’t help it. So I was working on the Lyft syndicate. I started to meet up with a lot of different VCs and I got to know Eric and Elizabeth pretty well at Hustle Fund. And I started to realize, looking at my growing syndicate, I opened it up to anyone on the AngelList platform who’s interested in angel investing. And what I found was it exploded in interest and it grew to now almost 4000 people. And I started to notice that there’s a lot of appetite for angel investing, but also that these people are writing thousand dollar checks. They come from all different backgrounds. Some people are professional athletes, some people are quant traders, some people there’s a lot of product people, there’s a lot of people that you would imagine from the tech world. But one thing that they all have in common, or many of them have in common, is a lack of fundamental understanding of how this works, how they should think about making their investment decisions. Why are they making the decisions? Sadly, most of the people on AngelList are looking at who else is investing in the round as a way to make the decision, right? Like, if you see Andreessen is investing or Founders Fund or some of these top-tier funds, that’s enough, you can just invest. And it’s like, that’s not how you should do this.
So I turned to Hustle Fund and was like, you guys are awesome at teaching. You have incredible deal flow, you’re seeing like 1000 deals a month and you’re probably the best position fund in the whole valley or maybe the whole ecosystem to teach new people how to get involved with angel investing. And so they were like, that’s funny that you mentioned that. We are already thinking about building something like that. Want to come do it for us? And I was like, I think so, yeah, that sounds good. I would love to do it. And one thing quickly led to the next. And this is October of 2020, so we’re still deep in the COVID pain. And I made the plunge and quit my job working. I was at OnDeck beforehand and I decided, let’s go for it and build something totally new in this ecosystem where we’re teaching people how to make early stage investment decisions and then letting them invest alongside our fund into high quality investment opportunities that our fund is investing in. And so it’s gone through our vetting process. We’re putting our money into this company. And so you could decide if you want to invest $1,000 into those companies too, or you could just see what we think is good and you could decide if you agree. And that’s a helpful data point to kind of build on top of for any new angel.
Melissa Perri - 00:18:44:
Nice. I loved that about Angel Squad. So the whole reason I got involved was my friend Barry O’Reilly had joined and then he was like, oh, you got to check this out if you’re interested in investing. And I was like, how did you become an angel like all of a sudden? He’s like, Angel Squad. So he brought me in and it was cool because we could actually talk about deals together. But what I loved is that you guys laid it all out. Like you put us through an actual course on what should we be looking for, how does this work, how are they structured, how do we look at the financial sheets and read them as an investor and actually look at what’s key and what’s not key? How do we understand cap tables and equities and stuff like that. And to me that was just so enlightening. Not only that you get to invest, but also they get all this training on things that are really helpful, I think as a product person and somebody who works with executives all day to just understand as well.
Brian Nichols - 00:19:35:
That was the goal. You joined in the early days too, by the way. So along the way we’ve really layered in more and more, I guess, transparency. So, for example, one thing we do now is when a squad member finds a deal that they are interested in investing in, they submit it, and then we actually publicly review it together and we say whether or not Hustle Fund is interested in taking the meeting with this company and just go through why or why not. How are we making the decision as to whether or not, just based on the slide deck. Because that’s really all you really need to see for companies and what they’re working on. And so that’s just an example of trying to get people closer and closer to how we are doing things at the fund and yeah, I’m glad to hear that, it was helpful for you. And now over 1300 people have joined, 25 different countries. Over 25 different countries. And we’re just continuing to try to improve the experience to the point where a lot of people are starting their own fund joining funds. A lot of people have no interest in doing that and they are happily doing their day job but they feel much smarter about actually participating as an angel investor. So we are still just getting started over a little over two years in now, but we’re definitely feeling like it’s on the right track.
Melissa Perri - 00:21:06:
I can’t believe it’s that early too. It feels like you guys have been around for so much longer but it’s been a short but wild ride. I mean how many investments have you done so far?
Brian Nichols - 00:21:16:
Yeah, short but wild ride is about right. And I do come from a lot of startup experience and so I have one speed and that is fast. And so we build fast, we listen to the customer and what they’re trying to learn or what access they’re looking for and we just keep making the program better and better and in terms of the investment that is opportunities, that’s one of the main reasons people join. We’ve invested now I think in probably about 70 companies over the past two and a half years that the Angel Squad has participated in. These vary from pre-seed companies all the way through to we did one Series C company and so those are all Hustle Fund deals. We’ve also then empowered people from within Angel Squad to share their deals and then we syndicate some of those deals. That’s additional I think around ten more companies that Hustle Fund vets and we say, okay, this is later stage than what we would invest in at our fund because we are a pre-seed fund when we enter. This is like maybe a Series A type company that’s way outside of scope for our fund. But this is a great investment opportunity. Maybe we’re going to participate as angel investors, the fund investment team investing as angel investors and so let’s bring that to the squad as well. And so it’s a cool way for people who are in the squad referring a deal to Hustle Fund that Hustle Fund approves and then we share that investment opportunity out as well. And there’s some economic upside for the person who finds that deal too.
Melissa Perri - 00:23:03:
So you’ve been looking at angel investing for a while, you’ve been part of this venture capitalist world. What do you feel like are the biggest mistakes new angels make?
Brian Nichols - 00:23:15:
Okay, so I hinted at one already, which is they’re looking for maybe they put too much weight on signal. That is not the right signal to weight. So who else is investing is not a good signal for you to make your investment decision. They might be investing a super small amount and they might be doing that, let’s say, okay, Fund A that has a really good reputation is investing in this round. Okay, great. Do you know how much they’re investing? Do you know how much they invested last time? Are they only investing a teeny tiny amount this time to help with the signal that, hey, it would be bad if you, as a fund, did not follow on in this round. So even though you invested a million dollars last round, can you please just invest, like, $50,000 this round to make sure we don’t get the negative signal that you’re not investing in this round? Okay, well, if you’re a new angel and you hear that fund is investing again in this round, you’re going to think maybe that’s a really positive signal. But if you don’t know how much they’re investing and you don’t know maybe more of the details behind why, you might be kind of chasing the wrong signal.
So instead of looking at that, look at the business. How is the business doing? Is it a real business? Does it have customers? How many customers? Is it growing? How quickly is it growing? So I think that’s where I think angels get a little bit thrown off. The other thing this is probably will take a little bit too long to go into depth on, but is the entry point. When you invest, what is the valuation of that company? If you’re an angel and you come across a deal that’s already valued at, let’s say, a 200 million dollar valuation, you’re playing a different game than early-stage angel investing. That’s a late-stage company upside. If you’re lucky, maybe it can become a 10X outcome. Ten X outcome is amazing. But also, that’s not angel investing in the sense that angel investing, you’re looking for maybe like 100X to 1000X returns. And so you’re diversifying against a much higher risk asset versus a later stage company. And then, I guess, on a similar note, if you look at YC companies after Demo day, they’re valued at upwards of $20 million and barely have a product, right? Many of them. So that’s expensive if you’re going to invest at that $20 million valuation. But every other company at that stage, that’s not a YC company would probably be raising at, let’s say, a $7 million valuation. You’re basically taking a three X hit on your potential upside right there. So that company needs to perform three X better for you to get the same returns. And you’re basically basing that on the signal that the letters YC have next to that company’s name. There’s not much else beyond that after they graduate from that batch of YC. I think valuation sensitivity is not baked into the DNA of the angel as much as it is for most funds. So keep that in mind.
Melissa Perri - 00:26:35:
I think the timing that you mentioned, too, is a really good point that a lot of people misconstrue right. And I think that’s the appeal for a lot of people with angel investing is like, oh, I want to turn $1000 into 25 million, like the people at Uber. Right? But what’s the reality of actually investing in these companies? Right? What’s a good upside for an angel investor and how often do they actually succeed?
Brian Nichols - 00:27:00:
I think there’s probably data points all around that I don’t know the exact numbers for. It would be worth looking into some AngelList data on what they’re seeing. I would say just anecdotally I think realistically a good outcome would be somewhere if you’re investing in these pre-seed, seed stage companies, a good outcome would be between 50X and 100X. So you put in 1000, you get 50,000 back. That’s pretty good. That said, you’ll probably put in ten other checks that go to zero or close to it. Maybe you get your $1,000 back. So on net maybe you made 40,000 off of that, something like that, which would be amazing. But also we’re talking about a pretty long time horizon too, so you have to keep that in mind. So a couple of my friends who are in the syndicate, they’re like, hey, when can I liquidate my investment? Because I’m happy with like it’s up 20X. I’m happy, I’ll just take it and I’m like, well right now there’s no tooling for that. To make that happen, you’d have to find somebody else who’s going to buy your shares from you and maybe that’s like another VC or something like that. But those are called secondary transactions. They’re pretty hard to kind of put together right now. I do think this will change in the next five years. AngelList and other Carta, there’s going to be marketplaces for this sort of thing, which will make it really interesting, but in the shorter term it’s a very illiquid asset and so you do have to keep that in mind from just a lockup perspective. Like you’re not going to be able to touch a good investment for five plus years, minimum. Airbnb. I think if you were a seed investor you had to wait like twelve years. Stripe is having some serious issues right now with their early employees. There’s a cliff, basically a deadline where it’s been over ten years and they haven’t been able to liquidate their asset there. So it is an illiquid market. So I think those are some of the realities of it. It’s certainly kind of fun and has that allure of maybe in some ways being a sexy thing to do, but it’s a lot of strikeouts and then hopefully some grand slams and you have to be really patient to see which is which.
Melissa Perri - 00:29:25:
Yeah, that’s a really good the time horizon is a nice thing to bring up because even I work with a lot of growth-stage companies, even those hold patterns with those VCs are at least five years. So if you’re starting in seed, sometimes they don’t see those companies until they’re five to ten years old, and then they come into the growth stage. And I worked with one company that was 20 years old and just hitting growth stage. It was wild. And I mean, they were very successful. They were getting really big, but they had just grown very steadily over time and then were able to pivot into something that helped them explode. But those founders have been doing that for 20 years.
Brian Nichols - 00:30:00:
20 years.
Melissa Perri - 00:30:01:
20 years.
Brian Nichols - 00:30:01:
Jeez, good for them.
Melissa Perri - 00:30:03:
Yeah, right. I was like, Good for you, sticking this out for so long. And the company did very well after that. But that’s a long haul. So I think that’s something people don’t realize about being able to take your money back in total when it comes to equity. So that’s a really nice point.
Brian Nichols - 00:30:19:
And a quick shout-out to the partners of those founders who wrote it out for 20 years, because it’s one thing to be the founder and to really have your conviction that this is going to work and I’m going to keep chugging along for 20 years to make it happen. But to be the partner, the spouse of the person doing that, you have to have some patience and some trust. I appreciate my wife for being patient with me on my journey, and I wanted to shout out any of those spouses or partners out there who are riding with their founder spouse. Good for you.
Melissa Perri - 00:30:58:
Oh, yeah. That support system is very needed.
Brian Nichols - 00:31:01:
Exactly.
Melissa Perri - 00:31:03:
So when you’re considering being an angel investor, what I like, you were talking about Angel Squad, is you have people from all different backgrounds, you’ve got your professional athletes. But what really attracted me, too, is as a product person, I felt like I really understood the products, right? Like, I was like, I get this. I can evaluate a product top to bottom very easily, but I don’t know how this equity thing works. And that’s what really made me like Angel Squad, because I was like, oh, cool, teach me all this stuff. So I know venture capitalist stuff, but I don’t know the nitty gritty of how to get into this deal flow part. So I think that’s really appealing. So you mentioned that there are a lot of product people in Angel Squad?
Brian Nichols - 00:31:45:
Yeah, it’s the number one segment. I think maybe it’s tied with founders. A lot of founders also like to learn about angel investing, which makes perfect sense too. But product people, it’s just the most direct hit, I would say. I think we have maybe 120 or more product people from all ranges. Some are pretty junior, but all the way up to chief product officers at big tech companies that people have heard of, it’s definitely attractive. And for the reasons you just explained, too, it’s like there’s a lot of overlap between the day-to-day of a product leader and what you would need to be good at to be a good angel investor.
Melissa Perri - 00:32:27:
What are those overlaps like? Where do you see product people really shine in angel investing compared to people coming from different backgrounds?
Brian Nichols - 00:32:35:
I guess if we start at the top with angel investing, let’s bucket it into five categories. I feel like the product listeners will like the bucketing piece. So finding great companies is step one. Deciding which are the best is step two. Investing is step three. Helping the companies you invest in is number four. And then you kind of have to be patient and wait for there to be some sort of exit where you get your return. So, okay, numbers one, two and four finding, deciding, and helping are all things that product people are going to be good at just by virtue of what they do for a living. So finding great companies turns out that product people are often great founders. And so product people know other product people. Product people also know other non-product people, engineers, growth leaders, things like that, who they work with, cross functionally, who also would be great founders. So there is a good chance that a product person would be good at sourcing good deals, assessing like you were just saying, Melissa, assessing opportunities for a product is kind of the job for product leaders in many ways. In terms of, okay, what are the real problems we need to solve? What’s the size of the impact if we get this right? All of those kind of the nuts and bolts of deciding what to build and how to build it, and using those same frameworks to assessing what other founders are building, and they’re building a product, too. So you can really apply a lot of those same concepts and then helping companies. The way you end up building a great reputation, I would say, in angel investing is by being super helpful to the founders who you invest in. And if you’re a product leader and willing to spend some time in the companies you invest in, in terms of helping them shape their product vision and helping them kind of maybe get connected to the right people to execute that vision. You end up becoming a top 1% investor by just rolling up your sleeves and offering your skills and offering your network to support the founder you invest in. So those are just some kind of quick examples, but I think if you dive deeper into each of those buckets, you could come up with more and more reasons why product leaders are such a good fit for angel investing.
Melissa Perri - 00:35:03:
So, with that in mind, too, where do you see product people need some help with the angel investing piece? What’s the stuff that’s preventing them from going full-force into this?
Brian Nichols - 00:35:16:
I think that’s where you get into the fundamentals of making the investments themselves. Valuations terms. What are the mechanics of investing? What’s a safe? How is that different from a convertible note. What is a priced round? How should I be thinking about all of these components that really matter when you’re setting up the structure of the deal? Or as an angel, you’re not setting it up, but you’re assessing whether to participate in a structure that’s probably already been set up. So a founder might come to you and say, we’re raising on a, a YC company might say, we’re raising on a $20 million post-money safe. Well, if you’re a product person, maybe you don’t know what that means, which is totally understandable, but also you don’t know what to look out for there. And does that even make sense to be raising at 20 million when most other companies that are similar are raising at ten? And so have you done the work to understand some of the really, like, if you drill down into what I’m describing, it’s like the legal documents that matter. But I wouldn’t expect a product person to know those things. And so that’s part of why we want to help them.
Melissa Perri - 00:36:30:
Yeah, so there’s not a lot of places to go learn that, too. If you get like an MBA, I know at Harvard, we have a lot of classes in it. You could take some of them go pretty deep, some of them do not. They just go more surface level. But these are pretty intricate details that are very specific on investing. So how do you learn about that as a product person?
Brian Nichols - 00:36:50:
There’s some limited online resources or you could go to school for it. We’ve started to put together content specific to this for Angel Squad members. And so one thing we’ve done, actually, maybe we should shout this out, is we put together a course for product leaders to go through. And so if you go to hustlefund.vc/melissa, you can see a course oriented for product people to go through, kind of drill into some of these things. And then if you find those topics interesting and you want to dig in deeper, then we have a lot more content within Angel Squad so that you can kind of get a much more in depth understanding of how it all works.
Melissa Perri - 00:37:39:
Yeah. And I say to those listening, when Brian approached me and said, hey, do you want to share this with your product people? I said, absolutely. Because I think there’s so many product people out there like we’ve been talking about, who are just set up well to be good investors and to really get into angel investing on another level. So I hope people will take advantage of that. That course is free. It includes a lot of the stuff I did learn at Angel Squad. Angel Squad’s got a lot more once you get in there. But if you go again to hustlefund.vc/melissa, you could take that free course. And I think it’ll also help you just kind of understand more about the financials. And I feel like I’ve talked a lot on this podcast about how, if you want to be an executive product person, a chief product officer, that financial piece is the thing that’s standing in the way of almost everybody trying to make that leap into the C suite. Because if you want to join that high growth company, start talking to VCs, present to the board, you need to understand how they put their money in and how they expect to get their money out. And these types of concepts I think are exactly what we need to learn for that. So I’m so happy you put this together because I haven’t seen anything like as compact out there for just product people on this. So thank you very much for doing that and I hope people will actually check it out.
Brian Nichols - 00:38:56:
I hope so too. It’s brand new. We’re just putting it out there and seeing if there’s market pull in that the product world is interested beyond what’s kind of organically happened in terms of just product people joining Angel Squad without us trying to build something specifically for them. But this is specifically for product leaders and hopefully it’s a valuable starting point and we can really try to ramp it up from there.
Melissa Perri - 00:39:24:
Definitely. So, to wrap up, I have one more question for you. What do you see as the future for angel investing? Like what’s trending, what’s happening, what’s coming up?
Brian Nichols - 00:39:33:
That’s a really good question. Okay, I’m totally talking my book here, so I acknowledge that. But if you look at the last five years, the entire ecosystem of early stage investing period has changed substantially. I credit AngelList and as kind of the nucleus for that. AngelList is a platform that basically makes things like creating a syndicate or a fund very easy, very software driven. It’s almost like the magic of hitting the lift button in a car coming to you in terms of simplicity. And that was kind of hard to build technology to make that actually happen. Well, we have that level of simplicity now built on the venture side that had never existed. And because it now exists, thanks to AngelList, has really created this tailwind and unlocked this access to so many people who otherwise never would have started angel investing. And so over the past five years, even in a time like now where the market has really turned and people have less disposable cash to invest in high risk assets, it’s still very popular. Angel Squad had more people join this quarter than ever before. And so to me that signals the next five years, most next ten years, we will continue to see this growth from the just general consumer investor, the retail investor who has been playing too much, I would say, on Robinhood and maybe will benefit from some exposure to some of these earlier stage companies. And they should get smart about it before they do. And so what happens next if you do that, if that actually does happen, is the dependency on big institutional funds goes down from founders. And big institutional funds will always exist. They just will. But the dependency on them has already started to go down and will continue to go down. And I think that’s attractive because what that then leads to is a wider range of founders from more diverse backgrounds who receive funding because the people who are making these investments maybe look like them. Whereas you look at the majority of the funds on Sand Hill Road, I can say this, it’s like a bunch of older white dudes. That’s not great. That does not lead to a diverse founder environment. And all the data backs this up, which is like, we really want to see a broader range of founders, whether it’s women-led companies, African American led companies, we want Latino companies, we want to see more of those founders succeed. And the way that you get there is to empower more people to invest in those founders generally. Like I said, people invest in the people who look and sound like them. And so that’s kind of this at least maybe the dream world that I’m picturing is we really start to see that sort of diverse growth in the ecosystem of both founders and investors. And hopefully I’m right and we could check back in in a few years and see if things are heading in the right direction.
Melissa Perri - 00:43:06:
That is definitely a future that I am excited for and I’m really hoping it trends that way. And I’m sure it is just from observing what I’ve observed too. So super exciting things on the horizon. Thanks so much for joining us, Brian. If people want to learn more about you and about Angel Squad, where can they go?
Brian Nichols - 00:43:22:
So to find me, I have a website, nicholsb.com. It links out to everything that you need from there. But I definitely will also just plug hustlefund.vc/squad. That’s my baby. I would love for people to check it out. And I think let’s plug the product course one more time, which is hustlefund.vc/melissa, and you can check out what we put together for product leaders.
Melissa Perri - 00:43:48:
Great. And we’ll put all those links in the show notes too, if you missed them. Thank you again, Brian, for joining us and thank you for listening to the Product Thinking podcast. We’ll be back with another Dear Melissa next week, so if you’ve got any questions for me, please go to dearmelissa.com and submit them for me. See you next time.