Jeff Clavier and Andrea Zurek - Startup Investor School Day 3

Jeff is someone that I met in the very beginning of my venture into venture when I first started investing a long time ago. He taught me as many lessons about how to be a good investor and, in two senses, how to be a good investor by making good choices and how to be a good investor partner to the founders with whom I would invest and become partners with. I don't think anyone in the industry is as helpful as Jeff, an extremely smart, perceptive investor. I've learned a ton from him. His comment that hits home and that you all should pay attention to with the founders that you work with is that he says, "I wish startups focused more. There are always too many things on their plate." It's actually true of Jeff generally; there's always too many things on his plate. I'm very grateful that he added one more and came and talked to us today, so thank you so much, Jeff. He's a great investor without anyone else helping him, so it's a pleasure to be here.

Super exciting to see so many people who are ready to do the most exciting thing you can think of, which is see the future through the eyes of founders and try to help them, help them with a bit of capital, help them with a lot of help. So congratulations for that.

I decided to cover what seems to be a boring subject, and yes, it's kind of boring: asset allocation and construction. But I hope that any with my talk you'll have realized why I'd say to spend the next minutes on that because it's actually really important to think about all those things as you get on your Android journey.

Sort of brief bio: I was born French. I started up in the financial services market in France, got acquired, and spent seven years at Reuters as a senior exec. So you know, the big company thing. Moved here eighteen years ago to become a traditional VC, and then in 2004, saw this emergence of web-tool companies, and at the time, believe it or not, there were just a handful of angels actually backing those entrepreneurs who were looking to raise a few hundred thousand dollars.

So I jumped in and became one of the then super angels. Uncork, you might have heard of us as Soft Egg, is now 14 years old, two hundred deals, a bunch of successes, some of the companies that we backed: Bloody Bloody Blonde; those are the funds. So, we're now investing about fund five in something. Meanwhile, we have a growth fund as well.

But I want to spend time on this part, fourteen years ago, when I was investing my own capital. So what I like to do in those kinds of events is go back in history and talk about, "Hey, this is what I wish someone had told me then" as opposed to me discovering it. It's kind of important to figure out how much of your net worth you should be investing, risking with entrepreneurs because it's a pretty bold thing to do. It's a very long game. I'm sure you've heard that already over the past couple of days I'm sitting with all those sort of awesome end rolls.

The thing that people don't always appreciate as angels is how long it is going to take to sort of get this massive outcome that you're hoping for. Yes, there are billion-dollar outcomes that happen within one or two years of the company being founded, but that's the extreme kind of example that almost never happens. For most angels, it will take 8 to 10 years, so start sort of being ready for that. Obviously, it's very risky, so you're going to have losses; those will come very fast typically. So bad news comes first in our industry.

Something which I've seen with our funds getting in the money: so let's say you decided to invest 250 K in a portfolio of companies; it will probably take six years to get that cash back, and then you will get into profits. That's what VC funds do; they get the fund back to LPs within six years, and then we start getting carry. It's really super risky, and so at the end of the day, you have to be modest and realistic and understand that anything you invest has a likely high likelihood of just being wiped out.

This means don't invest money that you can't lose. This, if you actually get anything out of this talk, that's one sentence: if ever you need the cash back, don't invest it in startups. So just to put things in context, your investment will be part of, okay, that's interesting, that's something. So it’s supposed to show you an ecosystem with all the seed stage, pre-seed, whatever.

Unfortunately, it's not showing out for some reason. Can you see why? Okay, good, thank you. So this is the kind of compressed ecosystem in which you guys will operate. You'll typically be at the top right, even that's a tree seed; see maybe deflator most central. Don't believe from into companies that series ISM and so forth. So you'll be part of this right, and you guys will sort of start figuring out your own comfort with valuations.

The simple way to think about valuations is that they're a reflection of the traction but lack thereof, the company has achieved; the risks that still on the table, as opposed to the ones that have been taken off the table, and the potential of the company. When you invest as an angel, typically it's the highest risk, it's the lowest valuation, it's the longest holding, and it's the highest multiple potential; highest return sort of multiple potential.

It's important for you to figure out, and I'm going to give you two examples. Think about Dropbox. You could have invested, if you were lucky, at three pre, but I was at the crazy time where there was barely a product, and it was just the two founders, or you could invest at, you know, four billion, which is when the series see sort of happened, clearly most established various Turkish company founders, product, revenues, and so forth. But obviously, the difference in terms of return potential between four billion and three million is pretty different.

So, asset allocation: how much of your net worth should you allocate to enjoy investments? Obviously, it's your choice, but I would really ask you to think about this framework, which is: okay, I'm going to lose everything that I'm going to put in, and I have to be okay with it. That was sort of my pitch to my wife fourteen years ago when I said, "Hey, so we had made a little bit of money at Reuters when we sold the company and so forth, and I said, so I want to try and be a full-time enjoy investor. I'm going to take 250 K of our hard-earned savings and invest them in startups, consumer startups, and I'm going to do nothing but that for eighteen months."

And the comment was, "But you know nothing about the consumer stuff." But you know, she loves me, and so she said yes. But I don't think I told her the bit about, "Hey, we're going to lose everything." But that's really important; that's the way to think about it. Everybody has, you know, sort of circumstances. If you have a family, if your pulmonary work doesn't work, whatever, if you have, you know, whatever, I think ten percent is probably sort of a sound sort of number.

When you think about the guys who have a lot of money to allocate to different asset classes, like pension funds, typically do five to ten percent in VC and private equity. So two asset classes. I saw that Stanford goes up to 25 percent in VC and PE, so, you know, I think 10% is a good number. You can always sort of do more if you're successful, but at least put a cap out there. There’s always sort of a notion of, "Okay, so ten percent, fine; what is the minimum?" Once again, it sort of depends on your portfolio construction, and we'll talk about that.

But obviously, with the JOBS Act, it's possible for non-accredited investors, so know you guys are accredited, to actually participate, you know, through AngelList syndicates and so forth. You could decide to put like a thousand dollars per company and be another investor. Why not? I would say for you guys who want to do this professionally, awesome. I personally think that, you know, thinking about an initial budget of $100,000, which you know you would divide up into a number of slots up to a million dollars if you have sort of the means, is sort of a good way to think about it.

You want to think about a certain investment horizon. You don't want to try and shove all this cash in the first few months of activity because the challenge—I mean, there was a question earlier about how do I tell the world I'm an angel investor—doing that now, it's pretty popular. The other is that because you don't have any sort of sense of what's good, what's not, everything's good. I loved everything I was seeing, you know, back in the day.

The problem is you need to normalize; you need to sort of figure out what is the bar that you set for yourself in terms of investing. And if there's, you know, one thing to do is put the bar high. So, I'm repeating that; segregating the cash and making it sort of move to a different account that you actually don't mentally think about; it's not something that you're useful paying taxes or, you know, your expenses of whatever; is actually a sort of a good trick.

So what's real construction that defines the key factors of your investment strategy, right? So there's a few sort of factors, and there's more. But, you know, it's the check size—what's going to be your average check size, right? When you sort of invest, what is the target number of investments per year? Do you want to have a concentrated portfolio? Do you want to have a larger portfolio? What are the sectors you want to invest in?

We heard, you know, about different strategies. You could be very focused on what you are an expert in, and if you're building your company in a given sector, and as that sort of said, you write about it, people say, "We'll come to you with things in that industry that you know really well about." That's a completely legit sort of investment strategy. But another could be, "Hey, there are five or six sectors I'm interested in; I'm just gonna go for them."

Then figure out whether you want to be like super early—we see it as we call it— which is you actually help the founder to build the product, or maybe you know, seed stage where we attend court invest, where we launch the product. That's roughly, you know, nine to twelve months after the pre-seed stage. Geographies: do you want something which is in your backyard so you can actually meet your CEOs? You know, why not.

And will you only do such investments at whatever since they preceded your first check, or will you actually try and follow on and go into your company? So those are sort of a few factors I want you guys to think about as you sort of define your investment strategy. And that's, you know, what we prefer contractor. By the way, that's how we do it as well.

So a few examples: So when I started, I was writing twenty-five to fifty K checks, right? And there wasn't like super hard rules together with twenty-five or fifty; it depended on the deal; it was variable and so on and so forth. The point is to have some consistency. If you have 100 K here and five K there, it's hard to have sort of a real strategy because obviously the 100 K will take all your sort of attention because it will be a much louder check for you.

There's no magic number. I like the 10 to 12 investments per year; that's a good number. It's a good pace; it's enough that you can actually improve the bunch of points on the board. You know, it's roughly, you know, 35 to 40 investments over three years; that's a good sized portfolio. That's actually the size of our fund's portfolio. Some people want to go 400; some people want to do, you know, one or two deals a year. It's okay as long as you build your narrative and your strategy around the number that you're comfortable with.

Those are the sectors we invest in; all of them right? We can do that because we've been around forever, and people sort of know that regardless of the sector, we'll do a good job supporting our companies. Even some of the more adventurous today, like space tags, where I would like and I would lie saying that I'm an expert in space tags because I've done one company. But we know how to build startups; we can do that. It's up to you to figure out where you want to play.

Those are some early-stage sectors I sort of mentioned. So proceed; you build the product, seed; your own post-gnomes means you start having sort of more data. Some people are not comfortable investing before the company is in revenue. The good news is the whole gamut is actually feasible today as an angel because there are so many companies which are actually going through funding and accessible to young people.

Once again, figure out this equation of how much risks you're sort of comfortable taking on. And you know, the later stage you invest, the more data you have. Very different strategies: some people want to be local, that was very VC, right? So investing too in companies where you can actually drive for an hour, two, or maximum one or two coasts.

So we do Silicon Valley and New York-Boston, so that's our strategy. You could sort of decide to invest anywhere and figure out how to support your investments and figure through Skype sessions.

There's a new strategy Steve Case is doing, the rise of the rest, which is invest everywhere, which is not a well-known sort of center for startups. Once again, all the strategies are valid; you have to sort of decide which one you're most comfortable with.

And then, you know, on the follow-on side, so obviously, because you invest at the lowest sort of valuation, your multiple will be the highest, right? But if ever you find an awesome company, you want to double down and do the next round you're going to sort of increase your price per share, but you're going to increase also the amount of capital on which the return multiple will apply. There's, once again, no good answer; it's whatever you guys are comfortable with.

As an angel, I'd never did any for a while, right? Do I regret it? What for the best deals? Of course, but that was also my strategy, which said I assume that the return potential of Android investment will be higher than my photo on, you know, a Series A or Series and if I was running the math, which I haven't done, as probably would have sort of, would have been the case for everything but sub-twos of reveals where even the Series A series investment would have generated like a massive return.

So why is this important? This is what will drive the way you think about building a portfolio. If ever you, you know, you have a buddy who is building a company and you want to support her or him, yeah, I mean, knowing to sting too hard about this, but if you really want to become a semi-pro angel, it's really important to define those characteristics. It will help once you've decided, for example, which sectors, like all this narrative I shared with you, right? This is something which becomes the natural filters for people who actually come to you with the old, right?

I will tell you that I'm doing situation investment: million dollar average. I told you about our geography; I told you about our sectors; now you can send videos because you know what I'm going to look at. It's a very natural filter, so expose those characteristics. It's true for your inbound UFO, people sending you new deals; it's true for your outbound kind of when you reach out to an entrepreneur. You sort of know what to look for because you have defined those characteristics.

One thing which is very important is, because it's super risky to make those investments, is have a sector and time-based approach to spreading risk. So the reason why I suggest you say, "Hey, figure out your budget invested over three years," is because time diversification is good. You never know, you know, even though in this in Silicon Valley, we don't really have the notion of everyone invests when the market is good and everybody stops investing when the market is bad—it's always better to spread your investments over all the time and sectors unless you really want to double down on one sector you know really well.

Spreading it across sectors is a good way to avoid tanking. For example, milk, it's right, there was a time where there were like twelve or fifteen milk kids come Brewery prone and plated and so forth—you may have wanted to have one. You want to do the twelve because the rule in those markets is always the best one makes a bunch of money, the second one makes some money, and the rest wipes out.

I like the fact that because you have this strategy, it's gonna force your calibration, so what sort of deals will make it to the top of your funnel and the pacing because of what I just described.

So that's it, that was your primer on asset allocation and patrol construction, and once again, remember the worst that can happen is that you lose everything, and so don't put, you know, all your cash in there. Good luck. Thank you.

Jeff, as I mentioned before, again we're going to have both come up and talk, and then we'll do a QA. I realized after I sat down that I just—I got so excited that Jeff was gonna come speak—that I did a terrible job of introducing him, and what I really meant to say was there's been this transformation in early-stage investing that took place over the last decade or so.

Jeff was actually one of the transformational characters in that story as these prolific angels emerged who then often professionalized what they were doing. As Jeff has pointed out in his talk, he became one of the very, very first super angels, and I think that was instructive to lots of us who were watching and trying to participate in the angel space. You know, he did that. He understood very early on that to do that, and you've seen this with the other two investors, they built personal brands and Jeff built a very significant brand about himself.

And the next investor who's coming up, Andreea, has built an amazing brand around her investing organization. I guess I should call it, called XG. And she's going to talk a bit about how you might think about building the brand that is going to allow you to become known, to become the sort of investor that great founders will want to have as part of their company. Andreea, thanks.

Chuck: Okay, so I'm Andreea and okay, someone needs to take this away from me because I like—is it Otto? Can we slow it down then because it goes too way too fast? We gotta give Run DMC some props before I clear that slide; that's true, that's a good boy! Okay, cool. I didn't think I was that trigger-happy.

So um, Run DMC deserves a run—recognize—I hope this band, no? Yes? No? Okay, so for those of you that may or may not recognize them, they kind of made a name for themselves, I'd say probably in the 80s, a little bit into the 90s, rap artists band, and just really fun music. They came out of that time period, but I think the reason why I have them sort of as my starter slide is that not only did they build a brand around their own name and band, you know, as rock stars, as rap artists, they also leveraged other brands.

So, if you could see in the slide, you know, they're repping Adidas basically, and they also were wearing—like, the brand at the time was Kangaroo, and they were wearing Kangaroo hats. I thought they just did a really phenomenal job of making what basically were sports brands their own brands and kind of making them like streetwear brands, and now to this day, Adidas is still a pretty popular brand, and they continue to reinvent themselves.

So anyways, that's why I thought I would, you know, kind of take a fun, bright approach to today because I'm sure you've been absorbing lots of content, and I wanted to be able to impart, you know, some fun kind of cool ideas that I'm hoping you can take away from today's presentation. Okay, should I be brave enough to do so?

What is a brand? I'm actually gonna open that up to the audience. Can one or two of you guys, in your words, identify what a brand is? Any takers? Okay, yeah? Okay, promise of quality, that's good. I like both of those terms: promise and quality. Okay, yeah, also good collection of interactions—customers is a key term there, absolutely. Yeah, DNA, yeah, that's correct, yep.

So I just sort of have a smattering of exactly what everyone in the audience that participated sort of has already been saying. So, you know, obviously, we have a few identifiers in here—not only consumer brands but also tech brands. I mean, obviously, consumers like McDonald's, and we also talked about Adidas earlier here in the valley; we have tech brands including Facebook, Google, Apple, and one would argue that a lot of those brands, you know— all the points were brought up today.

And we think of Apple, you think of product innovation; when you think of Google, you think of search. You know, these are companies that have basically branded themselves based on, you know, what they are promising to deliver to their customers. So I thought it would be fun to take a look at, you know, what are the world's most valuable brands.

Actually, before I put the slide up, I should have had you guys guess. So can anyone, without looking at this chart, tell me what they think is like the top brand as of last year, 2017? Don't look at the chart! Anyone?

Yeah, Apple. Okay, you probably already looked at the chart, so anyways, sorry it's so tiny, but I just did a little screen capture, so this is coming out of Forbes of 2017. So Apple's the top brand, according to this particular research piece, followed by Google, Microsoft—although I would argue that— but anyways, and then, um, Facebook, Coca-Cola, Amazon, and Disney. And then of course, obviously, the list goes down.

But my point is, you know, these are the companies that we all recognize. And so what I would ask the audience today is, when you think of these companies and you think about building your own brand, you know, how did these companies rise to this list? You know, how do they maintain themselves on this list? What are the qualities that embody these particular companies?

And as you start to form your own brand in your own firm's brand, do you want to be seen? You know, can you see yourself on a list of other angel investors and/or Micro VCs? So when I was thinking about putting together this presentation, I was also kind of thinking about, you know, what does the term "brand" mean? And we've kind of already been talking about this morning, and I thought Jeff Bezos of Amazon did a really good job of kind of distilling in one sentence what a brand is all about.

And I really like this particular moniker, and he's basically saying your brand is what other people say about you when you're not in the room. I think that's really important; you know, your reputation basically precedes you. And how do you want to identify yourself and be known, I guess, in the valley or whatever, you know, geographic region applies to you?

And you want to be proud of that. Obviously, you don't want to talk, you don't want people talking smack about you, so you put your brand to precede you. So again, when I was thinking about putting together this presentation, I mean, obviously, I definitely don't want to tell you how to build your own personal brand, and I don't want to say, for example, what made XG Ventures unique is what is what gonna make you unique. You have to kind of come to terms with it yourself.

But what I wanted to do today is just kind of give you some things to think about and just to kind of park in the back of your mind as you're starting to go down this journey and adventure of angel investing. You know, keep these things in mind. And so, you know, when I was going through different image searches looking through Google, I pulled this one and I thought, "Gosh, you know what?"

Brand is kind of interesting because it's brought up, you know, it's sort of a combination of a lot of these different qualities, like trust, loyalty, opinion, quality, perception. These are all kind of like loosey-goosey terms, but they actually mean a lot if you really take time and think about it. And then the one thing that wasn't on the chart that I added is integrity, and I think that's kind of an interesting term to keep in mind.

And the only reason I bring that up is because at least in the tech sector and one would argue also in other industries and sectors, you know, you really have to have integrity as a brand. Like Uber is one example, you know, if you were an early investor in Uber and you knew about all the challenges that they were having, you know, without kind of going through them all but like the sexual harassment and all these other different things, what would you do as an investor?

Would you raise your hand? Would you say something about it? You know, would you keep yourself quiet? You know, what are all these different things? And so just one thing to keep in mind is, as you do build out your brand, sort of think about what you're gonna stand for ethically as well.

So I'm sure you guys have heard about this a lot in the last couple days, but there are several different paths you can take. You can, you know, think about doing angel investing—you can be a standalone angel investor. You know how do you come up with your own personal brand, or would you like to be a member of a group?

I mean one of the things that I did very early on is I recognized that obviously was not an expert, and I still don't think I'm a total expert, and I'm totally learning, but I joined an angel group, and that was probably one of the smartest things I did because I could learn from other people.

Some of the angel groups out there, there's a ton of them, but one of the groups that I joined early on was called Sand Hill Angels. I thought it was kind of a cool segment of people from lots of different industries. So if I was in a healthcare expert, someone that worked at Johnson & Johnson, I was able to learn from that person.

So these are just some ideas of things to think of if you want to be an individual. You know, Jeff mentioned earlier that AngelList syndicate, you know, you can obviously go on and join other syndicates, or you could create your own syndicate on AngelList. There's a great association that I just wanted to throw out; it's called ACA—it's called the Angel Capital Association—and that's sort of its own grouping, I guess, of other angel groups that you could search for if you're looking at joining one.

Or you could create your own branded firm, which is what we did at XG Ventures. This is after I had made some good investments with Sandy Angels—I had made some terrible ones; I had lost a lot of money. And I thought, "Okay, I need to regroup here. I needed to think about what I want to do going forward," and that's what I'll talk about next.

And then lastly, do you feel confident about what you're doing? Or, you know, can you strike out on your own? And then ultimately, you need to decide what's right for you. So XG Ventures, we like to call ourselves short XGB, but we were super, super lucky. Lucky— not only do we recognize it obviously took a lot of work and effort—but we were very fortunate at the time; both my business partner Pietro Dovè and myself, we were super early at Google.

So we joined as sub-100 employees. I mean, I was there when there were basically only five desks in the building. There were very few people working at Google when I joined, but it was a very special time, and we learned a lot. Not only do we learn, you know, lots of different lessons, but we mostly learned the culture behind Google and what it meant and, you know, "Don't do evil; do things keeping the customer in mind; great user experience," all these different things.

So when Peter and I decided to leave Google in 2007, we formed XG Ventures in 2008. And remember, I was doing angel investing on my own in 2007. So in 2008, we decided to join forces, and we thought, "You know what? More heads are better." At the time, we had two other business partners. They’ve since decided to kind of peel off and do their own thing.

But basically, I'd say for the last, you know, probably eight out of those ten years, Pietro and I have been doing XG Ventures on our own. What we wanted to do is very early on we decided we wanted to create a brand; we wanted to be known for something. Doing something different, and so we recognized the power of Google, and we wanted to sort of capture that.

So, that's why the G + XG Ventures is a nice homage to Google. So, we're essentially X-Googlers, hence XG Ventures. And then we had a mission very early on: we wanted to be able to give back to the startup community from which we came from. We definitely were very humble going into angel investing as a business.

We did not think that we had all the answers, but we definitely wanted—there was a little bit of altruism there in addition to writing checks. We wanted to be able to dedicate our time, and we wanted to be accessible. So we didn't want to be those quiet angel investors that just sort of wrote that first check and disappeared. We were giving people, you know, our cell phone number or email number; we'd meet them for coffee. We were doing anything that it took just to help those particular companies get off the ground.

And then the other thing I wanted to point out is that we did have a chance to raise a fund; we decided not to just for personal reasons, and we've been going ten years strong, and essentially it's our own capital. So, we're considered an evergreen fund; and so what that means is that when a good deal comes along, we decide what type of check we want to write, whether it's, we joke like zero dollars, or if it's in the high six figures.

And then, obviously, we want to keep our pro rata. So on average, like Jeff was saying, we do about 10 to 12 deals a year, making room, of course, to continue to keep our current investments alive. And with that, we've built out over a hundred portfolio companies, and I just included some logos here that you might recognize.

And actually, I want to use some of their companies too. So, we invested in something called Carta, which is pretty cool; a lot of startup companies use that; a lot of law firms use it. It's a great way to kind of capture and manage all of your companies, your shares, your 409A plans, etc.

I won't read all of them; I won't go through all of them, but the other company we invested in is called El Shift Cars, Third Love, and we were super fortunate to be early investors in Wish, and we think we're keeping our fingers crossed that particular company goes IPO this year, and we've also been recognized in the industry. I'm not gonna go through the different things, but as you brand yourself, I think someone else mentioned, you know, a good way of getting your own brand out there is to start blogging about things that are passionate for you and being known in the industry for whatever that little niche is, and that's a good way to be picked up as well.

So that being said, the first dress of everything is totally like what I said before; you know, definitely not here to tell you what's gonna work, what's not going to work. You know, it's all trial and error. I think, you know, Jeff mentioned that. I'm sure other speakers have mentioned that as well. You have to be willing to fail in this industry, and it's going to take a lot of failures to get to those particular wins.

So definitely, you have to have, you know, fortitude to maintain yourself in this industry. And so we've made mistakes, and we've had some wins. So just like portfolio companies, just like startup companies, you may have to pivot. You know, when you first come out in the industry and you think, "Okay, I'm only gonna invest in AI," or "I'm only gonna invest in drone technology," or "I'm only gonna invest"—and we actually invest in weed. We invested in some marijuana-based companies. You know, those particular things might change over time, and you have to recognize it might just either be a fad or it might, you know, be something that's kind of cool, and you want to make sure that that's something you do continue to invest in.

But the bottom line is you might need to pivot. Be in it for the long run. We heard about, you know, this is not an overnight success industry. You can be wildly successful, but know that it's gonna take at least ten years for a decent return. And as an angel investor, you know, what you're not going to get into every hot deal.

There are gonna be some deals or, you know, the lights just kick and scream and wish you were in it, and it's just not gonna happen either because the entrepreneur doesn't like you or you don't have the right connections or whatever it is. And at the end of the day, there's as much art in this as there is science. So you just be flexible that, you know, don't take things personally, I guess, if you don't get into every hot deal and don't invest.

This is the same thing that we've heard before: don't invest in more than you're willing to lose. It's kind of like going to Vegas, and you know, you want to play all the tables; you know, you want to stay up till like 2:00 in the morning, but don't do that if you're not willing to, like, you know, be willing to risk a lot.

And then also, you know, you're probably gonna see some hot deals, and you're gonna pass, and then it's gonna suck. So for example, I didn't list all of them, but we saw Uber super early on. I was very lucky to get invited to this dinner. Jeff was there as well; Jason Calacanis had a great connection with the founder of Uber, and I had a great time that night; I had an awesome experience, and it was stupid.

I could have easily invested in Uber, and I just decided to pass. You know, I totally regret that decision to this day, but it just goes to show that you know you might be in the right place at the right time, and you still might make, you know, bad decisions. But on the other hand, you might make good decisions too, so just know that those things might happen, and you have to be okay with it and be happy for others that did invest.

You know, don't be, you know, like, "Oh, sucks, I wish it was me," kind of thing. So it should be happy for those that did invest, and then branding and lastly must be consistent. You know, a lot of these big brands don't happen overnight; you know, you have to have a consistent message.

Like, show up to all the events that you get invited to. You know, return those emails, return those phone calls. You can't just be like an armchair investor. You have to treat it as a full-time job. And then also something to keep in mind is that now that there are hundreds of thousands of firms, how do you stand out? Back in the day when we started 10 years ago or whatever, there were only a small handful of micro VCs. Now there's a ton of them, so just be mindful of ways that you can stand out in the industry.

And then I put this up again just to remember, like, these are, you know, things that you should think of when building your brand. And then I'm going to kind of speed through this because I realize I've probably been talking for too long. But if we were to go through all the different things that define brand, for example, it’s trust, loyalty, opinion, identity, perception, and quality.

Trust really starts with your team. And for me, I'm fortunate enough to have a great business partner, Pietro Dovè. He has operational expertise; he's a finance wizard, which is extremely helpful when we're looking at deals and just managing cap tables and things like that. My background is sales, by the way, but it's good to have someone that is your partner that might have skills that you don't have. That's what I was trying to say with that.

So I guess going back to the beginning, like when you decide to go out and do your own thing, define what your focus is and innovate. Often for our focus we decided that we wanted to back entrepreneurs with an unwavering commitment to succeed. And for us, like we sat down, we figured out, you know, okay: What defines XG Ventures? I think that's a good conversation to have with either yourself or your founder and make that your moniker.

And we basically invest in disruptive technologies in mobile, social, cloud, and analytics. Those things can change obviously over time. And again, what type of firm do you see yourself as? Jeff mentioned precedes—precede has become kind of a hot new thing. There's another firm name, K9 Adventures, Manu Kumar, who's done a great job branding himself as a precede. So do you want to do precede early seed stage follow-on?

Some investors only follow on investors, so think about that as well. And then do you have the right mix? So, for example, are you an expert? Are you a generalist? Are you a tech person? Are you sales? Are you operational? What's the value that you can give back beyond just writing a check? And then are you former entrepreneurs yourselves? Like maybe you can walk the walk and talk the talk with, you know, the founders that you're investing in.

Are you operators or sometimes, you know, you could be a former VC, someone that's left a venture firm and decided to go off on their own? Then recruit carefully and decide what your structure will be. You don't want just a bunch of hooligans on your team; you want to make sure that you recruit folks that represent your brand and identity.

And then a couple more things that I think are important is that you want to align yourself with complementary firms across the entire ecosystem—build your network. I can't say enough about this: networking, networking, networking. Whether you keep track on LinkedIn or your social media, whatever it is, make sure you keep in contact with the important people and are you connected to make the right introductions when needed. I think that's super important; there's a lot of money out there, and which is great if you're an entrepreneur.

But at the end of the day, you know, you want people to help you when things are going bad, not just when they're going really well. So something to keep in mind there. And I just put this in here because we also do gaming technology and newb is a reference to newbies, by the way. I thought this was kind of fun just to kind of break things up.

So, you know, it's startup incubators, startup companies; we had a bunch of dogs going in and out of Google. But just to keep, you know, bright and brief, like these two dogs are talking, and this person's saying she's nice, but she's gotta do more towards building her brand before I can show her loyalty.

So something interesting in mind again: branding is consistent. And then these are things, you know, opinion matters. People talk; people talk in the industry. You don't think they do, but you know referrals are pretty strong here in the valley, so just some things to keep in mind. You have that strong referral network. Can you be thought of as being top of mind? What's your reputation like?

Do you have proprietary ideal flow that maybe other investors might be interested in leveraging? Are you responsive? Do you have a personal connection? And lastly, I put this in here: do you hustle? I think angel investing, one of the big things is the hustle. You know, you've gotta be able to make sure you're there at the right time, okay?

So lastly, identity—or second glass. A third to last—how do you manage your online presence? You know, do you maintain a website or does someone maintain that for you? What's your social media structure like, or are you stealth?

There are some pretty cool angel investors that choose not to have any websites, and they just do their angel investing word-of-mouth, and that's kind of cool in its own right. Are you known for quality deal flow? And then which firms or other angels would you like to partner with? I think that's someone or something important to keep in mind. You know, like what are the other branded firms you like, and can you know maybe share some of the same value systems?

And is there coopetition versus competition? I think some of the best angel investors don't necessarily compete against each other. You know, like all boats rise at the same time with the rising tide; you're kind of want to be in it with other people that can share your wins. And then perception, we talked about before: are you attending the right events?

I mean, obviously, we're fortunate to be here at Y Combinator. Are you going to the right Y Combinator events? Are you going to the other accelerator events, whether it's 500 Startups? There's a bunch of them, like are you getting those right invites?

Let's see, oh one thing to keep in mind is do you play well with others? Do you keep all the good deals to yourself? I mean, people talk, and if you're always known for hoarding all the good deals, that's not a good thing either. It's good to kind of share your deal flow; this works well for anything that you do with angel investing, respond quickly, even if it's to say no, and then strive for consistency and excellence and everything that you do, and be a trusted resource.

The last thing is quality. I love this quote from Henry Ford: "You can't build a reputation on what you're going to do." You can say you're going to do these all day long, but actually following through is another thing. So try to make investments that matter, identify what quality means to you and your investments.

Do you want repeat entrepreneurs? Do you want new blood? Do you want to invest in a hacker, a hustler? What's your sweet spot for valuation? Build a portfolio that represents you that you want to be proud of. And I put this last thing in here too; it says don't have any random investments that you can't explain.

You know, you might think some company is cool, but you better be willing to explain it. Be responsive, do what you say, say what you do, be respectful of other people's time. Know when it's appropriate to do certain introductions versus just filling in someone's inbox.

So one thing that I always do is a lot of people will want introductions to folks that I know at Google or Facebook. Obviously, these are busy people, so I always like to ask their permission if they’d like an introduction before I just go ahead and introduce this person to them.

So just little tricks like that. And then trust your instincts; that's the number one thing about angel investing: listen to your gut; nine times out of ten, it's usually right. And so in summary, you know, think like a boss; at the end of the day, you're your own CEO. Be in it for the long haul; start out slow, build momentum, build a reputation for the long term. Definitely be a resource; have fun; it's great if you can make money, which is totally cool.

And lastly, thank you so much, and I wish you guys all the best.

Okay, we'll have a—I again apologize for running late, but there's a lot of great stuff here. We're gonna do a quick Q&A, and then we'll move to our overtime with Olli part Toby.

So the question is, you've been in the industry for a while, but I imagine you're still learning. Are there particular blogs/resources that you all use still today?

So attorneys can be your best friends as much as they can also be challenging to work with, but there's an attorney; his name is Yocum Taku, and he's written an amazing blog—@ the tale of it, I believe is called a startup lawyer—and he's written the blog in a way that is sort of like in layman's terms, so it's very easy to understand, and it's a great resource to go to as you first start out, and it talks about what different term sheets look like and different valuations.

And so I definitely recommend that. So how actually trust the power of the network to deliver to me what is interestingly important. So I use the nozzle and use the CL that come to sort of deliver the things that my network thinks is important—and typically, I see, you know, Fred Wilson or Brad Feld or, you know, Marco Prohlen sort of posts, and that's how I serve see what they’re...

And as I mentioned, I add investor data to startup school.org; every session has a resources component, and we will—there's some resources there now; we will continually add resources like these if you all send us to startup school at Y Combinator.com or to us personally resources that you think ought to be included; we'll put them there and collect as many as we can.

I have a question for you guys. You talked a lot about, Jeff, about portfolio construction; Andreea, you talked a lot about branding. Were these things that you have sort of figured out later on and said, "Oh, we need to do branding?" Or did you go as you started thinking both of you about your brand and about your portfolio as you went into the game?

So construction is to be something that your potential limited partners—so people want to invest in your fund if you decide to your fund—will literally ask you as the first question, "What support for construction?" So I started thinking about retrofitting my—you know, let me tell you why my portfolio is like it is—that was very deliberate of a hot photo of investments, you know, a bit of gaming consumer SAS, and then I came up with this, you know, six quadrant map where everything fits super neatly as if I had figured it out from the get-go, which I didn’t.

And then you know, so it was retrofit, and then the map is actually super useful to show people what you're doing. And to this day, fourteen years later, we actually have it. So that's for the portfolio construction; it was after the fact, after three and a half years, because no one told me it was important.

And then the brand—what, we just rebranded; so it shows that the first one we had kind of sucked, and it took a while to actually fix it.

Sorry, how'd you like to hold your mics up? So we just wanted to be respectful of that particular company and then kind of use it as leverage, standing—you know, bouncing off point for ourselves, and we were mindful from the get-go making sure that we had the right URL and we've also done some legal stuff around protecting the brand as well, but that was just us. We were super buttoned up about it.

But then the rest of it I think is just, you know, you gotta follow through on— I mean, you can create a website and URL and have all the right protections in the world, but I think it's just, you know, you yourself and your team, you have to embody the message that you're branding and portrayed, and I was like you knew that from the very beginning as you got into space?

The point also is that when we started, there was literally no one doing it, so there was no need to have a website and talk about your strategies and so forth because literally there were, you know, syndicates, which were the 10 or 12 or 15 angels all in the deal, you know, supporting an entrepreneur. So it wasn't like today where, you know, you have 600 sort of micro VC firms now, so you need to be able to differentiate and point to all those resources because it's super important.

Back then? Yeah, more questions? Yes, back there. So the question is around conviction, and if you look back at your best and worst investments, can you point out were you relatively high conviction on the best investments and low conviction on the worst investments, or were your intuitions wrong?

I think ideally, you should only invest when you have high conviction because that really what matters. Every time I made an investment where I had sort of a little bit of the, you know, the spidey thingy kicking in where I felt there was something that may go wrong or whatever, always wiped out.

So, when you have doubt, when you think that the founder is not up to it, when you think that the market isn't big enough for whatever, just pass because it's okay to pass on, you know, Uber, Airbnb, and LinkedIn and interest and we shouldn't—the point is every time I have that up, he was a wipeout and the total conviction and, you know, fails—that's what you do as an angel, right?

But what you don't want is to be sort of, "Hey, I have total conviction, but I'm just gonna put a small amount," and then it's a success, should have could have, you know, a massive implication for you but didn't because you put in just a small amount.

So to me, ideally, I only invest now in things that I totally believe in. Yeah, I wish I had more intuition because it's kind of ironic; some of our biggest winners, so to speak, have been those companies that maybe we've only put just a little bit in because at the time, we weren't feeling as bullish—really? I don't know.

I've got some question marks around that one. And then that ends up being the winner, and we're like, "Damn it, why did we not double down on that investment?" So if you're a poker player, you know that you look back at the hands where you made the wrong decision—you folded when you shouldn't have; you went all-in when you really shouldn't have, and you look back, and, and some of those mistakes you still did the right thing, it just that was the way things happened.

When you guys look back at your mistakes, do you think in retrospect that most of them were avoidable, or is that just the name of the game? So for the companies that we invested in that wiped out, I mean, that's—what happens sometimes? We ended up sort of liking entrepreneurs that just didn't have the passion and the energy that it took to really sort of go for it, so we could have—we should have had a better filter, and hopefully your filter is better.

The ones that we missed, I think, you know, I always joke about my aunt Apple photo because it's incredible, but the only one—only one company I regret is LinkedIn because I don't have any rational reason to have passed on LinkedIn. I just chickened. Whereas Uber, I wasn't clear that the CEO at the time would actually be the right CEO, and it wasn't.

So, you know, it is what it is; he wasn't. Once they were worth 50 billion? No, no. So let me know. I asked Travis whether it was gonna be the CEO of Uber, and he said no. And had Travis been to see you, then not that I have any, you know, qualms against. Surround Grapes done an amazing job, but I thought they would take a Travis to actually get Uber off the ground, and you know, I passed, and then a few weeks later he became CEO, and I couldn't like get back in.

But I think for the ones where we put a bunch of money and then the company has had a good trajectory and then flattened, I think it's always sort of tricky because VCs tend to invest on positive, you know, signs way ahead of the game because of the fear of missing out, and so you look at some of our companies which have gotten massive valuations and super long runs or whatever and now I've been, I've had the talk with those entrepreneurs and said, "Look, that round doesn't mean in terms of success," and you have to sort of drill it in the heads of your team members because they will say, "Well, you know, we were raised like a bunch of money and were successful now; "it's just an enabler."

And so being so super careful about not getting half of your skis and not seeing success before their success is one of the cures we have.

So yes, this question is: I—You both sort of super angels. Although Jeff has raised a fund, which makes it a little different. What's the biggest difference in investing like super angel versus like an angel?

I think it's not so much; the super angel just reflects the portfolios that we've built with our own capital, right? So on Dresden, like 100 deals, which is, which is incredible. The key thing people expect from us as Uncork is to be sort of a lead investor, and so we take boards right, you know, a million-dollar check on average.

And I think the responsibility, which is now on our shoulders to be almost the ones in the syndicate that we also really look after and take care of, of the company. So, I think it's, you know, this is when we became sort of professional; that's what we do. Like if ever the company fails, it's partially on me as well, you know?

So I think it's this expectation that the market has on us now to sort of play that role, and to be honest, that's where entrepreneurs come to us as well. I imagine you construct both of you probably construct your check size differently now than you did when you were beginning.

How do you guys think about, you know, I'm sure many people here are as well planning what their portfolio is going to be and how they're going to invest, how many companies they're going to invest in, and thinking of what check size should I write?

I think everyone's a little bit terrified of the phenomenon that Andre I mentioned, which is: "Okay, I have a chance to invest in Uber, and I invested $5,000; if I just invested a hundred thousand, that would have been very different." Michael Seibel actually said yesterday, "Write the right size check." How do you think of what the right size check is?

Well, for me, I mean, when you first start out, I would definitely not recommend writing like a hundred thousand dollar check in your very first company because I think that it's a little bullish unless you have some insider information and you feel pretty strong about it because it's gonna hurt, and my first couple investments did not work out, FYI.

But I think the other thing to be mindful of is now, I mean, if you're fortunate enough to take a look at what could potentially be like the cap table structure or however, you know, the entrepreneur is deciding to structure his company, be mindful of the percentage of the company that you think you might want to own and kind of back into that for your check size.

I mean, for us, like probably more meaningful check sizes—without even thinking about an investment in particular—probably $50,000 is like the sweet spot to kind of make a difference.

I think anything less than that, you know, you might be—you might be lucky, but I think 50 thousands typically the sweet spot. So here is the brutal math, right? You're gonna invest in about 40 companies fund, and if you look at the distribution of returns, only four or five will matter; only four or five will actually return the fund.

And so, as Andrea said, it's walking back from the ownership calculation. So, you know, if we lead a round, we will take 10% of the company, so we'll write whatever checks size it takes to get them to some of the company.

So, if it's a, you know, ten post-deal boom million dollars, then we'll try and maintain that ownership as long as we can, you know, Series A, Series B, in order to sort of get to a terminal ownership when the company IPOs or sales of, you know, five to seven percent, which means a billion-dollar ten percent ownership, which will mean million-dollar back to the fund equals, you know, fund back, and you should do that for five times per fund, you have a winner.

Okay, so many of you won't even be thinking about funds, so you might think that what just said doesn't or isn't relevant to your particular case, but I would argue that it is. It's just what you should do. What you noticed there is he's done the math, and you should do the math.

So estimate how many investments you will make over a period of time per year; you know, as someone with LPs, he has funds, and he does it for that, but you can create your friend and say, "I'm gonna invest a million dollars," as Andre mentioned, "and out of that a million dollars, I'm going to do 20 investments. I'm gonna do $50,000, and here's how many I think are gonna make it, and here's how many I think the one or two wins I might get there will be and let me look what's going to happen there."

And does that make sense? And understand your math very deeply and understand how you're gonna think about that, and that will help you figure out what check size you're gonna write. Maybe just a couple more questions here; I've already over—stay, force them to overstay their time here a lot.

Yeah, back, back the room. So the question is whether you sort of—I'm going to sort of interpret this as you—you figure if you invest in this deal which you don't really care about you somehow get into another deal, sort of—I think the term he used was a gateway deal. Have you ever experienced that?

So I think in the very early days, so we're talking 2004, 2005, when I was nobody in the ecosystem and I had zero deal flow, I was trying to sort of figure out what those, would you call gateway deals were, where I wasn't super convinced about everything, but everyone around the cap table was actually super smart and had access.

And so I think the one gateway deal I did in the early days was Feedster, which was one of the very first search engines. It wasn't a success, but the syndicate—that was my first deal with Josh Kopelman, for example.

And so getting that deal allowed me to get to know a bunch of people. Would I have had the same outcome without Feedster? Yeah, probably, but I wouldn't do too many of those because at the end of the day, you know, it's your track record; it's your money. Sort of don't go into a deal if you think it's gonna be a disaster because if you think it's going to be a success, it probably will be a disaster, but you think this is a stir—I don't even touch it—the best gateway deal in my opinion is a successful deal.

Okay, one more question right here. Do you actually not do deals based on how your portfolio is currently constructed? So, for example, would you avoid more meal deals if you've already done too many? Is that the question?

Or maybe, however, have you seek out investments based on the portfolio construction that you're looking for? I was just gonna say, um, so for us, one of the industries that we used to like investing in, it was gaming because we used to think—like, oh, we had some early successes, Taboola, a few other things like that—and then we learned later that the gaming industry is very difficult, and it wasn't producing the same returns that we were looking for, and so that's one particular industry that we pivoted from just because it started—there were a lot of signals in the marketplace that made it difficult.

So that's something that we passed on. And then the other piece of that is, like, sometimes if we're overly concentrated on certain things in our portfolio, we'll stop looking at them. So, for example, one of the things that we did do early on based on my background is advertising-related companies, and then we just got too concentrated in those.

And they were same thing; the industry—there weren't that many exits happening at the time, so we thought, you know, what? We're already concentrated in that; let's wait and see. Let's concentrate on another industry; those are great examples of the characteristics of companies, which are all sectors that are challenging in terms of actually getting to an outcome.

I would say have your principles, have your investment strategy, you know, with the factors—don't do too much back testing because remember, companies, you know, will have a multi-tier of, you know, thirty, forty percent between season series anyway. And so a lot of your positions will not be the ones you have at the end of the portfolio's life.

Jeff, Andreea, thank you so much for coming.