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Angel book cover
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Angel

by Jason Calacanis

Angel

Why Angel Investing

Jason Calacanis’s personal portfolio: ~$10M invested, $150M+ in returns (15x return). First $100K in investments hit two major winners (Uber, Thumbtack) in first five investments.

  • Angel investing is most efficient system for capital creation
  • World’s trillions in bonds, stocks, real estate are “dead money”—angel investing creates change

Investment Math

  • If one of 50 companies becomes $10B, $5K investment = $5M return (1000x)
  • Dilution reduces ownership over time (~50% by exit if no pro rata)
  • Pro rata rights essential—continue investing each round to maintain ownership
  • Must take pro rata rights in all deals (non-negotiable)

What Angels Need

Some combination of: money, time, network, expertise. Don’t need all four.

  • Trust fund kids with just money work
  • Broke but knowledgeable advisors can get equity
  • Advisors get 10-50 basis points (BPS) over 2-3 years for helping startups
  • Can make $210K from just board meetings, intros, and name on website

Three Types of Angel Investors

  1. Sweat Equity Angels: Trade skills, time, connections for shares
  2. Broke Angels: Have network/expertise but no money (become advisors)
  3. Rich Angels: Have capital but often lack knowledge

Founder Evaluation

Top Qualities

  • Wild cards who are inflexible and unmanageable—pursuing vision relentlessly
  • Willing to work for free (sweat equity) before investor anointment
  • Bootstrapped with own money or friends/family—signals skin in game
  • Keep pushing when told “no”
  • Concise communicators (long-winded = probably incompetent)

Red Flags

  • Waiting for angel to anoint them before starting
  • Don’t build things, just talk PowerPoint
  • Talk about going to Coachella, TED before profitable
  • Pre-MVP stage fundraising

Four Critical Questions

1. Why are you building this?

Right answers are personal/deeply motivated:

  • Uber: couldn’t get cab in Paris
  • Elon: backup plan for humanity
  • Zuckerberg: lack of dating game led to social network

2. Why now?

Most important question—what technology/trends enable solution?

  • YouTube: bandwidth costs plummeted, storage cheap, blogging taking off
  • Uber: mobile ubiquity + GPS + advanced CPUs for touch screens

3. What’s your unfair advantage?

What secrets do you know to beat incumbents and fast followers?

4. What does winning look like?

Revenue targets, return expectations, exit timeline.

Deal Structures

Funding Rounds

  • Seed: Friends, family, angels (pre-product/MVP)
  • Bridge: Connects seed to Series A
  • Series A: VC funds significant business ($5-10M+ at $12-25M valuation)

Key Terms

  • Pro rata: Your right to keep ownership percentage in future rounds (ESSENTIAL)
  • Liquidation preference: Extra value on downside scenarios
  • Warrants: Right to buy shares at discount price in future
  • “Clean terms” in Valley mean no warrants/prefs

Investment Strategy

The 50-50 Approach

  1. Make 10 small syndicate investments ($2,500 each) to learn
  2. Build reputation, get on cap tables, prove worth
  3. Only $25K total (20% of MBA cost, 1 month of work)
  4. Then transition to 20 direct $25K investments
  5. 4x down on winners ($100K)

Meeting with Founders

Preparation

  • 3 hours per startup: 1 hour prep, 1 hour meeting, 1 hour post-mortem
  • Minimum 1 hour in-person meetings signals seriousness
  • Don’t take notes on smartphone—use paper
  • 10 one-hour meetings/week is good target

During Meeting

  • Ask them how they want to run it
  • Big ears, small mouth—listen more than talk
  • Best next question hidden in their answer to your last
  • Interviews best when they morph into conversations

Evaluating Products

Pain Point Framework

Create 2D matrix: intensity (y-axis) vs. frequency (x-axis)

  • Top right: very painful + frequent (strongest painkillers)
  • Pharmacy/health problems most valuable
  • “Indiana Jones” problems: rare but intense
  • “Louis C.K.” problems: frequent but not intense

Vitamin vs. Painkiller

  • Vitamins: nice to have
  • Painkillers: solve real, frequent pain
  • 89th photo app = vitamin (what pain does it remove?)

Portfolio Strategy

Allocation

  • Love risk and okay being illiquid 10 years: 10-20% of bankroll
  • Tolerate risk but cautious: 5% of bankroll
  • Don’t put too much in single company

Diversification

  • After big wins, diversify gains
  • Don’t hold 90%+ in one or two companies
  • Consider selling secondary shares (25% of position) before IPO to de-risk
  • “You get rich by selling too early”—lock in gains

Founder Communication

Monthly Updates - Critical

  • If not sending monthly updates, likely going out of business
  • Send twice/month or weekly if concise
  • Track with spreadsheet: 1 = update received, 0 = nothing
  • Years 1-2 only confirm you’re clueless; years 3-4 confirm right decisions

Red Flags

  • “Feature death march”—adding features won’t save company
  • “Savior search”—hiring one superstar won’t fix broken company
  • Founders must understand all problems, not rely on magic fixes

Building Your Angel Network

Co-Investor Connection

  • From 10 investments, identify ~50 co-investors per startup
  • Creates pool of 600 potential angels
  • Connect on LinkedIn, AngelList, Twitter, Facebook
  • Follow co-investor Twitter list daily

Key Insights

“I invested in people who build things, not people who talk about building things.”

“The number one reason a startup fails is that the founder gives up.”

“You don’t need to know if the idea would be successful. You only need to know if the person would be.”

“Write deal memos explaining why you’re investing, what the risks are, what must go right.”

“Pro rata rights are a must and you should never do a deal without them.”