Friday, December 14

Jason Calacanis On Why He’s Investing Later Stage Than When He First Started Angel Investing

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As an Angel Investor Jason Calacanis is perhaps best known for being one of the first investors in Uber, the $60+ billion dollar startup that has become one of the defining tech companies of the last decade.

What you may not know however is that Jason invited Travis Kalanick (the Co-Founder of Uber) to pitch at his Open Angel Forum where a group of 20+ Angel Investors and early stage VC’s had assembled to hear from promising young startups Jason had uncovered.

Out of those 20 odd investors in attendance only four decided to invest, Jason, Chris Sacca, Cyan Banister and First Round Capital. That round was done at a $4m pre-money valuation when the company was less than 1 month into the beta of their app that allowed you to request a “hire car” at 1.5x the price of a cab.

Fast forward 8 years and Jason Calacanis now typically cuts his first cheque when the company is further along in their life-cycle. Speaking to Startup Soda Jason highlighted how this is a function of both the increase in the number of startups competing for funding, as well as the dramatic decrease in the cost of building an MVP or getting to Beta.

As Jason points out In 2008 there were 90% less startups in Silicon Valley. Now there is 10x as many”. So for many investors they are “dealing with a deluge” of investment options. And according to Jason “its a natural thing to do, to say that you have to prove more” before an investor will be willing to invest.

Despite keeping his powder dry for a little long Jason has not seen much of a change in the economics of the deal he is able to strike. As Jason would outline during our conversation, in his early investing career three out of four startups he would back hadn’t built their product yet, and a lot more went out of business. Now, the typical class at the Launch Incubator will see six out of seven have a product in market, and even paying customers.

As Jason puts it “We flipped the ratio and we are not getting much different economics, and we are getting more solid companies”. In order to bridge that gap from idea to securing your first outside investment Jason said that:

“its up to you and your friends and family to fund your first $50k or $150k, to fund your MVP or Beta, after that, that’s where the professional investors come in”.

What this ultimately comes down to for founder is understanding that “what cleared the market in 2008 will not in 2018”. As an investor Jason is presented with 200 – 300 investment opportunities a week. He decides to invest in almost one a week, so it is a much different situation to 8 or so years ago. Essentially it’s a function of the market with Jason outlining that “If we didn’t have so many companies coming at us with traction we would be investing earlier”

That all said and done however, these rules are not set in stone. In fact, Jason will invest pre-product if the founders have a track record or we think they have spectacular talent. Circling back round to Uber, Jason that that “if three people were leaving Uber to start a company we might seed it with a $100k investment”.

To sum up the key takeaways from my conversation with Jason traction is king. It’s up to you to prove that your idea or startup will work before investors will become interested. It’s either that, or come at a problem with a track record of success or a deep level of domain expertise that gives you a competitive edge on another level.

*** This article is part of a series of in-depth articles based on our interview with Jason Calacanis. The full podcast will also be available shortly.

To learn more about Jason Calacanis you can:

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Paul Towers is a passionate supporter of the Australian startup ecosystem and the Founder of Startup Soda. Originally, Startup Soda was solely a newsletter that helped curate the best content from the Australian startup community, more recently however it has turned into a media platform with the aim of improving coverage of Australian Startups, Founders and VC's.

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