To some of you, the news has been trickling out but now it’s time to do a real announcement: Yes, I’ve left the ranks of angel investing and joined Launch Capital, a seed stage fund based out on the East Coast.
I met Launch Capital about 3 years ago when we both were invested in two Bay area startups. I got to know the managing director, Elon Boms, very well through the years. We found we had mutual agreement on investing philosophy and approach, and about a month ago, he offered me a job as West Coast Director of Operations, doing seed stage investing on the West coast where I am mostly based, but also covering internet-tech and mobile in NYC where I am often.
I am excited to see my career go in this direction. As an angel investor, I discovered that I loved working with startups and helping them and their products grow. Now, at Launch Capital, I could do more of the same but with more resources and under a prominent brand. While I enjoyed being an angel investor, I think that it is much more preferable investing in startups with the ability to bring more money, resources, and help to bear than just what I can bring individually.
If there is anything I’ve learned from angel investing, it’s that angel investing is hard – easy to have fun, but hard to make money. As individuals, we can only bring so much to help except for those individuals with exceptional resources and backgrounds; the majority of us may have enough capital to invest but have limited capability to help beyond that capital. But now I can work with startups with the ability to bring more capital to bear than just my own quickly dwindling resources.
To be totally open and frank, I hit that tough place being an angel investor: I’ve been actively investing for about 5 years now but the economic crash and lack of exits has made deployable cash harder to come by. I had contemplated potentially stopping angel investing for the time being until the opportunity at Launch Capital came along, for which I am eternally grateful so that I could continue to work with startups.
Likewise, I found angel investing to be sometimes a lonely place. I have worked with others in the past, but each of us, either angel or fund, had very individual reasons for investing (see my post Why I Hate Social Proof). However, now, I am glad to be working with an experienced team of investors with a singular mission, all to invest smartly for Launch Capital. Over the last 4 weeks I have come to value their feedback and help on my deals, which has sharpened up my decision process greatly.
To all you entrepreneurs: I look forward to working with you in my new capacity at Launch Capital.

I’ve never met Tim Ferriss in person, but I think it’s pretty outstanding that he chose to hack his body, as described in his thick tome, The 4-Hour Body. In an unprecedented, data driven way, Tim experiments on himself with all sorts of supplements, exercise programs, and diets to see what works and what doesn’t. But he just doesn’t subject his body to the stress and ingredients; he also measures, using sophisticated but readily available devices, their effects on his body before and after trying them.
Being a triathlete and one that wanted to improve AND being a gadget lover, I felt that this was right up my alley. While my experiments with his methods on myself aren’t finished and I hope to publish some results on my training blog, I felt that some of the measurement methods are worth publishing here and highly relevant in my investing.
Prior to Tim’s book, I was already using technology in my training. I regularly run with a Garmin Forerunner 305 GPS watch and upload the results to my Mac. My old coach, Michael McCormack, had set me on using the Computrainer, a computerized bike trainer which allowed me to workout using repeatable and measurable power settings. On my bike, I use a Powertap power meter that is installed in the hub of my rear wheel. This allows me to record and examine my power profiles during training rides and competition. It also gives me a picture into exactly how much power I expended during a ride and, over time, whether I have improved or not.
Simply recording all this in an Excel spreadsheet meant that I could go back and examine my training, and figure out if I have truly improved season over season.
Recently, I have begun to use other tools to supplement my training. For example, I started swim training in Total Immersion which advocates frequent use of underwater video footage to give feedback on swimming technique. I use a GoPro video camera with suction cup to record my workouts for re-examination later. I also bought a Pulse Oximeter to check my resting heart rate every morning, which is important to track and see when you *aren’t* recovered from previous days of workouts and to know when it’s time to back off and rest. I do also record my heart rate during my bikes and runs, although I’m not a big fan of using heart rate as a training metric.
I also now run with the Runkeeper app on my iPhone 4, which finally has enough battery power to last through an entire marathon while broadcasting/recording my run. Runkeeper does things similar to my Garmin, but I feel that it’s displays are better than the Garmin software, although Garmin’s website implementation isn’t bad.
After diving into Tim’s book, I got a Omron Full Body Sensor Body Fat and Body Composition Monitor to start tracking my progress using Tim’s methods. To see not only my weight but my visceral fat decrease before my eyes has been enlightening! I had considered getting a Withings scale, but for now I needed the full body composition monitoring versus just weight measurement.
With the exception of the Computrainer and the Powertap, all of these are well within the budget of normal consumers. (NOTE: Even now, other manufacturers have come out with computerized bike trainers and power meters that cost significantly less than the Computrainer ($1650) and Powertap ($2000)). The pace of innovation and the movement of price to within the reach of normal consumers (versus prosumers/early adopters) has been accelerating year over year. Also, the availability of devices which can monitor our human condition day to day, minute by minute, and allow us to track our progress minutely is growing exponentially. Devices that were only found in doctors’ offices or hospitals, or big medical research centers are now available to the average person for a fraction of the cost.
When the average person can know the effects of eating a McDonalds hamburger or a healthy chicken salad in the short term, we can really do some wonders in our ability to know how are body is reacting to stimuli and what we should do about it.
What did we do before? We went to the doctor once a year, if that, and he would (maybe) run a battery of tests on you and tell you how you were doing. In between that time, all we had for feedback was a mirror, maybe a scale, and how we felt day to day. We would go back to our old habits of eating poorly, exercising without metrics or goals, and wonder why we kept gaining weight day over day, month over month. Or perhaps we drive ourselves into the high risk group for heart disease or worse. This sucks and is changing rapidly.
Exposing data about ourselves in real time (not doctor visit time) is the first step, giving insight on them is the next, and then lastly providing actionable advice on what to do next is the third step.
We are now in the next revolution of human analytics and I, for one, and diving full bore into it not only from a usage standpoint, but also from an investing standpoint.

The blogo/twittersphere is abuzz about the recent offer of $150K to every YC startup. You can read about the details here at 90% of Y Combinator Startups Have Already Accepted The $150k Start Fund Offer. You can also read a range of thoughts collected by Jason Calacanis on his blog, Angels+VCs are pissed off about Yuri/Ron Conway/YC deal-big time.
Initially I was miffed about it – it kind of pissed me off. At the last YC, I already felt like I was competing severely to get into investment rounds, having not mentored them and coming in late to their rounds even at the first Demo Day. Now it would be even harder. But then, after thinking about it, I am still sore about it, but that doesn’t mean it wasn’t brilliant.
And brilliant it is. For Ycombinator and its startups, and SV Angel/DST, it is totally the right move. Here’s why:
1. I’ve always felt that every YC class, there were the stars that would get funded no matter what, and there were the ones that would fail no matter what. But, in between the stars and the certain fails there was a huge grey area of the startups who have a harder time to get funded because if only they have a bit more time, runway, money, and advice, they could actually get somewhere fundable with their projects. But, without further support after the YC time period, many would inevitably just wither and die. Now the have a longer runway given the $150K and have more time to prove out their ideas and/or pivot if necessary to something more fundable. Because of this, more YC’s startups have a better chance of survival and, thus, giving YC a better chance at making more money.
2. More power has shifted to the entrepreneurs with this move at least in YC for sure. The world recently had moved from a combination of preferred equity rounds and convertible note rounds with caps to this note without a cap. Convertible notes without caps are very company friendly instruments into which investments are taken.
3. For SV Angel/DST, now they have a bets on most of the YC’s startups and now will be less likely to have been shut out of a round. If you’ve been following YC (I’ve been watching the quality of YC startups since March 2008), you’ll have noticed that the quality of startups has grown dramatically with each new class. It is not an inconceivable notion that there will be a big game changing startup that comes out of YC as time goes on. So creating a relationship where SV and DST can place bets on a lot of them, if not all, before the rest of the world gets to them is a good thing for them.
What about side effects? I’ll throw some out there:
1. I think that the opinion that angels will find it less appealing to invest in YC startups in this class is correct. Here’s why:
a. Before this $150K, YC startups only got $5K + $5K/founder. This mattered most to the startups who began life in/around the YC class. (NOTE: Each class, more startups who have been around for a while and willing to give up substantial common stock for a chance to go through YC are being accepted. For these startups, the $150K matters less.)
Given the ramen nature typical of YC entrepreneurs, that $150K means that many will not choose to raise any more money at all since they can go a long way on that much cash, conceivably ten times as long as their YC investment of ~$15K! So if these guys survived for about 2.5 months for only $15K, would they be able to have 10×2.5 months = 25 more months of runway?
Some of the startups may choose this route and if they are good, then we will miss the opportunity to invest in them now. Some time down the road, they will presumably have more progress and investing in them at that point will undoubtedly mean a higher valuation which is appropriate given their further progress. But higher valuations for an angel means less of chance to make a lot of money.
b. I believe that some of the startups will choose to raise additional capital on the terms of the convertible note w/o cap. This is also less attractive for an early angel investor because it means that we will not have established a potentially lower valuation for the early stage at which we would put money in. Instead, that valuation will come later, also presumably with more progress. Thus, we would put money in and not get any reward for early risk.
Why wouldn’t a startup raise more money with another new convertible note with cap? I think some will, but some will not because they do not want to anger their previous investors, DST and SV with a structure that has more advantageous terms. I have not seen their note, so potentially it may have some terms in it to adopt the terms of succeeding rounds if they are more advantageous.
Some startups will just believe that they are justified in raising further money on these terms and not change. With the infusion of new investors around, I believe they will be able to close their rounds even with some of the more professional or experienced angel investors declining the opportunity.
Still, even if a lot of professional/experienced investors declining, I think there are enough professional/experienced investors will still take the deal, operating on the assumption that there will still be a high probability of a great outcome on a startup which is doing well.
2. This is still OK for venture capitalists. For the later stagers, they wouldn’t have invested in a YC startup at early stage anyways and will just wait for them to come to them after they have matured more, like they always have. The early stage funds might not like getting into a hot YC startup early with a higher valuation, but they probably still have the ability to make money if a startup takes off, especially if they have reserved funds for follow-on investments. The majority of angels, in contrast, rarely make follow-on investments.
3. Paul Graham is highly respected, if not worshipped by all the would-be and current entrepreneurs. What happens in YC inevitably affects the larger community. YC startups have already had their pre-money valuations drift higher and have already moved towards note with caps and we’ve seen non-YC startups do the same. Now I’m sure there will be many that will now try to raise with notes without caps. While the not-so-great startups will try and still be declined, the hotter ones will be enboldened and will hold firm to notes without caps. Because they are hot, they will get funded no matter what. I have not seen any pattern to the contrary on this issue; money is not a problem for startups especially if they are hot and/or popular.
So yeah, I’m still sore that potentially this could mean that it may not make sense that I should invest in some of the better startups in the Valley, which will come out at this next YC class. But like all things in business, you do what you do to gain an advantage over others in your space and Ycombinator, along with SV Angel and DST are doing just that. For that reason, I’m sore, but also I cannot help but applaud their brilliant move.
On the other hand, I’m now, more than ever, thinking on how I can build my own brand, reputation, and value to entrepreneurs so that I can still get into the rounds at the time, terms, and valuation that will make sense for me to participate.

Friday afternoon, I had the pleasure of jumping on a conference call with one of my current potential investment’s customers. It was a rare occasion where an early stage startup actually had a customer testing their product and I was able to get some feedback on the startup from a customer’s perspective.
The call was thankfully overwhemingly positive; the customer had implemented the startup’s system, and it installed and ran without a hitch. We found out that the startup’s personnel were extremely easy to deal with and were extremely responsive to issues. We also found out some nice, unexpected results of the installed system; it gave them some enhanced marketing functionality, and they found that they increased sales by quite a bit after using the system! Of course, the customer was extremely happy about that as well.
All this served to reinforce the positivity on investing in the startup. It was very refreshing to hear all the great things a customer had to say about this company!
A little while back I wrote a post called The Lack of Due Diligence is Appalling and Foolish. In my experiences as an angel investor, I was shocked to find out that often I was the only investor asking for due diligence materials from a startup raising money. Recently on Quora, I suggested some other due diligence things people should do. Calling a startup’s customers is one of those that should be done. Some thoughts on this:
1. If you’re fortunate enough to encounter an early stage startup that has customers and are accessible, definitely try to give them a call. Many early stage startups are in the very beginning stages and don’t have customers yet so sometimes it’s hard to be able to talk to them at all.
2. Customers who are the average consumer are harder to talk to directly than customers who are businesses.
3. For consumers, you may not be able to talk to them directly at all, but must rely on customer feedback, or public reviews on other blogs, magazines, etc. Occasionally, there will be some prominent beta customers who you may be able to get hold of directly.
4. Businesses are potentially much easier to contact. There is usually a point of contact over at the customer and, if they are willing, you can talk to them.
5. Ask the entrepreneur to make the contact and introduction to their customers. I would also recommend that the entrepreneur should set the context with the customer(s) but ultimately should not be on the call/meeting. This is so we can get a unbiased view from the customer without some possible social interference by the presence of the entrepreneur.
If the entrepreneur is unwilling to facilitate access to their customers or hedges against it for any reason, be wary. A startup should NEVER EVER disrespect an investor’s request for any kind of due diligence. If they do, this is a red flag. You should reconsider investing in them.
6. A quick phone call should suffice, or even better if the customer is local and you can go meet with them.
7. If there are more than one people on a call or at a meeting, you should consider discussing beforehand the questions that will be asked. In this way, the call/meeting can go quickly and in an orderly fashion. Customers, whether they are consumers or businesses, are as busy as you or me. We should respect their time and not waste it by being unorganized. Then organize the questions into a written list and have it handy to refer to during the call. You can print it out and scribble notes as you walk through the questions.
8. Here is a possible template of a due diligence call and topic areas to ask for a typical product; adjust/edit/add as necessary given the particular startup and its products:
Introduce yourselves, and say why you’re calling (ie. we’re potential investors in company X, and we’d like to know more about your experiences with company X and its products)
How did you first encounter the product? What were the first impressions?
Describe the signup process.
Describe the installation process.
Describe the product experience itself from your perspective. Any positive and/or negative experiences?
How did the product perform? Did it do what you thought it would do? Was it below/meets/exceeds expectations? How so?
Describe any problems in the product that you see.
How much does the product cost? Was it too much? Too little? Just right?
Did the product enhance your life/operations/sales/task/etc.? In what ways?
How were your communications with the company, if any? With the company personnel? With their customer service? Through email? Through marketing materials? Any positive and/or negative experiences?
Would you recommend this product to a friend/colleague/co-worker/another company? What would you say to them?
Thank them profusely for their time, end call.
Yes we’re all way too busy. But making time for these calls, and ultimately going through due diligence on a startup can really make a difference in your decision process. As I’ve seen on calls like these, I not only gain more assurance that I’m making the right investment decision, but I’m also learning a lot about a startup’s business from a perspective that is often very difficult to get hold of.

Occasionally in one of my conversations, we will talk about what we think makes a great investor, angel or VC. Most of the time, we talk about being lucky, having the ability to spot great companies and opportunities, and sourcing amazing dealflow and getting into deals that others can’t get into. But almost never talk about exit engineering.
Being able to create exits from your portfolio companies means that you are able, more often than not, to produce returns from everyone of your investments, even those that are seemingly lost causes. That means you will seemingly be able to produce returns in any kind of market, and consistently deliver over time. Those that aren’t so good at this leave making returns to the whims of events mostly out of all our control – that doesn’t sound like stacking the odds in your favor!
I think that exit engineering is both a science and a skill, some learnable and some not so easy to just “learn”. Here are some thoughts about what makes a great exit engineer, some which I think are readily achievable and some that are not:
Achievable Skills/Traits:
Natural Salesman – From always talking about your portfolio companies to actively pursuing an exit with a corporation or individual, you are always out there talking up your startups and either subtlely or overtly promoting them. You never lose the opportunity to sell how great they are to someone and always have in your pocket a bunch of startups to sell.
Great Negotiation Skills – Selling is one aspect, but you also need to be able to squeeze out the best possible deal and not just any deal.
Strong Relationship with the Founders and Board of Directors – If the other people who control decisions in the company trust you and your judgement and you can convince them it’s time to exit, then this helps things tremendously over trying to convince them it’s time to exit.
Knowledge about the Economy – With the recent economic crash, I’ve been thinking a lot about economic cycles (see my post Tough Economic Times Ahead and the Next Stage in Startup Strategy) and their affect on investing and startups. Great exit engineers need to be acutely aware of the macro effects of the economy and know when it’s OK to press your bet or to harvest returns before the rug gets pulled out from under you, either lengthening the time to harvest returns and/or suppressing the actual return itself.
Knowledge about the industry, sometimes proprietary – You must have your ear to the ground on what people are doing inside corporations and around industry. Your network must include people who can give you this information, and hopefully that which nobody else has. How else would you be able to sell a startup to a company who is trying to make headway with a stealth strategy? If you don’t know someone is looking to do something in a given area, then you’ll miss the opportunity to sell them a startup which could be something they are looking for to help them execute that strategy.
Great Network of People Who Matter With Respect to Exits – You might have a strong network, but you need to know the people who are the actual decision makers in organizations. Sometimes it’s clear, and sometimes it’s not. Talking to the rank and file is fine to get certain things done, but if you’re going to sell a company to another one, you need to figure out if the it’s the head of corporate development or the CEO that you need to be talking to. Perhaps even a board member may be the best person, or they also may be the worst person.
Not so Easy to Achieve Skills/Traits:
Creative – Creativity can play a big role in creating exits. Sometimes, you have to be able to package a startup in unique way to sell it to someone. It also may not be obvious who might want to buy your startup but with some creativity, it may be possible to sell a company to someone who you’d never think would want that particular one.
Great at Cultivating Exits – Some exits are more timely and obvious, like when another corporation makes is relatively public they are pursuing some strategy. Some are years in the making, as you network and plant the seeds of needing a particular startup to achieve some business goal. Great exit engineers will meet with folks regularly and subtlely steer people to want one of their startups and it could take a long time.
Intuitive – Intuition is so important, both in knowing what to do in a given market, sensing what the tipping points are in a negotiation, or knowing to whom to sell a company.
Amazing Sense of Timing – Acting on intuition and market knowledge, the exit engineer somehows just knows when it’s time to harvest returns on any investment. Anyone else is either too early or too late.
Trust Among the Network – Having a killer rolodex is the first step; what’s harder is actually having worked with many of them and they know you enough to trust you in something that you present to them, and will consider it seriously and first, over and above others.
Personal Relationship with Network – Having worked with people in your network and gaining their business trust is great; hanging out with them and their families, playing poker and golf with them, etc. makes that relationship even stronger and more likely that an exit will happen. Friends dealing with friends happens more often than you think.
Produced in the Past for People in the Network – Even better than trust and personal relationship, you’ve actually made money and/or other positive results (ie. fame, advancement, etc.) for the people in your network. Your network knows they won once with you; that means they are likely to win again working with you.
A bunch of us were noting that the best VCs were great at spotting fundable entrepreneurs and the ideas that they brought with them, and also giving them valuable business advice and helping them along build great businesses. However, we also thought that the VCs who rose to the top of the heap were the ones that were also great at exit engineering and time after time they seemed to be in deals that were able to exit for tremendous returns.
These are the Sequoias and Kleiner-Perkins of the venture industry who have been around the longest and have been able to produce returns for their investors fund after fund, and through any economic conditions. With the rise of so many prominent, active angels in the Valley, I think that we’ll see there will be angels who will have amazing returns and, as I theorize, be excellent exit engineers in addition to all the other help that they would give.
This also provides support for the argument that entrepreneurs should always try to find helpful investors who are also excellent exit engineers, assuming that your goal isn’t just to build a sustainable company but also to produce exits for those who own parts of the company. That should make exit engineers more attractive to bring on as investors than others, meaning you can get into better deals.
So it seems that this is a worthy skill to acquire, although some of it is learnable/achievable and some of it may be skills that are more about the individual and what they are capable of, than something that can be learned.
I, for one, will strive to improve my exit engineering skills over the next few years…

Over the last few months, we’ve seen the emergence of super-angels and micro-VCs as early stage investing comes into its own. Out of conversations with many in the industry, I’ve boiled the strategy down to two categories: pickers versus sprayers. Before we get into who is a picker and who is a sprayer, let’s talk about them in their extreme stereotypes.
Pickers
A Picker is:
1. Someone who goes through a more involved process of picking particular startups to invest in.
2. They will do due diligence, ranging from calling references, to looking at research in an industry, to collecting lots of legal paperwork from the company.
3. Someone who likes to manage more closely the startups they invest in.
4. Generally are more disciplined and follow a game plan of investing.
5. Invest in startups where they can leverage their preferences, personal interests, and areas of expertise to help the startups gain an advantage.
6. Invest in both people AND the idea.
7. Are more conservative than not, in an already highly risky investment class.
8. There is an upper limit to the number of startups they will invest in, either per year (or other time period), per partner, or even over the life of a fund.
9. Shoot for the big outcome/exit with every investment.
Sprayers
A Sprayer is:
1. Someone who goes through a less involved process to choose startups to invest in.
2. Often, they will invest in startups with no due diligence at all. They may not even meet the entrepreneurs in person.
3. Will invest in an enormous amount of startups, ie. >50 in a year (hence the term “spraying” their money around, or from the more deragatory phrase “spray and pray”).
4. They rely on social proof and others to do due diligence and to help the entrepreneurs, since they have no time themselves to devote to individual startups.
5. Their main exit return strategy relies on exits of mid-size (ie. >$20MM) all the way up to big outcome/exits. They are betting on a more index fund approach to investing in startups.
6. Someone who bets almost exclusively on the team, and on the assumption that smart, adaptable, entrepreneurial people will always find a great outcome (versus those who are not superstars). They bet less so on the idea and will skip a great idea if the team is lacking. (Woe to entrepreneurs who do not graduate from MIT, Stanford, Berkeley, etc.) Also, this means that they do invest in more exploratory projects by entrepreneurs (ie. projects without a clear plan, features-type projects, etc.
7. Speed is of the essence, as the competitive nature of today’s early stage market is intense and you have to have a fast decision process to get into deals.
8. They will try to get into every great, hot deal out there. In order to execute on their return strategy, they will have to get into as many hot deals as possible.
9. They have a higher risk tolerance and tend towards being OK with taking on high amounts of risk in the investments they make.
Who is a Picker and Who is a Sprayer?
The descriptions above are, as I said, extreme and stereotypical. The truth is, everybody is somewhere in the middle. Investors may lean more towards one way or another, but they rarely are at the extremes, except perhaps on the Picker end where many disciplined investors employ set strategies.
Sprayers, for example, do pick a little. If they didn’t, then they would invest in every startup with only smart people in it, which is definitely false.
Even pickers may start placing some smaller bets, which act as good lead gen for later stage deals, or education into a given space.
For me, I would say that I am a Picker with Spraying tendencies.
My personal capital pool alone limits me to pick the investments I make. I do not have the capital to place bets in a ton of startups. So I am forced to pick. But I also like to get more involved with the startups since I get a lot of personal enjoyment from working with them. So time constraints mean that I need to pick. And personally, I like to resonate with both the team and idea versus just the team and an idea with an unknown (to me) future.
But since starting to invest in 2006, I have invested in 21+ startups. That puts me in the low end of the Sprayer group. I will sometimes also bet on less certainty on the idea if I merely like it or it resonates with me somewhat.
Which strategy is better? Here’s my prediction:
Like startups, I think that success in investing is highly dependent on the person and their ability to execute whatever strategy they choose to employ. We can sit and argue about which strategy sucks and who’s gonna lose but I think in the end it will boil down to how the person operates and their skill and perserverence in pulling exits out of their investments.
Then, you couple that with external factors, like industry trends, competitive factors, and the economy, and that can either suppress a strategy or enhance it. Keeping an eye on the external factors and executing an investment strategy appropriate to the external factors, and that which resonates with a personal strategy will win big more often than not.