All Star Investor Panel! Sophia Amoruso and Ryan Hoover | E2158

Key Concepts

• Deal Flow
• Valuation (Pre-seed, Seed, Series A, Series B, D+)
• Fundraising (LP, GP, Emerging Managers)
• Micro Funds
• Mark to Market
• Greed/Fear Index
• FOMO
• Distributions
• DPI (Distributed to Paid-In Capital)
• Product Velocity
• Revenue Growth
• Lead Investor
• Status Symbols (Revenue, Social Reach, Shipping, Small Teams)
• For You Page (FYP)
• Signaling
• Product Velocity
• Capital Recycling
• Medical Tourism
• Self-Directed Healthcare
• Vibe Coding
• Brittle vs. Durable Revenue
• Price to Sales Ratio

Investment Strategy and Valuation

• Deal Flow and Valuation: The quality of deal flow dictates investment decisions. It's crucial to assess if there are better or equally promising alternative investments.
• "Four Bullets" Analogy: Knowing when to make multiple smaller bets versus a single larger bet is key.
• Accelerator Valuation Example: In Launch Accelerator, investing at a $1.7 million valuation requires $700k to own 7% of a $10 million company.
• Ranking within a Cohort: Compare a company's potential to others in an accelerator class. If it ranks highly (e.g., #1 out of 12), it's a stronger case for investment. If it ranks lower (e.g., #5 or #6), reconsider the investment.
• Valuation Trends: Angelist data indicates pre-seed valuations are flat, seed valuations are up 15%, Series A is up almost 10%, and Series B is up 40%.
• Discipline: Sticking to the fund's stated investment strategy is important for LP evaluation.
• Price Awareness: Being aware of, but not overly sensitive to, high valuations is important.
• Unicorn Potential: Every investment should have the potential to become a unicorn.
• "Bullets in the Gun" Analogy: Willingness to take multiple "shots" (investments) at a promising target, even at a higher valuation.
• Team, Product, Market: Investments require a great team, good product velocity, and a large addressable market.

Fundraising and LP Dynamics

• Time Allocation: Sophia Amaruso noted that in year one, 20% of her time was spent with founders and the rest was fundraising.
• LP Base: Focus on individuals and known contacts for the LP base.
• Poker Table Fundraising: Jason Calacanis mentioned raising money at poker tables, highlighting the importance of personal connections.
• Angelist Advantage: Ryan Hoover had an advantage raising his first fund due to his association with Angelist after selling Product Hunt.
• Market Sentiment: 2021 was a bullish time for fundraising, but the market shifted with events like the Silicon Valley Bank collapse.
• Hard Questions: Raising in a challenging environment (like 2023) forces emerging managers to answer tougher questions.
• Emerging Manager Resurgence: Angelist data showed a 43% increase in LP capital into the platform between Q1 and Q2 of the year.
• Greed Cycle: The market is potentially entering a "greed cycle" driven by FOMO and optimism around AI.
• Distribution Impact: Distributions from events like the Figma acquisition will likely recirculate capital.

The Changing Startup Landscape

• New Status Symbols:
  • Raising is now Revenue
  • Press is now Social Reach
  • Credentials are now Shipping
  • Big Teams are now Small Teams
• Revenue as Validation: Founders are increasingly showcasing revenue numbers on Twitter, creating FOMO.
• Twitter as Launchpad: Twitter's algorithm changes incentivize video demos, making it a launchpad for founders.
• Going Direct: Founders can now reach audiences directly through platforms like TikTok, bypassing traditional media.
• For You Page (FYP): The FYP allows "nobodies" to get in front of "somebodies," democratizing access.
• Product Velocity: A key term indicating rapid product development and iteration.
• Team Size: Smaller team sizes are becoming more common and valued.

Follow-On Investment Criteria

• Revenue Growth: Significant revenue growth (e.g., 3x, 4x, 5x) is a strong indicator.
• Lead Investor: A notable lead investor joining the board is a positive signal.
• Lead Investor Track Record: The lead investor's history of successful investments matters.
• Product Velocity: Rapid product development and shipping new features.
• Team Size: Founders who are scaling down or staying small while growing.

Capital Recycling and Distributions

• Recycling: Reinvesting early returns back into the fund's portfolio companies.
• Distribution Philosophy: Ryan Hoover sold 14% of a position in Deal to return the fund to LPs, prioritizing liquidity.
• Downside Protection: Jason Calacanis emphasized the importance of downside protection, even if it means missing out on potential upside.
• Time Value of Money: Consider the time value of money when making distribution decisions.
• LP Preferences: LPs generally prefer distributions, especially if they haven't seen liquidity in a while.
• Recycling Timeframe: Recycling is typically done within a certain timeframe (e.g., the first few years of the fund).
• Follow-on Considerations: Would you invest in this company at this valuation today, even if you weren't already an investor?

AI and the Future of Startups

• AI Impact: AI is eating into more of the market and impacting services.
• AI-Powered Tools: Public.com uses AI-powered tools to provide insights on stock performance.
• Foundational Models: Ryan Hoover noted that foundational AI models are improving rapidly, potentially enhancing products without direct founder effort.
• Brittle vs. Durable Revenue: The question of whether AI product revenue is sustainable or easily churned.
• Cambrian Explosion: A potential 10x increase in startups hitting product-market fit in the next few years.
• Democratization of Building: More people can build solutions using software, leading to more builders.

Geographic Considerations

• European Market: Sophia Amaruso is exploring the European market, particularly the UK.
• Estonia: Estonia is seen as a founder-friendly environment with a concentration of startups.
• Nordic Design Aesthetic: The Nordics have a strong design aesthetic and a culture conducive to focused work.
• Lifestyle Impact: Lifestyle factors in regions like France, Italy, and Spain may affect work ethic.
• Miami Skepticism: Jason Calacanis is skeptical about Miami as a major startup hub due to its lifestyle.

Community and Support

• Founder Residencies: Sophia Amaruso hosted a founder residency in Mallorca to foster collaboration and mentorship.
• Jam Sessions/Pods: Jason Calacanis organizes "jam sessions" or "pods" where founders meet to share challenges and help each other.
• Slack Channels: Maintaining a Slack channel for portfolio companies facilitates communication and support.

Specific Companies Mentioned

• Squarespace: Website building platform (squarespace.com/twist).
• Lemon.io: Platform for hiring pre-vetted remote developers (lemon.io/twist).
• Public.com: Investing platform with AI-powered tools (public.com/twist).
• Product Hunt: Ryan Hoover's platform for discovering new products.
• Nectar Social: Social media management tool for brands.
• Agree.com: Platform for signature-to-payment workflows.
• Baton Market: Marketplace for acquiring small businesses.
• Atlas: Visa application platform for Indian travelers.
• Autolane: Operating system for managing autonomous vehicle deliveries.
• Doctors: Marketplace for medical tourism.
• Lovable: Fast-growing startup with a low-code platform.

Conclusion

The discussion provides a comprehensive overview of the current venture capital landscape, covering investment strategies, fundraising dynamics, the evolving startup environment, and the impact of AI. Key takeaways include the importance of deal flow, disciplined valuation, adapting to changing market conditions, and recognizing the new status symbols in the startup world. The panelists also emphasized the value of community, mentorship, and supporting founders through various programs and initiatives.