Sunday, July 16, 2017

Things I wish someone had told me before I started angel investing

Back in 2005 I suddenly found myself sitting on a big pile of money after the Google IPO so I did what any young nouveau-riche high-tech dilettante would do: I started angel investing.  I figured it would be more fun to be the beggee than the beggor for a change, and I was right about that.  But I was wrong about just about everything else, and I got a very expensive education as a result.

Now that I am older and wiser (and poorer!) I can look back and see that I did some incredibly stupid things that I could easily have avoided if I'd just gotten myself some proper mentorship.  But I was in LA at the time, and good con men were more plentiful than good mentors.  But it's Sunday morning, I'm up (relatively) early, I don't feel like writing code or complaining about Donald Trump today, so instead I'm going to write the blog post that I wish someone had written for me back in 2005.

The first thing you need to decide is whether you are investing as a hobby or as a serious attempt to make money.  If you're doing it as a hobby you don't really need to worry about much, except to prepare yourself for the likelihood that this could end up being a very expensive hobby.  The absolute minimum to play the game even once is about $5-10k, and if that's all you have then you will almost certainly lose it.  You're more likely to make money by going to Las Vegas and betting on roulette.  If you are investing casually you should be prepared to lose every single penny you put into it without regrets.

If you are investing as a serious attempt to make money then you have a much tougher row to hoe.  Basically, the process goes like this: your early deals will almost certainly not pay off.  You have to approach them as if you are buying an education for yourself.  You will find some awesome-looking deals, ones that you will think are absolutely 100% certain to be the Next Big Thing (NBT), and you will be tempted to buy as big a stake in them as you can afford because you don't want to miss out on the NBT, because NBTs doesn't come along very often.

Don't do it.  The odds that what looks to your inexperienced eyes like an NBT is in fact an NBT are vanishingly small.  There are vastly more good pitches out there than there are good companies.  If it were easy to tell the difference, then Y Combinator — who by now are as good at picking winners as anyone and better than most — would not have to invest in hundreds of companies every year, they would just go straight for the winners.

Here's how it goes: you will (almost certainly) lose money on your early deals, and you will be shocked when this happens.  You will be shocked even if you were intellectually prepared to see your investment fail because the way in which it will fail will almost certainly come as a surprise to you.  You will be amazed at the stupid shit that founders do, the evil shit that competitors do, and the completely random fucked-up shit that markets do (like completely ignore products that are clearly superior in every conceivable way!)  There are a myriad ways to make a company fail, but only two ways to make one succeed.  One of those is to make a product that fills a heretofore unmet market need, and to do it better, faster, and cheaper than the competition.  That is incredibly hard to do.  (I'll leave figuring out the second one as an exercise.)

So your early deals will fail unless you get incredibly lucky.  Your goal at this point is not to make money, but to learn from the mistakes that you and your investees will inevitably make.  Starting a company is not a linear process.  There is no recipe for success.  It's a long hard slog of never-ending problem solving, crisis management, and plain-old shit work.  Some people just have the knack for getting through this, but most don't.  Your goal is to develop a sense for how to recognize the people who have the knack, and distinguish them from the ones who are good at giving the impression that they have the knack, but really don't.  This is hard because being a good con man is much easier than being a good entrepreneur.  And by no means are these two talents mutually exclusive.

This early stage will last several years, and if you're not prepared to act on those kinds of time scales then you'd better find yourself a different path in life.  During that time you should be taking meetings constantly.  Why?  Because the more people you meet, the more data points you will gather about what success looks like early-on (and, more importantly, what failure looks like early on), and the more likely you are to find the needle in the haystack.

Actually, the needle-in-the-haystack is not quite the right metaphor.  There is a small cadre of people who actually have what it takes to successfully build an NBT, and experienced investors are pretty good at recognizing them.  Because of this, they don't have trouble raising money.  As I mentioned earlier, one of the reasons people get into angel investing is because they think it's more fun to be the beggee than the beggor.  But the cool kids don't beg.  The cool kids — the ones who really know what they're doing and have the best chances of succeeding — decide who they allow to invest in their companies.  And they want investors who have been around the block, who know what they are doing, who have a thick rolodex of potentially useful contacts, and most importantly, deep enough pockets to do follow-on investments, and thick enough hides not to complain if things go south.

If you want to make money angel investing, you really have to treat it as a full time job, not because it makes you more likely to pick the winners, but because it makes it more likely that the winners will pick you.

If you're not ready for that, you will be much better off financially buying index funds.

Good luck.

Tuesday, July 11, 2017

There's yer smoking gun

I predicted the existence of a Russia-gate smoking gun back in March, but I didn't expect it to actually turn up so soon.  And I certainly didn't expect it to turn up by having Donald Trump Jr. whip it out, shoot himself in the foot with it (twice!), and then loudly shout, "I told you there's nothing to see here, move along!"

Here is the most damning part of the email chain released by Trump Jr.  It's from Rob Goldstone, who set up the meeting between Trump Jr. and Natalia Veselnitskaya, the Russian lawyer who offered to provide the Trump campaign with damaging information on Hillary Clinton:
“Emin [Agalarov, one of Goldstone's clients] just called and asked me to contact you [Donald Trump Jr.] with something very interesting.  The Crown prosecutor of Russia met with his father Aras this morning and in their meeting offered to provide the Trump campaign with some official documents and information that would incriminate Hillary ... and be very useful to your father.  This is obviously very high level and sensitive information but is part of Russia and its government’s support for Mr. Trump."  [Emphasis added.]
I can't imagine how it could get much smokier than that.  This is a direct communication with Donald Trump Jr., (I'm going to start calling him DTJ to distinguish him from Trump père) released by DTJ himself.  This is not a leak from an anonymous source.  There is no question regarding its authenticity.  And yet, if you were going to invent an email to try to frame DTJ for collusion, you couldn't do much better than this.  There it is, literally in black and white: "official documents and information that would incriminate Hillary ... part of Russia and its government's support for Mr. Trump."  And he took the meeting.  Eagerly.

And yet, the Trump camp continues to insist that no "collusion" occurred, presumably because the proffered documents never materialized.  I really have to wonder at this point, what do they think the word "collusion" means?  It's like saying that, yes, you did indeed try to rob the bank but it's OK because the vault turned out to be empty.

I also wonder how much worse this has to get before Republican senators and congresscritters start to head for the exits.

Wednesday, July 05, 2017

A brief history of political discourse in the United States


When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.--That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, --That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.


We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.


Four score and seven years ago our fathers brought forth on this continent, a new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal.

Now we are engaged in a great civil war, testing whether that nation, or any nation so conceived and so dedicated, can long endure. We are met on a great battle-field of that war. We have come to dedicate a portion of that field, as a final resting place for those who here gave their lives that that nation might live. It is altogether fitting and proper that we should do this.

But, in a larger sense, we can not dedicate—we can not consecrate—we can not hallow—this ground. The brave men, living and dead, who struggled here, have consecrated it, far above our poor power to add or detract. The world will little note, nor long remember what we say here, but it can never forget what they did here. It is for us the living, rather, to be dedicated here to the unfinished work which they who fought here have thus far so nobly advanced. It is rather for us to be here dedicated to the great task remaining before us—that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion—that we here highly resolve that these dead shall not have died in vain—that this nation, under God, shall have a new birth of freedom—and that government of the people, by the people, for the people, shall not perish from the earth.


It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.


I am certain that my fellow Americans expect that on my induction into the Presidency I will address them with a candor and a decision which the present situation of our people impel. This is preeminently the time to speak the truth, the whole truth, frankly and boldly. Nor need we shrink from honestly facing conditions in our country today. This great Nation will endure as it has endured, will revive and will prosper. So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. In every dark hour of our national life a leadership of frankness and vigor has met with that understanding and support of the people themselves which is essential to victory. I am convinced that you will again give that support to leadership in these critical days.


We choose to go to the moon. We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win...


We must never remain silent in the face of bigotry. We must condemn those who seek to divide us. In all quarters and at all times, we must teach tolerance and denounce racism, anti-Semitism and all ethnic or religious bigotry wherever they exist as unacceptable evils. We have no place for haters in America -- none, whatsoever.