0:00 - Intro
0:55 - Signs you're good at angel investing
5:25 - Should I invest in things I like?
7:32 - Investment Thesis
10:40 - Finding products to invest in
13:44 - Definition of Pre-Seed/Seed
16:58 - Definition of Series A
18:46 - Definition of Series B
19:59 - Product Market Fit
22:41 - Gelt
25:08 - Traits we look for in founders
27:47 - Pattern recognition
35:38 - Dealflow
39:08 - How to be a value-add investor
44:24 - Should you start a fund?
46:30 - Syndicating deals
53:28 - Sneak peeks (Arc Investment?)
Andra Vomir: I think this is like a good rundown of the whole angel investing space.
Alex Bass: We were in this boom where like you could have seed stage being like 30, 35 million valuation. Now we're more like 15, 10, 8. In one
Andra: sentence explain pre seed, seed, series A, series B. Let's talk about the founders for a sec. In terms of how we get access to deals, traditionally companies.
It's Hitch Investors and we have never invested in a company that way. Another question that we get is, are you starting a fund? Can I be a part of your fund? And you have a whole blog post
Alex: about it. What's the title of the blog post? Why
Andra: I don't want to start a fund by Alex Bass. What does it mean to be a value add
The part that has been a bit jarring to me is I made this mistake with motion where I got to learn what being a value add investor is and isn't.
Thanks to Gelt for sponsoring this episode, but more on that later.
Andra: This episode is great for anyone to listen to that is thinking about angel investing or just wants to learn more about it, because we're going to cover some, like, basics.
Alex: Basics or learnings or things
Andra: just... Yeah, and like frequently asked questions.
These literally came from like friends that we've met that have asked you these questions. Okay. But the first question, which I think is the biggest, is like... Are we even good at this? Are we, like, who are we to be doing this? And, yeah, have we had any wins so far? That's like the first question that people typically ask.
Alex: I think the thing with it is people don't necessarily understand that this is like a seven to ten year time horizon. You don't, you don't really know if you're good until you are doing it long enough that you maybe have returns or you see that all the companies you invested in went out of business and building a startup takes a lot of time.
So It's, it's kind of an impossible question to answer without just having more time go by. But what we can see is like little indicators along the way, I think.
Andra: Do you want to share any of those? I know there's some you can't
Alex: share. Yeah. I mean, so essentially like the, the. You can see if companies continue raising and their valuation goes up along the way, because then technically on paper, you could do the math and see what your money has grown to, and you can say like, oh, well, this is clearly working, and then you can run that against the total amount that you have invested and see how that would compare it versus putting it in the S& P 500, which is about 7 to 10 percent per year on average.
So if you're able to do better than, say, 7 percent per year on your total amount of money, so let's say that we put 300 grand in. If you had one company that did really well, or they rose another round and that increased the amount you put in by like 30 percent or something like that for that year, that kind of brings everything up a little bit and you can just compare it to the S& P 500.
That's kind of the way to see like, am I good at this? It is like, are you at least on paper beating the S& P 500? If not, you're probably not good at this. Yeah.
Andra: And I think like this early on, we had a lot of discussions about like, Do we share? Do we do this podcast? Do you write your blog about angel investing?
Because we're early on, and I think we see that a lot of people talk about their successes once they've been successful. I actually think Naval tweeted, like, I always was wise, it's just that nobody took me seriously until I became successful. In a novel fashion, it was much more succinct than that.
Alex: Well, it's like I've been in a ways like been been posting along the way and no one's cared until he's actually been successful.
And I think it's that thing where like, I feel like we're seeing these indicators of success. So we're like, why don't we actually document along the way and maybe we're, we fell it at it. in the end, but there's also learnings in the journey along the way.
Andra: Yeah. And I think when we are like, what our hope is that in a decade, if we are successful and people are actually curious, we can point them to this episode and these early on ones, because in 10 years, if we're actually successful, we're going to like have kids by then.
We're going to be so disconnected from these early day conversations and feelings. It's also relatable. No, because we're just going to be like, Oh, we did.
Alex: It was so hard back then or like whatever things that people say, like in business, like being over a decade in business, I have no interest in talking in the first five, six years of being in business.
And if someone were to say, should I start a business? I would say, no, it's, it's awful. Like you, like the first six years you're going to probably fail and you're going to have to push through it. So it's like, I'm not the person to give encouragement. My, one of my close friends, Brian, he's like. You would be a great demotivational speaker because people were asking in school.
They were like, Should I start a business? And I was like, no, I was talking to the class about how you should not start a business unless you want to make very little money, but grow a lot along the way.
Andra: Yeah. I think we obviously have like experiences where like people are just starting up a business. I remember once you and David did like a clubhouse episode when that came out when that was a thing.
And there was like a young girl starting her business on there and you guys were like trying to give her all. The advice and I think it was just like a lot for her to take on and digest while like if somebody is doing, you know, a million revenue in their business or, you know, even a couple hundred thousand, like there's a lot more commonalities that we could talk about now.
Yeah. So I guess, are we good at this? We have indicators that we are. I also want to say, like, just to. Take a few steps back. There's people that we've met along this journey that angel invest based on emotion, based on interests. And your first investment was in BlackBerry. The stock and that went down to zero,
Well not zero, but
Andra: it wasn't that bad. You lost money on it. And I remember you said you're learning from that was maybe I shouldn't just invest in things that I
Alex: like. Yes. I mean, I, I guess the thing with that is I. dove so deep into the BlackBerry ecosystem. I became an app developer for BlackBerry with their releasing BlackBerry 10.
Like, I dove into the realm of, of that, met so many amazing people through that, um, and actually like built an app that got 50, 000 downloads. Like, I was like a super like success thing that was like so cool. Um, And I'm so like excited and proud of that, but I also forget about it. So I'm kind of just saying this almost like posterity, posterity to myself to remind myself that, like, because people have asked me, like, are you, have you ever thought about getting into development?
And then I literally forgot that, like, I was at one point, but I've moved on from so much of that. So, um, Yeah, I dove into the world of BlackBerry. I had a BlackBerry podcast for two and a half years, weekly podcast, the unofficial official BlackBerry podcast. Like I was in the depths of it. So I was also like, why should I spend so much time on a subject and not have an investment in it?
So if there's something that I learned, like, yes, I shouldn't just invest in something because I like it, but you should also probably not, not be invested in something that you spend that much time talking about. So it's almost like maybe that was a good investment. Because it, I already had spent the time and it almost like potentially gave upside and like paying attention to the subject.
So I, I almost like, I wonder if maybe it was a good investment. I lost maybe, you know, 30 percent of that, but in certain ways reflecting more on it, I think. I did what felt congruent, and I think it was a good congruent decision at the time. That's fair.
Andra: Because I think now we invest in, obviously, products we like.
Like, that's, that would be silly to say. We like the products, but we actually, we find them very useful in our day to day. And I think, like, we've alluded to this on other episodes. It's like, when we're making a decision about what we're investing in, there's so much history that has typically gone into that decision.
Like you might have been watching this space for a decade and evaluating software, like the calendar software, and then you come across motion and that feels right. And yeah, I think for me, like when I Think about companies that I would want to invest in and where my interests are. Like it might be in beauty, but I don't want to invest in any of those companies.
Like I know nothing about the business of that. I know nothing how to scale a business like that. So I feel like investing in tech for me feels like a more. Like, it's an area I understand.
Alex: Yeah. Yeah. Like the business use case. I mean, a lot of what we are doing, we've, we've also had these conversations around B2B versus B2C and I think we, we've been in B2B for so long and we've been implementing software into B, or businesses for so long that like, we understand the business model in that.
There's either like a time savings or some type of value creation for a business and a business can justify spending a lot of money on a tool. Whereas B2C, it is so much a marketing game. It is like, do you have a good enough product that you also have a kick ass marketer behind it and the resources and money to throw at ads to find people?
There's so many things that are, some of it is literally just out of your control. This marketing, this ad connect with people or not. And I think that's where we've kind of decided where we're not going to invest in B2C. Um, I, I maybe like one thing we've invested in kind of like toes the line cause it's like prosumer, but we see where it can move into business.
And I think that's also important where I think we, we clearly know. where our skill set and our strengths are and that's where we stay within. And then it's even niching down further in a way where it's like productivity focused, uh, SaaS. So it's almost like B2B productivity focused SaaS is what this is almost like turned into, which is actually quite a niche.
And it's also funny because like the productivity space is also such an, like, everything is arbitrarily Productive and you can get sucked into like, Oh my gosh, this is a game changer and signing up for new software. I'm like, this is going to be amazing. And I think it's just more of like there is a lot of value in that.
Um, but yeah, I don't know if that makes any sense.
Andra: Yeah, I think like because my next thing that I had that I wanted to talk about was like the types of companies that we invest in and like having an investment thesis, which is something that we learned from Lolita Taub. I remember, I hope I'm saying that right.
But we met her at Sastr and she was like the first person who was like, well, you need to have a thesis as an investor. And we were like, well, what's our thesis? And yeah, the B2B B2B productivity space was where we came to the efficiency focus space. Did you say that's
Alex: right? Yeah, I think it's like the, the tools that we would naturally recommend to our customers in their business.
Andra: Yeah. And I think that goes into like the next part, which is how do we source our deals? So you typically evaluate lots of software, every software, like out of. All of our friends, which are all in tech, like we live in a tech hub in Austin and even an SF. I think maybe there's one time when somebody named an obscure software that you hadn't heard of.
Yeah. 99. 9 percent of the time. I can't give you a perfect score, but close to it, you have been like, yes, I've heard of that. And you already know it. Like to the point where our friends have literally been like, I have an app you probably haven't heard of, like it's now becoming a game. And it's like, I remember Andrea was like, have you heard of ReadWise?
And you're like, yep, used it. Beta
Alex: tested. This is my thoughts on it. Yes, yeah,
Andra: yeah, yeah, yeah. So you know the ins and outs quite well. And you have opinions on basically every software that you've evaluated. And then you and I have different. Profiles in terms of adopting software, so you are much more likely to be an early adopter.
You will deal with a buggy product. Yeah, I will not buggy products. I have my limits. I Just need the thing to work, especially when I'm like in work mode, if I'm fighting with a software to like load or to do the thing that I expect, or it's not saving what I need or, Oh my God, let's just talk about the, the screen that's way too low where I'm typing.
It's gonna, I'm going to complain, but you're more willing to put up with those things. I
Alex: like helping shape the product at, especially at early stages. So if something is Buggy, like for example, our help desk, help scout, they're testing or they're beta testing like a new, this is what you're essentially talking about, the words from the bottom of the screen.
I wasn't going to call it out, but okay. Um, but it's more of like early, early alpha stage. I enabled it and I'm like, yeah, like there's points where it accidentally refreshed and I lost the entire message that I was writing and I'm like, yeah, of course that's frustrating, but I'm going to like let them know that that happened and then they fix it.
And I'm like, cool. I helped. Other people from that happening to them like I, I enjoy doing that because I feel like I'm being involved in that because then there's also like listening to my product feedback and my needs and my wants and reflecting that out to putting myself in the customer shoes like I'm going to pretend that I am.
My customer and here's the things that they would have to say about this. So I'm going to say it for them. And I almost get to like vouch for our customers in that way too. And that's kind of like part of why I do love the business that we have together because I almost get to be more opinionated because I get to take more people, more actual live businesses and the people that we talk to and understand their persona and kind of like absorb that and then act like I'm them.
And then like, you know, test it in that way. With my lens of the market
Andra: and it's very often that your product feedback makes it into the product and then you get to like use the feature that you requested every day, which is cool. Yeah. So in terms of the characteristics of the founders that we invest in, actually let's backtrack for a sec.
So we mainly invest in seed stage.
Andra: seed. Yeah. Okay. So like a quick rundown to explain to someone in one sentence, explain pre seed, seed, series A, series
Alex: B. So Pre seed essentially is typically pre product or very early MVP of a product. So it could just be an idea and it's, it is typically like the earliest stage of that.
It kind of exists. Sometimes it doesn't exist. Like there's this whole thing where it's kind of mixed in with seed. Um, some people hate that precede even exists. They just call it seed. So you're typically signing some type of safe agreement, which is literally just an agreement where no one is getting any equity.
You're just giving them the money and it's an agreement for future equity. So it's very like, we don't need to deal with lawyers. We don't need to deal with the numbers. Just send me the money. Chances are going to go literally it is. Chances are I'm going to go out of business. So get me the money quickly so I could just try to make this thing work and let's not waste all this time getting like great.
We made sure that you got all this equity and all the stuff like that, but we're going out of business and we wasted 30 grand on lawyers to make this work. So it's very much like, let's move quick. I'm probably gonna die, but I'm gonna give you a lower valuation. So you have a higher upside if something does go well.
Andra: And at this stage, we're primarily looking at the founders. Who they are, their track record potentially and not even essentially that they've had to have like a huge win in the past, but like who they are as people and how they work and how they execute on their ideas,
Alex: which to be fair, I struggle with precede the idea of there's I mean, I've had some instances where someone's like literally pre product.
They're raising it like a 30 million valuation. They have a super impressive track record, but it's just like, I don't even know how this is going to like look like as a business. And also you're going, you're going to pivot, like you absolutely will pivot. So you need to believe so much in the person. And I, I struggle at that degree.
So then seed is more of like, there's an MVP revenue wise, maybe you're doing no revenue or, and maybe you have some traction or maybe you're doing like two, three, 400, 000 a year in revenue. Um, and the valuation at that stage, like we've. It's been tough. Like the numbers we were in this boom where like you could have seed stage being like 30, 35 million valuation.
Now we're more like 15, 10, eight, like depends on all these things. Like if you're a YC company, then all of a sudden that goes up, like whatever. But that's the area that I think I quite like, because it is a. Typically, an MVP is out there. Product is out there. There's a general idea of what they're trying to accomplish.
And this is like, this is when we had found motion. They were seed stage. They had a product, they were doing some revenue, not a ton. And it was just like, wow, like the founders are super impressive. They had two engineers, one product person. That's also an amazing CEO, Harry and like. That that was a good mix because say that you're struggling as a business and you run out of money.
Well, you have two Engineers that are literally partners in the company founders in the company Do you think they're gonna let this thing die like worst case scenario if you if you still have engineers that have skin in the game They may give this another one or two years even after they run out of runway and that's also just more security In terms of like the investors, money being secure and safe.
And then you have series a, so series a probably this essentially means that you're seeing some semblance of product market fit. And what that means is you've kind of found a cohort of people that have a pain point. And if they were, and if this cohort of people were to hear about your product, they would go, Oh my gosh, I've been looking for this.
This is exactly what I needed. That is like product market fit. Can, can you. Give the solution to the people that have the problem.
Andra: Are you saying this happens in Series A?
Alex: This is where there's a semblance of it, where like, you may have experienced this in a few companies and what you really need now is money, um, to throw into marketing to let people know that your product exists to really test to see if this product market fit is actually there.
Because maybe you just found a little cohort that you thought was product market fit. But it really wasn't. Um, and honestly, some of the best companies that I've talked to have been quite confident that they are nowhere near product market fit at Series A. And there's this funny thing where I'm like, I look at it from like how we're doing things and like, you guys are at it.
But I also understand that you're like, this product may look nothing like it does now in two years or a year. And I'm also like, I trust you in this, and I also think that you're going to be the one that's going to be on top of this and figure this out. And then the valuation there, like this is where things just get really difficult because there's all these different, you know, scenarios that might happen, but let's say 30 million to, uh, 80 million or something is like typically less than 100 million.
Also, all the stuff has the big ranges because the market is has been crazy recently and now it's kind of like evening out and it's hitting series A and series B more and in that area. So then series B is pretty much like difficult to get into you. They've already risen a lot of money at this point.
They probably risen somewhere between 20 and 50 million or like with that series B we'll bring them to say we've rose 50 million or 30 million or something around that. That lens, um, their valuation is probably around a hundred to 200 million at that stage. And you typically, if you're doing well, you already have like all the VCs and investors that want to give you the money.
At that point, you're probably just getting a lead investor. Maybe it's an existing investor, or maybe it's a new investor. And That's just, that's just an area that like, you're probably not going to get a 50x return. You're probably, if things go well, you might get a 10x return. But also if you put in 100 grand in this scenario and you get a 10x return on that.
That hundred grand turns to a million dollars. Obviously dilution, maybe 800 or whatever's going on with that. That's still like a really impressive outcome, but this is where you can start seeing that you need to be putting meaningful money in for it to become meaningful money. Whereas you could put 10 grand in and seed stage and that 10 grand can turn into a million dollars.
That's where that, that really meaningful hundred X, uh, can come into play. So
Andra: product market fit. Would a Series B company, Series B
Alex: startup, yeah,
Andra: would they have product
Alex: market fit? It's, it's quite likely that there's Enough signals that there's product market fit there. Like their growth rate has been quite decent and you essentially have investors that are like, I am going to give you money, which is just jet fuel because I see that you are a jet and or a rocket or whatever analogy you want to use.
And I just want you to burn my money in marketing to let people see because you have most of the signs of product market fit at that
Andra: point. So just some examples, because I remember like product market fit really solidifying for me when you explain this to me, when you're like, okay, think of a hotel. I think of Airbnb, think of calendar scheduling, Calendly often comes to mind.
I need a fast email experience. Superhuman comes to mind. I need to grab a car. Well, it used to be taxis. Now Uber comes to mind. So when people.
Alex: That's, that's, that's like super, super clear product market fit. Like that, that is like getting the series, like D, E, like that's typically the later stage, almost public, like Uber's public right now.
Yeah. But the earlier stage, when you're in a, like a B, like let's say for example, um, business, business banking, um, startup business banking, whatever Mercury. Is comes to mind of doing exactly that, but it's still early enough on where like you're, if you said I'm just so frustrated with the startup business banking experience, paying fees, not having a good user interface, it not syncing with QuickBooks online.
And you bring up these, these, um, frustrations. If someone were to be like, Oh, there's mercury. And you explain it. They're like, Oh my gosh, I've been looking for this thing. And. The same type of thing you can start get to like series C. Um, I actually think Angel AngelList was series B but like AngelList is another example where if you are in the syndicate like you're doing you're syndicating deals which is similar kind of to a fund but like I could say have an opportunity to maybe invest in Motion and I could syndicate the deal which I would then use a platform like AngelList.
To create an SPV, which is just like a holding company where I can collect money from people, and then we invest in motion together, and then I may get some additional upside because I put that deal together and managed it. So if you are in that space of syndicating, you've heard of Angelus like that is one of the core.
companies that you're going to consider using, that is clear product market fit. Like you are already in the minds of people when they want to do the thing. So you think I'm going to do an SPV, you think AngelList and what other companies come to mind if you're in the space. Those are companies that typically have some level of product market fit.
Alex: love Gelt. Okay, so I have used a myriad of CPAs over the course of years being in business and finding a CPA that understands business, angel investing. And also the complexities, if you listen to episode number one about how we met. Well, it was not that straightforward.
Andra: I was living in Australia and also Canada and now have immigrated to the States.
So finding a CPA that can help me with that cross border tax bit was just a nightmare. I had spoken to so many CPAs and everybody had limitations. And then Alex was on a call catching up with the Gelt founder. And we. Just for asking them like what they were up to and they were explaining how they help with their taxes and the cross border stuff and I just got so excited.
I was saying Alex like just sign up like please let's become a customer because I have been looking for someone that can help us with this for so long.
Alex: Yeah, it's so funny. He's just like confused, but we're like, no, we want to review product market fit right here. They have saved us probably about 25, 000 the first year I'm working with them because they've gone to the degree of like looking at prior returns and realizing, oh, hey, you over reported your income based on what QuickBooks is saying.
Do you want us to file an amendment? It'll save you 7, 000. Absolutely. They've even like given a strategy around, Hey, did you know that if you actually shut down your New York business and open one up in Texas, cause that's where you're based now, it will save you X amount per year. And it's just like, my gosh, absolutely.
And it's been so much strategy that none, no other CPA has ever gone to this extent. And they're also
Andra: a modern CPA. So they are a tech business mixed with a CPA service. So in terms of signing documents, they send over Panadox, which are e signature documents. No pen and paper, no faxing. My gosh. And also we have a shared Slack channel.
So when we have our text related questions that I typically would just. kick the can with and try to avoid even asking someone because I'm like, what is this going to even put me down a rabbit hole on? No, they come back with an answer within like a couple of days and we can actually trust the advice from their team because they're so switched
So if they want to sign up like they are us, what would they do? So
Andra: if you are looking for strategic tax advice, go down to the link in the description and make sure you tell them that efficient app sent you because that will Bump you to the top of the wait list. Cause they do have a wait list right now to get
Cool. Now back to the episode.
Andra: So aside from the companies that we invest in, let's talk about the founders for a sec, because there are certain traits, I guess, that we. Can see that we like, I don't think like we can actually use certain words to describe all the founders that we've invested in. Cause personality wise, they're really different.
But one thing that really resonates with me is thinking about, okay, if I have a thousand dollars and I'm going to put a thousand dollars into our business. to make that 1, 000 grow to 100, 000 versus giving this person 1, 000. Like, who's being more risky? Who is doing the thing that's likely going to grow the money more and who's making the decisions that I'm not?
And that is what makes me feel excited about Investing because yeah, I think with every single founder, I am like, yeah, kind of my money, if I'm actually looking for it to grow, it's probably better off with you. And even if it completely fails and it goes to zero, I know you. We're smart about how you were using the money and the decisions that you were making.
So I trust that, you know, it was your best shot and cool, like, let's talk about the next thing. Yeah. I think not to like just go down to the negative, but I think there are like other characteristics that we see in founders that are. Less exciting. And I think those are like, yeah, how does the person make decisions?
What are they going to potentially use the money for?
Alex: Why are they raising in a way? Like, are they risk adverse? Are they, do they want, are they seeking in a way stability through their startup? Like I want to pay myself a higher salary. Or I deserve, because I've been successful in the past. I deserve a higher salary if I do a startup.
Like, no, like you should literally be putting everything into this company. And it's, it is a red flag. If you are trying to, in a way, like exit from your company early, like say selling off shares in your company or trying to take money from the company and pay yourself a high salary. Like, those are all things that it's like, no, you're getting too fancy.
Like, and, and, and many second, third time founders get too fancy. And, and there's a way where like, Yeah, it's difficult to, to deal with that because they're not wrong. But it's almost like, are you doing it for the right reason in a way? Yeah.
Andra: I think we both like appreciate a level of humbleness and like, Vickie is a founder that we had invested in.
And I remember she was like, thanking us for something and she was like, I want to take you out for dinner, but on my personal card, on my personal card, and it was just like a little thing that we're like, yeah, that's why we like appreciate you because you think of these things and. Yeah. Yeah. Talking a little bit about pattern recognition in the companies that we invest in.
I, yeah, there's some themes like automation and integration, small theme, but another big one that we talked about was, I'm going to like let you talk about this more.
Alex: Like the kind of the layer thing. Chrome.
Andra: Well, we haven't invested in that company yet. But, uh, Google Calendar,
Alex: Slack. Yeah. So essentially like what, one of the things that's interesting is.
You can take, for example, these tools that have gotten billions of users or, you know, tens and hundreds of millions, and there is this market atop of these companies, and I think in a weird way, this is kind of playing to our integration space, so maybe it's not necessarily even like, oh, this is like a really great space to be in, but it is something that we understand and we do.
Because it is kind of how do we build integrations that could be a layer atop of what currently exists to build a better user interface because Gmail is amazing, but it is really slow and they are building for billions of people So you're not going to get what you want from it if you are using it It's not that's just essentially the way that it works and they're not going to take the product feedback and do the things that you want to do they're going to build for the masses and you go and work at Google and you learn how like changing a slight color tone is going to affect billions of users like every single decision is so granular because it is such a large impact that you almost need a company to move fast and try things to have better experiences so there's one level where like motion for example we had seen them early on as a layer top of you Google Calendar.
So you had to even use it. You had to have either Google Calendar or Office 365 or G Suite, Google Workspace, Office 365, or Gmail, whatever, if you want to use it for personal reasons, and it would essentially show your calendar. It would do scheduling, but it's a layer top of that, so it would essentially ping Google Calendar to create the event, and it was really just a layer top of Google Calendar to make Google Calendar better, and that's what Sunrise Calendar was.
That's what all these other tools are, um, in the space. And... I think that is where it's like, Oh, interesting. Like there's such a large audience base that wants a better Google calendar. Google calendar is what everyone's like using in the startup world. Um, so how do we make it better? And I think that's really interesting, uh, in a way of like some level of a thesis.
And we've been seeing this trend kind of overlap more and more where say, for example, Slack, I couldn't get you to even use Slack because I had built so many integrations into Slack. So that like. If we ever got a customer that paid an invoice, it would post it to the admin channel. Um, if we ever had a new invoice come in that we had to pay, it would put paste to the invoices channel, uh, support tickets, sales, like all of these were segmented.
And I just felt like every day I would go into Slack. When running the business and know everything that happened in every component of the business. And then the beautiful thing with that is like, I'm like, I could essentially hire an accountant or an admin person. I just need to share these three channels with them and they have full insight into what is going on at any given point in the business.
But the problem is Slack is like so overwhelming. So I couldn't even get you to go in because you would just be overwhelmed by all of the noise in there. Yeah. For
Andra: my first job in PR, Over a decade ago, I turned off all notifications because it was just too much and it was overstimulating for me and I just hate the fact that like my phone and someone else could interrupt me and my mindset at any given moment.
So Slack for me, when I entered it, even in our business, even being a small business, it felt like the place where I was going to go play Whack A Mole with a bunch of notifications and I wasn't going to get any work done. And I think a lot of people feel that like Slack started as a productivity tool. I remember that's what it was initially pitched as, and I think it probably was, but now it's so much more and there's just so much going on in there and it got to the point where.
You were getting a refund for me not logging in. Yeah. And like, I laugh at this because I feel like people listening are going to be like, what kind of business partner are you? You're just like not logging into Slack. In my defense, we also live together. So,
Alex: you know. But I would message you and it would just be.
Be more of like, I would then have to relay that in person because I know you never even looked at it. And it was a lot. And yeah.
Andra: And then I would message you on telegram about something work related
Alex: and you'd be like, no, keep it in Slack. Cause I want to keep the personal and work separated. And then I would
Andra: just tell you in person.
So we did this for a while, like honestly, when did we start using Slack? Last November or something. Then, or sorry, dispatch. So enter dispatch. We're introduced to Sedman and at first, funny enough. So Evan introduced us to Sedman and. It was like one of those a short trial, I think, and then you have to pay right away.
Alex: you couldn't even get access until you like literally put your credit card in or you very like there was a hard core boundary. And I'm of the mindset where I will be able to judge a piece of software within the first like two minutes of using it. Let me just see the back end. Let me just see what the user experiences and the product looks like.
And then I'll decide if I'm willing to. Put my credit card on file, but I couldn't do that. It was very much. You need to schedule time with Steadman and I think you said you weren't willing to pay for it. So yeah, so I, um, I think I told oven I'm not willing to pay for it until I try it and he was kind of slightly embarrassed to make the intro because it was like.
My friend has this boundary set and you're clearly trying to break his boundary.
Andra: And also, like, Stedman was like, cool, if he doesn't want to pay for it, then he shouldn't be using it. Which is a smart thing when you're building a product, when you're trying to just figure out, is there something here? Like, are, what people are willing to pay for this?
And are they going to continue paying? In which I
Alex: learned this from, from Harriet Motion. He, like, these are, like, maybe this is one of those indicators and signs. Um, because I remember... Getting my friend to use motion and he had a lot of frustrations in these areas where it's like I wanted to integrate with click up and and Harry was very clear.
Like we're not trying to build a tool that just integrates with other tools. We're trying to replace those tools. So I remember he had asked. I was telling Harry. I was like, Hey, like a friend's been using it. They have some feedback and whatever. So he jumped on a call with my friend and he was giving feedback and I could tell like, you know, Harry was talking with or whatever else.
And then afterward, Harry was like, he messaged me. And he was like, wait, your friend wasn't even paying for it. He was on a free trial. He's like, I don't care about his feedback. And it's like, I, these are not the customers I should be listening to. And I remember hearing that boundary. I'm like, that's actually like really smart.
I only want to listen to the people that are willing to pay money. Because if you want me to build a product that will convince you to pay money, I don't know if you will ever. Pay for it. So that was this overlap of like Stedman very clearly had that, but I'm also the person like, I'm more than happy to pay for this thing.
I will happily pay for this thing and I will be a lifetime customer. I just genuinely need to see it. So there was like, I had boundaries, they had boundaries and we were kind of like butting heads. And I think I had kind of just gotten across, like, let me do a free trial. I am very much willing to pay for it.
Let's just jump on a call. Like genuinely. Let's just jump in a call. Like, please, can, can we do that? And he had given me a shot and we jumped on a call and we just had like the best call ever. It was just like the, the, the, the nicest thing. Like he showed it, it was super cool. I saw so much potential in it.
I'm like, okay, yeah, like I'm very much willing to pay for this thing.
Andra: Um, the rant is a good example about, uh, of a layer, a top of a existing product that actually made me use the existing product. So, yeah, that's a pattern recognition, I guess, that we've seen. In terms of how we get access to deals, this is also a frequently asked question.
Like, sometimes people are like, cool, I'm accredited. I have the net worth. I have the money. And now I want to deploy some cash. How, well. Let me start by saying so traditionally companies pitch investors like that's most of the dynamic that we hear about, right? Like I'm a startup. I want money. I'm reaching out to dozens of investors on LinkedIn.
I'm trying to set up meetings. I'm trying to pitch you and all of that. And we have never invested in a company that way. Any that is before we get into the way that we do
Alex: it? Um, I mean, I, there's no shortage of people that are looking to raise money and. It's, it's difficult, but like, it's almost even a red flag if someone is, is trying to raise money and it not coming through like a side channel of like, Oh, this is a really great product or a really great founder.
Like there's, there's certain deals that you and I have invested in just because like a company we've invested in the founders, we respect. And they just said, Hey, this is a company that is killing it. Hey, company, you need Alex and Andra on your cap table because they're just like kick ass angel investors.
Like you just want them in your court, uh, Alex and Andra, you need to invest in this company because they are just killing it. And we've literally didn't even like do any due diligence. It is like, okay, cool. I trust you. Like there's the level of trust. And I think Neval has talked about that too, that like the more you trust the people around you, the easier it is to do business because it's just like, I trust the decision that you've made.
Um, and let's just do it. So those are been like some situations. So if it's not, if in a way it's like if it's not coming through some lens of that or being obsessed with the product, it's just like, yeah, I don't know. Like the building trust with the stranger is, is a lot of work.
Andra: Yeah. So I think most of the ways that we have gotten to invest is through the network that we have building relationships, which you have been great at.
Starting those initial relationships and giving product feedback. I think you have a whole blog post about this, about like how you give product feedback early on and build those relationships with the founders and ultimately asking if we can invest. Yeah. And I don't know if there's any other
Alex: thoughts about that.
But yeah, I mean, I, I, the way that we've been essentially investing in companies has been, we've been using their product. I think some of the examples even, it's like we've been, Implementing software into our customers, every single customer, we were putting the software into place. For example, we'd be crazy to not just be like, wait a minute.
This is probably a good investment because we, we are like, we are putting it in for no reason other than this is the best tool for the job and it allows us to do our job better. Maybe we should invest in this to kind of take. Two sides to it. So it's like that, that feels like a no brainer. Um, with the dispatch scenario, it was like, Oh my gosh, this has gotten someone that has software fatigue to actually use this and be more present in the business.
There's some magic there. I don't quite understand it. I don't quite know how big they could necessarily get, but there's a piece in this that is like, wow. So then it's like, well, I think day number three, we asked. We're like, are you guys raising? Can we invest? We want to invest. Yeah. And I think that if that has been the typical recurring thought that's come up, that it's like, can we invest in your business?
Are you raising versus, Hey, we're raising. Are you interested in investing? And
Andra: how do we support the companies that we invest in? What, what does it mean to be a value add investor? And what comes to mind is a meme that Stonks posted on Twitter, which is like cars driving down a freeway and then like an artificial hand pretending to like help them drive along.
And he was like, this is like what a typical VC does. It's like they're pretending to help, but the car is already moving. So I think. Yeah, I want to, like, speak to about once you've actually invested, like, what is the responsibility of an angel investor and how can they support the companies in a meaningful way?
Alex: Yeah. I mean, I think in a way, most angel investors really just like they're giving money and I think the best founders just accept that money is like, that's all like that. That's the relationship that's here. It's obviously nice to have more, but the expectation of anything more is, like, what, what I reflect on is, I've wanted to help motion.
Because I just love what they're doing and Harry has had this boundary of just like I respect your time Like if we jump on a call, he's like he's in and out. He is like five minutes over I'm like wait I was actually kind of enjoying this or like I wanted to hear more about the product thing or can you show me some mock ups?
Like all these all these things but he's and in a way he's just he's literally like I respect your time I don't want to waste your time Thank you for what you've helped with and I'm done and I think the part that has been A bit jarring to me is I thought, and I made this mistake also with Motion. It was the first company that we had invested in.
So I think that's also where I got to learn what being a value add investor is and isn't. I thought I was going to come in and just like, because I was giving product feedback, that's what I enjoy doing. That's what I am good at. I figured that this is what they need. Well, Harry is a product person. Harry, his job is to be this person that yes, it's useful for me to give feedback here and there or test features and things like that.
But he doesn't necessarily need me there more often to do that. There was even a point where I was like, can I get, um, advisory shares and help more with product? And it's like, well, no, like we, we don't need that right now. Like we have more, like, like we appreciate what you're doing and what you're helping with and championing this, but like, that's not necessarily what we need.
So here I am trying to put what I wanted to do on a company and they're being clear about, no, like I just appreciate you giving us money and believing in us. And what I learned is like. The areas in which we can actually support as value add investors. They kind of, it's, it's guided by the founder in a way.
It's like, we're, I mean, some, in some parts we'll put out some content or we'll talk, tell our friends about software or show them off or whatever else, but there's points where like Harry would reach out and be like, Hey, like, uh, we have a potential investor, any chance that you could jump on a call with them and show them how you're using motion.
And I'm just like, absolutely. I drop everything and I'm like, I'm ready whenever. And he's like, there's been points too. And I, and I just, so it's just so sweet where he's like. I know this is last minute, but at 8 p. m. this is like four hours from now. Can you jump on a call, whatever? And he's like, and, and totally fine if not, but like it would be so helpful.
And I'm just like, you, you're so respectful of my time and know that you're doing a huge ask. And then you're so appreciative of it afterward. And I started realizing that like, these are the areas that I guess I'm helping. Um, Because in a way, it's the founder asking for help, and I'm realizing the areas that I can help.
It's not, I don't get to dictate or guide that. One
Andra: funny way, I remember you helped without needing to help, like no one asked you to do this, but when motion was, like, starting to grow, You would always look up Motion on Twitter, like, all the tweets about it, and you would start responding to everybody.
You were like, like, I think people even thought you worked at Motion at certain points. And then you would send, like, certain tweets to Harry, and you're like, I think this one is, like, valid, or, like, this is... Whatever. It was
Alex: before they had like the resources to be monitoring Twitter and responding or having like a full time support.
And I just enjoyed doing it and helping. So in a way, I think it's that thing where it's like, I know you're not asking for this, but like the funny thing is like Harry and their team is like, everyone noticed it. They're like, thank you. Like, this is so not necessary. Like you're like genuinely not necessary, but thank you.
Andra: that's, yeah. You enjoyed it. Like I remember we would like sit on the couch and you'd be like, I'm tired. I need to like buckle in and let me go look up motion on Twitter. You were just like totally living your best
Alex: life. And it was also a level though, like we invested and I'm like, wow, people are actually talking about a company that we invested in early on.
Like that, that was also exciting. Like you'd go and one day you'd see two new tweets and the next day you'd see like five new tweets. And it's like, wow. Like there's this indicator from external that. That it was just, it was like, wow, like people actually know a company that we invested in that felt.
Andra: Yeah. And then when that started happening in person as well, like that only I think started happening when we came to Austin and I remember we like met one person and she was using motion and I was like, Oh my God, this is so surreal. And then like, she loved it. Yeah. And then we went to, uh, it was like, The crypto consensus.
Remember when we met like that random investor and he was like, what do you guys invest in? And we're like, we invested in motion. He was like, I use it. Yeah. I was like, this is crazy. Like it's, you kind of are like, this is happening and you get to be a part of it. I think another question that we get is like when people listen to you, you're building relationships, you have the background to evaluate software.
So the next question that you get is like, are you starting a fund? Can I be a part of your fund? And you've put a lot of thought into this. Again, you have a whole blog post
Alex: about it. What's, what's the title of the
Andra: blog post? Why I don't want to start a fund by Alex
Alex: Bass. Yeah. Um, I feel like, so the, the first year of angel investing, we invested in 18 companies.
Um, and I think part of this is like diving in quite deeply out of the gate. And I think I started realizing that the companies that I was most excited about were the companies that if I were to ask, um, for more allocation, Then, then we had asked for, they would say no. So I started realizing this whole like, Oh, can I, you know, start a fund and take other people's money?
There's a few layers to this for one, taking other people's money. And I experienced this just even from family members, getting them to invest in the stock market and noticing like stock market has gone down in value. They put 200 in that 200 has turned to 180. They are freaking out. And I'm like, wow.
When it is other people's money, like this is a different game because now they are looking to me. To make them feel better and I can't worry about your 20. I lost 20 grand in that time that you lost 20 because I was in the same stock market and I felt the same thing and it doesn't, it doesn't make sense to be that because that's almost like, wow, I'm taking on way more responsibility than I feel comfortable with.
So that's one component to funds. But I guess you can also be like, well, people are investing with you. They should be accredited. Therefore, they should understand the risk that they're getting into. So, and, and you're locking your money up into these startups that it's not as clear the day to day. You don't see a 20 percent going down or 20 percent going up.
Uh, it may take seven years before you see that money go to zero or make anything. So there's the external part of that. That's difficult. Um, And then the actual access side of things is the companies that I would be most excited about having in this fund. This hypothetical fund are companies that they just wouldn't like.
They would not give us the allocation for it. It's like we've fought in certain instances to get a 50, 000 allocation or even 20, 000 allocation in some instances. So how are we going to try to ask for 100, 200, 300, 000 allocation in these companies that are already not giving? And I feel, I feel like the thing is so like money in a way where most people are like, Oh, like startups always are looking for money and like they'll take a 300, 000 allocation if you can fill in all these things like that.
And. I don't agree with that. I feel like the companies that I am most bullish on that we have invested in, there is a 0 percent chance that we could have had them in a fund or syndicated it because I asked, can we syndicate this, which is a little bit different because it's a one off deal where I'm taking it and I'm wrapping it and saying, you could invest in this one company.
We'll get a slight carry, which essentially means that we'll, if they do exit, we'll get a bit of an upside on the money that we rose, but it's a way for us to take more Money and essentially have a higher allocation and then get them into a deal. So we're giving access to other people and what I've been starting, what I've been seeing even on the syndicating side of things is once you start getting into syndicating, cause now this is like an easier to access.
One other piece of a fun though, I don't want to forget about this. You are a judiciary of the people that are giving you their money. They're giving you their money and they're saying you need to deploy this in the most efficient, effective way. So you have the money now. That doesn't mean that you have the opportunities.
So what you have to do as a fund in a way is now you need to go find opportunities. So that's where you do need to have deals coming inbound and you have to like Your job is to deploy this money and deploying money is difficult. And you can't just go and invest in a company because you really like them.
Some companies we have invested in, we haven't seen any of their financials. We have seen maybe one investor update and some words that were said verbally. And we've invested in them and some of the best deals that we've invested in have been those deals. And in a way, we can't do that if it was fun bunny, because you actually need to being a few dish area means that you are doing due diligence to make sure that you are not putting.
People's money essentially and potentially a scam or something. So the risk tolerance that we get to have and the way that we get to move quickly doesn't play to the fund world. So that I think all of these things together have just gotten to a point where it's like, I don't think fun, a fun makes any sense.
And the pressure of having to deploy money. I don't want to deal with that. Um, so then the syndicating side of things, which is kind of like an interesting thing that I've been thinking more about. The problem continually is that the deals that I actually would want to syndicate are deals that we wouldn't be able to get more allocation to.
So it is this whole thing where, you know, have even asked some of these companies, can we syndicate your series A or B or whatever? And they have been like, no, you and your wife can put money in no one else. Like that is literally who you guys have been supportive to us and our biggest fans and all these things like that.
You can do that. You cannot let anyone else do it because then you also get to this level of they don't necessarily want more people on their cap table. Um, they want to kind of keep it clean and they're like, I'm cool with Alex and Andra. Being on our cap table, but like, I don't also don't want just a holding company that has a bunch of people.
I don't know who these other people are. Cause then also there becomes this, like I'm sending an investor update out and then this investor update can get leaked through, say I have a syndicate and I have, you know, say that I have 20 people that put money with us through a syndicate and I'm giving them information rights and then I'm sending out the investor update to these 20 people.
They could, someone could go and show someone and that's where you start getting this leak and the investor updates. And that's a competitive disaster for some of these companies too. So the smartest companies that I've seen have been the ones that are most difficult to get into and they have not allowed for this type of thing either.
So I'm trying to figure out, is there a way where we can potentially syndicate a deal where we are so bullish in it that we are like, we're not just trying to syndicate the deal because we want to put in. We use other people's money in place of ours, which that's the whole syndicate model as well. It's like, I'll put a thousand dollar check in and I'll take 50 or a hundred thousand dollars of other people's money.
It's like, I want to syndicate the deals that we're putting 50 or a hundred grand into that we are so bullish on. Yeah.
Andra: Okay, cool. Yeah. I think this is like a good. Holistic rundown of the whole angel investing space. I don't think we missed anything in terms of like questions that people may have. We talked about like safe agreements and all of that.
And yeah, once you invest in a company, you do get investor updates. So you are, I mean, for the most part, uh, you, you typically, we get them through email and you get to follow along the journey. And it is like really nice seeing. What another company is doing especially like if you enjoy business because you get to be like, oh wow This is really working for them.
Alex: well, I guess learnings from it The one final thing is the the first question you ask in a way, it's like starting with this I almost didn't feel like we we earned the right to try to explain this. Okay people listening Um, how are we doing? Because then I feel like it's like oh, it's just like you could be bragging or something it's like okay so far like what we were explaining in the sense of like Motion when you start seeing more people on Twitter talk about it or you start meeting more people in person talking about it Those are all indicators that wow, like and maybe I made a good decision because I invested in them before People knew about them.
So that's obviously like a good, a good signal. And then obviously if there was a series, a like motion rose or series, a, we invest in their series as well. Like every round that they raise, that is also another positive signal. So like some investments that we've made have been showing positive signs.
Other investments have been stagnant and other investments are literally like spinning and trying to figure out. What product they should be, but also have so much money in the bank that they have the time in the runway to figure it out and. Yeah, I think I just have such an appreciation for some of these companies too, where it's like, you could have say 15 million in the bank and not know what your product is and have to figure it out.
But seeing the companies, the founders that are grinding to figure it out. And you're just like, I know they will figure this out. It's just like admirable. And I'm like, I don't want to be in your position. I'm here to support, but like. You know, it's a lot. So I have a lot of respect for the companies and the founders that we invest in that are taking action in that.
And like, this is my problem and we'll figure it out.
Andra: Yeah. I guess being on this side of things, you definitely get to see how multiple businesses are doing and see how much of a nonlinear journey it is. And you see that it's like everyone has like, yeah, everyone has to go through the stage of figuring something out.
Yeah. Okay. I think we're wrapping this one up. I have no idea how long we were talking for. Probably too long. We'll see you in the next episode.
Alex: Coming up next.
Andra: There's a lot of depth here. You actually had a decade of conviction why you wanted to
Alex: invest. If you could invest in the operating system for the future of the internet.
Would you? Exactly a month and a day later, I sent another message. Going to continually message you in various places until I get some type of response because my wife and I are obsessed. Hey Josh. Hey Alex, how's it going?
Andra: Good, how are you? He was like, okay, there might be another opportunity for you guys to invest.
Alex: When you feel that level of magic in a product, I started sharing it with people. Did they say no three times? I can say it, we can bleep it out. No, don't say it. But it can bleep out. This is a very long bleep. This is kind of where the journey began.
Curious what top SaaS companies are using the software stack mentioned in the video above? We've put together a list (and even tracked the software they used to use)!