Calacanis: Regular people are gambling in Vegas. Of course they should be able to angel invest

By Michael Carney , written on November 22, 2013

From The News Desk

Jason Calacanis has established himself as a savvy angel investor, making early bets on companies including Uber, Tumblr, Evernote, and others. As the founder of the Launch festival and the host of the This Week in Startups (TWIST) podcast and YouTube series, he believes that he has access to deals that few other people have access to. And as he shared during last night’s PandoMonthly fireside chat, he’s learned a few lessons along the way about how to evaluate early opportunities – namely, that you just never know.

For the bulk of his career, Calacanis was going it alone, writing a few $10,000 to $50,000 checks per year and slowly building up a respectable investment portfolio. Now, thanks to a few hundred of his (not necessarily) closest friends, Jason is managing a $10 million early stage fund, formed with Yammer founder David Sacks, and leading an AngelList investment syndicate that consists of 234 backers pledging to contribute up to $905,000 to each of his deals – the fourth largest such Syndicate on the platform.

“All of a sudden my syndicate grew to $900,000, Kevin Rose’s grew to to $2.5 million, and Dave Morin’s is at $1.5 million – it’s just become this incredible thing,” Calacanis says. He was quick to qualify those numbers, however, saying, “maybe half that money will show up or a third of that money will show up on an individual deal basis.”

But whatever the size of his Syndicate, Calacanis is a big believer in the model, even while others are concerned that it’s too risky for those backing him and other lead investors. He told last night’s PandoMonthly audience:

I think it’s completely rational, as long as it’s a small percentage of your net worth. I wouldn’t be like, ‘I’m going to follow Kevin Rose’s next five investments and put all my nest egg in there, and that’s going to work out.’

Now if you said, ‘I’m going to take 5 percent of my net worth and put it in angel investing,’ that would probably be what CALPERS and Harvard’s endowment does, so why should that be any different for individuals? If an individual were to lose half of that – 2.5 percent – it might be worth the potentiality of hitting an Uber or a Google or a Facebook – you know a unicorn or a super unicorn. Because if you did, it would be life-transforming money.

The most important thing, according to Calacanis, is that people understand the risks they’re assuming and take a portfolio approach approach to investing.

I’m communicating it to people too, I’m taking it super serious. I’m like, if you’re going to do this, put in a small amount per deal, do a lot of deals – because that’s the way I did it. I did 40 deals, one was Uber and few others are doing really well. When I do the next 50, I’m not doing 5 deals. There’s a thesis here.

Angel investing is a risky proposition. There’s no two ways about it. Even professional venture capitalist lose all of their money in about two out of five transactions. If they’re lucky, they make enough bets that the remaining 60 percent of deals that don’t go to zero contain a few base hits and, best case scenario, a home run or two. But if full-time, professional investors face such long odds, is it sensible to allow those with far less expertise and far less “risk capital” to play this game? Absolutely, according to Calacanis.

People are gambling in Vegas and blowing their money. So this idea that – again, having been on the other side of it -- the poor and the middle class don’t have a lot of opportunities to hit a homerun. So now we finally have an opportunity to possibly hit a homerun and people are worried about them? They’re trying to exclude them?

But they’re not excluded from Vegas. They’re not excluded from betting their football pool. They can buy drugs or alcohol or gamble. They should have the freedom to angel invest with their money.

The thing is, consumers knew Facebook, Twitter, LinkedIn were hits. They knew it, because they used the products. And it’s probably clear to the person who used Zendesk or Box or Dropbox in year one that those were going to be hits too.

For Calacanis, the biggest impact of Syndicates on his own investment activity will be the role he takes in future transactions. While previously, he was contributing small amounts of capital, and people wanted him involved primarily for his experience and his name, rather than for his cash, now he can lead or even fully fund Series A rounds.

But what that means is that I went from being an after thought – ’Oh it might be nice to have Jason involved’ – to being like, ‘Oh jason can be a nice part of the round,’ to ‘Jason can lead the round.’ And I think that’s a fundamental change in how Silicon Valley is gonna work.

As Calacanis and Sarah Lacy agreed, there’s no comparison between a syndicate led by a single angel investor, who is doing dozens of deals per year, and the attention and resources that top tier venture capital firms can offer. But there’s a large VC ecosystem out there, and not all firms add this massive value. And surely, not all VCs can offer the product feedback of someone like Morin or Rose or himself, nor can they promote a company like Tim Ferris, Calacanis argues.

I’m talking about the bottom half [of VC firms]. This is not substituting Sequoia, Benchmark, Accel, Andreessen Horowitz. This is additive. There’s more opportunities than the VCs can absorb. This might be the natural release mechanism for the Series A Crunch. We’ve expanded the base of people who can do follow-on funding, and I’m getting incredible entrepreneurs who want to do an AngelList Syndicate.

The early stage capital landscape has changed dramatically, thanks in large part to the JOBS Act and the emergence of crowdfunding. These regulatory and thematic shifts have made it possible for capital to find opportunities in ways that have never before been possible.

For me, I think Naval [Ravikant] is going to have one of the biggest impacts of anybody in the history of entrepreneurship, because, and I don’t say that lightly, I think this is as transformative as Kickstarter has been to projects.

[Photo by Rebecca Aranda for Pandodaily]