The Operator's Edge: From San Diego Angel Academy

Welcome.

Thank you for, uh, joining us this morning, and I am really excited for our panel to talk further, uh, about Hazel Messenger. We've got serial operators and investors. They hold a number of roles. And so we're going to do bios by asking a question and give the bio related to that. So this will be one of the few— we'll go down the road and come back. But, uh, so getting to know each of you, want to know from your operating experience, uh, what have you learned? What has your operating experience given you that you believe is kind of each of your own edge in terms of being angel investor?

Or investment in general.

So give us a bit of your background and tell us how that you believe is your own unique edge for the investment.

Yeah, okay. My name is Dane Chapin, San Diego native. Grew up right near San Diego State. These are my stomping grounds as a kid, so it was really fun to be back at school.

I love it.

And I'm gonna take my wife for a, you know, by the old family house. Drives her nuts.

Only about the 40th time.

I've been an entrepreneur. I think the last time somebody signed my check other than myself, I was 24, 25 years old.

So it's over 40.

Over 40 years ago.

Very good.

So in that time, got about scrapes of bankruptcy and a lot of different businesses. Own a business that makes board games called The Op. 70 employees, been in business for 32 years. Started some other ventures along with that. And I think, you know, my entrepreneurial experiences have just taught me, you know, what a grind it is. I mean, it's a labor of love. I absolutely love it. I, you know, bounce off walls going to work every day. But there's a lot to it, and it's not for the faint of heart. And the constitution you have to have— when my wife and I got married, she was in corporate businesses, and she came into a family business. And I think it was quite the learning process for her to understand that sometimes you write a check to make payroll. So we've come from two vastly different backgrounds. And I think your constitution is getting more tolerant of the risk-taking.

It's called a lot of practice. I'm Katherine Chapin, and I have a pretty peripatetic life and background. I started out in the performing arts as a dancer and traveled all over the world performing. So then I did a super 180— I guess it's more like a 360— and got into the business world. I got my MBA and started into working for corporate 100 companies. And got a little bit tired of doing that and started a consulting company in the world of marketing, which has been most of my background. Met this yahoo over here, and as Dane said, it was really like being thrown into a cold plunge, deep end of a pool that I could not get out, and there were sharks swimming all around when I got into the entrepreneurial world coming from a corporate life because you had a corporate umbrella that would take care of any financial mistakes you made. You had a team of people. You had every department imaginable that you could go ask questions to. So then all of a sudden when it's you and maybe 1 or 2 or 5 or 10 employees and your personal checkbook, as Dane said, to cover payroll, it was quite a rude awakening for me. But it's been It's kind of a fun, neat journey, and we've kind of morphed into going beyond a family business and doing angel types of investing.

Super. So these two are neighbors and friends of mine, so I'm always in awe in seeing how a wife and husband can work together. I've gone from having thousands of employees to having one disgruntled one, my wife, who refuses to be an employee. So again, I'm in awe of these two. Yeah, so my background, ex-Silicon Valley CEO type, so I ran a couple of companies up there, some tough ones. Disk drive company was one of them. First real entrepreneurial play was I did the very first MP3 player. Most people in this room are too young to know it. It was called the Rio. It stored 9 songs. And you think you're launching a tech company with a disruptive idea. Next thing we know is this lawyer sat next to me. I always cringe when I hear the word lawyer. So 44 lawsuits the day we announced the product. Ended up having to raise $300 million to fund lawsuits, and we also could only sell the product for $149. It cost almost $300 to build. So, so if you can imagine, use of funds, lawsuits, and subsidizing product. Yeah, but we got it done, public company. And over the years evolved from running companies, which was really hard, to being on boards of companies, which is relatively easy to getting more enthused with startups. So, so, uh, locally, also in a couple other geographies as well. And I tend to like to spread things out, so I use the startup investments also as a learning process for myself. So some companies I feel I know intricately and I can help, and others I just take an observation role. But I believe in— and there was discussions earlier on the jockey versus the horse. For me, it's not a trade-off. You don't need to choose one or the other. So the idea needs to be intuitive to me. I need to believe that the individual can make it happen, that he or she has the characteristics. And then I need to see that it's scalable. So all those are my 3 checklist items for startup investing. So I'll pass.

Thanks.

Hi, everybody. I'm Bardi Amoyedi. I'm an attorney who was invited to this panel to sit next to Ken and give him a good scare. No, I always joke I'm a corporate attorney who started out as actually an investment banker. I started out at Merrill Lynch in 2008. I always joke that I went to sleep on a Friday as a Merrill Lynch employee and I woke up on Monday as a Bank of America employee. So I quickly realized that staying in investment banking was not going to be a good, good good route for me at that time. I ended up going to law school to do what I was doing on the business side, but now on the legal side. When I graduated law school, I started out at a Silicon Valley law firm called Wilson Sonsini. My practice really has not changed too much over the years. I would say half of what I do is I work with startups and venture capital firms, everything from formation through seed, Series A through pre-IPO funding rounds. The other half of what I do is M&A and IPOs, so exits for companies that scale and grow. When I started practicing law, because I was based at a Silicon Valley law firm, I was kind of half between San Diego and half between Silicon Valley. I quickly kind of grew very fond of the startup scene and the angel investing scene. And a lot of my colleagues in the law firms were also investing in clients. Which some firms do or allow and some firms don't. I'm at a firm now called Snell Wilmer, which is about 500 lawyers across 17 offices. They allow us to invest in our clients. We just have to kind of go through some approvals to do it. But being a startup lawyer has kind of given me a pretty good lens as to most of your investments are going to fail, it seems like. At least that's been a lot of my experience with all the startups that I've seen. But joking aside, I'm able to kind of figure out from a legal perspective, you know, who are the founders, who are the operators who are really like have the grit and have the tenacity to kind of make it. And then at the same time, you know, seeing how kind of investors analyze these companies and using some of the knowledge that I've gained from that perspective to make my own angel investments.

Great.

Well, thank you. Deep backgrounds here. Uh, related to everyone's backgrounds professionally, I want to kind of throw this back out to angel investing tends to be more like a side gig or a hobby, right? Is no one, no one is a, not many people are full-time angel investors. Now you may eventually become a full-time fund manager, but I don't think anyone here is. So you're by day running companies or have run companies or helping companies. And then by night, still investing in companies. So, it's like your hobby has become also a professional thing. What keeps you even on the side for fun doing the angel piece? Any of you who wants to take a crack?

I love meeting people who I think are superstars. And I love looking at ideas that are category disruptors. And I like looking at ideas that kind of come from out of the blue. And, you know, we're on this panel because we're going to be talking a little bit about how we co-invest and how our relationship works in terms of angel investing. That's going to be fun. There's a lot of fireworks coming up for that. But, you know, one of the things— angel investing can come from anywhere. The idea can come from anywhere. And when we talk about spouses, there is a famous case of the guy who came up with the— ladies, do you remember legs pantyhose back in, I don't know, like the '80s or '90s or something like that? It was a revolutionary pantyhose that came in the shape of an egg. How did that happen? Well, it was because this guy, Bob Elderrod, something like that, he was a fund advisor and his wife started complaining about how her pantyhose got all scrunched up in a cardboard box when she would pack them for a trip. And she said, you know, you should just pack them in something like an egg. And so, you know, he said, wow, that's a really great idea. And thus, you know, the whole concept of Legs Pantyhose, which became a multi, multi-million dollar business and is still around today, was born. So ideas can come from anywhere. And I just like having my antenna up and around. As another example, we were brought the idea of investing in a company called Laundry Sauce. And Dane kind of flipped it to me and he said, "Oh, I don't know, what do you think about this one?" And Laundry Sauce is a kind of like a bougie designer way to do your laundry. And it's supposed to make your laundry a pleasant and enjoyable, exotic type of experience. What a game changer and what a category disruptor this was. And I glommed onto that in a very big way. And we did all the vetting of the CEO and the other folks attached to it. And it's just exciting to be able to find either category disruptors, really brilliant, passionate people with ideas, or something that just comes from, I don't like the way my pantyhose are being packed.

Yeah, so for me, I tried the hard retirement path a couple of times. And so did a company, had a success or had a failure, time to take a rest. And I hit bottom when I tried to organize my wife's closet. So you never want to go there. So yeah. So fear of boredom, being told I can't do where I was putting my energies into. So you begin saying, who can you help? And San Diego is actually very unique in terms of access. So in Silicon Valley, where— I spent a lot of time, deals were held privately. There's not a lot of information sharing. San Diego is just an open network. You have access to CEOs, you have access to visibility to things that are going on. Lawyers are a source of what's happening. Neal's a source of what's happening. So deals begin flowing to you and all of a sudden they begin piquing your interest. And I find the real trick here in San Diego anyway is to not get overly involved. With stuff, right? And as a matter of fact, I coach CEOs, startup CEOs, that, uh, you know, as was described earlier by Newfund, you know, a board member who's— or an investor who's willing to act like a board member, be accessible, you pull them in, let them help if he can help, that's a good thing. A guy who's going to give you a check and go away, that's a good thing. Do not take the micromanager as an investor because there's a lot of folks here that their next career is they're not running their own company, so they want to run yours. And the, you know, the time drag that that takes exceeds the dollar value that you bring in. So, yeah, so my portfolio, I tend to do about 10 companies that I'm invested in at any point in time. I try to get involved with about half of them. So it's a nice balance. I wake up at 5, I do work. Until 8 or 9, then I do other stuff, and then I do— bad golfer. I'm actually a triathlon triathlete, and I'm in the 65 to dead category, which is kind of sad, but that's, uh, I do that. So, um, so I have a balanced, uh, balanced day.

Uh, so for me, I, I mean, I'm working with entrepreneurs and founders every day all day, and I get a lot of energy meeting these individuals who are trying to disrupt the space, trying to invent something new. And a lot of times having a little bit more skin in the game makes it just a lot more fun as a startup attorney to be that much more actually invested in my client to see if they can build it and grow it. So I don't do a bunch of deals. I'm pretty selective. Yeah, usually my standard is is it something that I would want to use myself, especially when it's on the technology side? But, um, and then at the same time, I'm also kind of looking at some of the other co-investors who might be participating to see, hey, is this, is this something that others also find to be interesting enough to where it might actually catch fire and get to someplace?

Why don't we stay on that? Or do you want to answer, or I can pitch you a new question related to that? Okay.

Float back.

Okay. Related to kind of, you started to say, your lens of what excites you. All of you, I think, have invested in areas where you haven't operated before, right? So you're looking at companies where you might not have subject matter expertise. Like, how do you process that versus companies that might be a board game, right? Take me through kind of the lens of what excites you and where do you put your hooks into around that?

Fundamentally, I love people. I love stories. I love ideas. I drive my wife a little bit nuts because everything's a shiny object for me. So I get excited about a lot of different stuff. And I'm working full-time and grinding. So I really can't be a professional angel investor. It's your business. And we've been— you used a big word for me, peripatetic. We've been a little bit peripatetic in how we've invested. I mean, we're from apparel to laundry sauce to fried chicken.

AI for Materials now.

AI for Materials. I don't even understand that. But the two founders, they're my daughter's best friends. And they're really brilliant. And I'm just convinced that they're going to raise— if somebody can be successful in what they're doing, they're going to have enhanced probability. We didn't have the liquidity to invest in this kind of stuff and take the risk till I was in middle 40s or later. And we've just— I fall in love with things. And for me personally, not a ton of due diligence. It's more feel. I think Catherine's a lot more sophisticated in how she approaches it. And then at the end of the day, we generally try to reach consensus on it. And maybe if somebody's not in love with it, we'll lower the amount of what we do. But I think we also set expectations that it's money we can lose and we're not professional about it. And we've hit the jackpot on a couple of deals, which paid for everything and then some. So, I'm not your prototypical angel investor that's doing it in a really disciplined, consistent way. Deals come our way. We kind of hit and miss.

Yeah, I will add to that because I listened to these two gentlemen talk about how they like to invest, and I'm thinking to myself, we really need to step up our game because we really invest, you know, we definitely do the financial due diligence, but we really, I would say most, more than anything, we invest in people. And I have a little example towards that, and it's not at all to take away from, you know, doing the math and making a very calculated decision on investing, which I really do believe that we need to do more of. And I'm going to come to you guys where—

yeah.

But it was interesting. I was on a panel, I don't know, 4 or 5 years ago. And this is— I don't know how this relates, but it's just kind of an example of maybe how Dane and I invest. But so, I was on a panel. Panel and they were asking for our backgrounds. And we, you know, somebody started out with a PhD in biochemistry and he was, you know, doing this. Another one was a CEO of that. And, you know, I said, "Oh, well, you know, I do this in marketing for Fortune 100 companies." And the last person to my right, I'll never forget this, she said, "I'm just a mom who, and I have this idea." And it was about feeding military families. And she went on and talked about how passionate she was about feeding military families and what the reasoning was behind it. And quite frankly, if all of us, all of you in this room had a dollar to invest and you had 1, 2, 3, 4 buckets, 5 buckets of who you're gonna invest in, I guarantee that every single one of you And I would take my own dollar and I would put it in her bucket. Because you can have the smartest person in the room leading a company, but if they're not passionate about it, if they don't have the understanding of what it takes when your back is up against the wall and you're going to find a way to make it happen and you've got the creativity, you've got the grit, you've got the country, song behind you where, you know, your wife left you, you're sleeping on your friend's couch, your wife took your dog, you can't even afford a cup of coffee, and your friend's kicking you off the couch, but you're going to find a way to make it happen. Those are the types of people that we invest in. So, for us, yeah, it's a little bit maybe not quite as—

Not super scientific.

But let's let these guys talk more because they sound much smarter.

Interesting, because I disagree. I had a call a couple of weeks ago with a woman, so I won't tell enough that anyone could figure out who this is. But my product costs more than what's out there on the market. It doesn't perform as well as those that are in the market, but it's totally green. It hits all the checkmarks on the ecological side of things. And that was a short call, right? The input back was you need to cost equal or less, you need to have higher or better performance and be green. And I know you're emotionally attached and excited. No, right? For me, I— and let me come at this differently. So I actually start in almost a negative sense with what don't I like? I begin subtracting things. And if there's enough left after I do all my subtractions, then I might get excited about something. So, gee, is this a hardware-only company? All hardware in my mind ultimately becomes worth $99. So, won't invest in something that's only hardware. Does this CEO lead with, "Here's my exit strategy," right? No, that's a turnoff. I want to build a great company. You build a great company, investors will come to you. You know, mergers and acquisitions will find you, right? So, guys that lead with their, "Here's how I'm getting out," is not something I invest in. So, again, I won't go through my longer list, but that's how I get to— if there's a surviving nugget after all that, and then again, it hits my 3 things I said before, I understand it, it's intuitive, I believe in this person, and I can scale it, then I'll write a check. Often what I do is I won't write an initial check. But I'll get involved with something. I'll take some equity that I'll tell them, let it vest over 4 years. You get rid of me if I'm not performing. I'm going to write the growth check for you. So, I'm going to write a much bigger check than you're looking for once you cross these hurdles. And I've had a lot of folks that will sign up for that deal. San Diego is a tough place. In Silicon Valley, you'll get money based on a really good idea. And there's actually a frenzy around wanting to participate in that. Gifting of funds. San Diego, there's a little bit more of a show me that you can execute, get some traction, a million ARR, you know, that kind of stuff. So, it's a little higher hurdle for San Diego. And with that higher hurdle, there's more receptivity from startup CEOs to take help, get you involved in negotiated terms, things of that nature. So, it's a— so, I'll stop there.

I pretty much echo what everybody else before me has said. I will say that one analogy that really stuck with me when I first started investing was someone kind of said to me, are you betting on the jockey, which is the entrepreneur, or are you betting on the horse, which is the technology? And kind of similar to Catherine and Dane, what you guys both said, I've kind of come to refine my investment strategy to really lean more towards the jockey, the founder. If you don't— I've at least seen that if you don't have the tenacity, the grit, the desire, the enthusiasm, you can have the best technology in the world and it could be game-changing. But if the right person isn't running it, it may not pan out or it'll pan out less likely than the entrepreneur who's got a decent technology with probably a smaller total addressable market. And so, I kind of start to lean more towards the founder, the jockey in that sense.

It reminds me of a story. A friend of mine who was a Kleiner Perkins partner, all these guys, he was in the sweet spot of Kleiner Perkins, made a lot of money. He said, "Dane, the right CEO can turn chicken shit into chicken salad and the wrong CEO can turn chicken salad into chicken shit." So, it's kind of what you said in a little more crude manner, but it's Pretty, you know, it stayed with me and it's just, I really, you know, think about it, jockey your horse.

So, let's tell some stories of successful investments and unsuccessful or misses, ones you passed on, should have, or vice versa, ones you did that didn't hit the mark. You guys want to share some stories and maybe ones that you guys looked at and brought together? You guys want to tell a shared story around that?

Sure.

Okay.

Yeah, we got a doozy on that one.

The company's called Viore. Everybody familiar with Viore? So I get introduced to the CEO in 2016 by a friend of mine, and they're looking for money.

I'm not letting him have the whole mic. Go on.

Okay, we'll do it. Yeah, this is great. How about it?

You tell your side of it.

Okay. I think I'd rather invest with her than me. So I get introduced to the CEO. And I was kind of enamored with it. I was taken with him. They were desperately searching for money. They were almost out of money in 2016. They had one store. And so before I wrote the check, I said, I better take my wife in to meet with Joe. So we met with Joe and—

So I met with Joe. We didn't meet with Joe. I met with Joe and, you know, I asked him the types of questions that you would normally ask him. And I said, "Tell me about—" And I had been in the fashion business for a decent part of my career. So I was asking him, "What's your background?" And fashion business is a very tough, very cyclical, very mercurial type of business. And he said, "Oh, well," he said, "I was an accountant and I was a model." a male model. So I said, and so that gives you a good background to start a fashion company? And he said, well, let me show you this piece of fabric I have that I'm going to base my whole idea on. He showed me this little piece of fabric this big, and I went back to Dane and I said, you know, although again this could be a category disruptor, because before that I was helping a friend of mine Neal Bloom, who wanted to start a male athletic line that wasn't all that shiny polyester gunky stuff that people were wearing at the time. And I thought it was a good idea in terms of, again, a category disruptor. But I said, this guy has zero experience. He has the worst presentation imaginable. And I said, absolutely not.

What happened next?

Dane ignored me. So I wrote a check.

I said, you know, male model, he's got a sense for fashion, accountant, he's going to be careful with the money. I actually didn't tell Catherine. And then she, you know, I don't know, I had a little bucket of money off to the side. She discovers it. And what did you say?

I said, you can just flush that money down the toilet. But what I'll tell you what I missed. I missed the fact that Joe had, again, I know that some people don't put as much emphasis on this, but this man is maniacal about his brand. And he will not vary one millimeter outside the parameters of what he feels his brand is, and he has a very clear vision of it. And then once we were investors and it was going pretty well, and I think Norwest Bank came in and put in like $400 million the very first staunch of something like that. But anyway, okay, whatever. I asked the Norwest guy, I said, well, what is it about Joe that you think is just so great and why did you invest? He said, well, because he was an accountant. And I thought, okay, well, now that's kind of really different. I hated the fact that he's an accountant. This guy loves the fact that he's an accountant because obviously he's going to be a pretty good CEO. So anyway, those are the things that I missed when I, when I met with him.

And one last little piece of it. So, you know, it's been 10— well, it's been 10 years. Any, any, any time I'm in the doghouse or whatever, I just look at Catherine Viore. Viore. Fiori. And it kind of gets me out of any bind. Yeah.

So are you recommending that we ignore our spouse about investing principles? It sounds like there's a portfolio mentality to that and have a with-spouse and an anti-spouse portfolio, two different portfolios. Is that what I'm hearing?

Look, lucky for me, I'm in a marriage that we wake up laughing, we go to bed laughing. I mean, there's just no friction. And we challenge each other pretty aggressively on different stuff, but there's a lot of trust and belief in each other. And thankfully, at the end of the day, we just really support each other. And we don't always overlap on exactly how we see things. And there's give and take. And fortunately, I've got a little bit of capital in the bank now from this decision. But we work really— See how long— we'll see how long it lasts. But, you know, fortunately for us, we work really, really well together, unusually well. And it's just, uh, but, you know, I, you know, I've got a couple friends who, uh, you know, there's— it just doesn't work as well as it does in our marriage, thankfully. And I think with regard to angel investing, I mean, we're not putting, you know, ridiculous bets, you know, relative to our net worth and what we can afford. We, we look at, you know, we can afford to lose the money that we put into these things because I don't care how sophisticated you are, you know, as Ken knows, you just, you often don't know what's going to work and what doesn't work. So I just think, you know, having sobriety around what your expectations are. Hey, look, Microsoft, you know, biggest, one of the biggest companies in the world, you know, 11, 12 years ago, they're worth 11 or 12 times what they were 10, 11 years ago. I mean, in rearview mirror, it looks great. Think about Walmart. I mean, you can get angel-type returns You know, investing in blue-chip companies, you know, we just sort of forget about it. And as well, that opportunity is gone. I mean, who the hell would have thought Microsoft would be worth $4 trillion 10 years later? And, you know, the idea of a company being worth $4 trillion is almost unimaginable. And yet Nvidia, you know, has gone 15x in 4 years, and we all feel like we missed it. I mean, there was no spotting it with the information we had. So I just think it's really important to, you know, have diversity, not only with your angel investing, but then everything else, but that's not the purview. That's great.

Can anything on spouse, like how do you—

Yeah, clearly. Yeah. So last week was our 22nd anniversary, which is a pretty big number, and it was a successful one in that we negotiated that we're going to do 3 more years. So yeah, so that— Usually annually. You do annually. Yeah, this was a 3-year piece. And I'll cap it with every New Year's I ask my wife, resolution, and she says, I'm not changing anything, right? So I don't know whether that's stubbornness on her part or comfort. What's one of the two? So we'll figure that out. Things, mistakes, I guess, in looking at some of the investments I've made. So I've been chairman of several public companies, and under all the right pressures, investors and nonperformance, I've been pretty aggressive of time to change the CEO, and we move quickly with that. Private companies haven't done that as much, so it seemed to have a higher tolerance for non-performance. And I've always been a believer that in private companies, near-death experiences are actually a good thing, right? That you can't run a private company without going through a couple near-death experiences. It creates all kinds of strong muscles for you. And where I've had difficulties at times is differentiating between near-death and absolute death. Right? So I've seen after the fact as I reflect back and said, gee, this was— he was moving into an unrecoverable situation. Why didn't I get more involved or share wisdom or whatever kind of thing? So that's been tricky, you know, knowing— and on the other end of it, of course, you don't want to jump in at every misdemeanor, you know, aspect, right? Because you preempt learning in that context. So that's been one. Second one that's an interesting one for me is you invest in something and then the path it goes begins conflicting with your morality. Okay. And the example I'll put here, although I'm not sure moral is the right word, but I'm a seed investor in something called Open Doors, which is actually the country's largest NIL platform. So we're doing over $100 million. So, you know, so everyone knows name, image, and likeness. You know, collegiate sports get paid now, collegiate sports athletes get paid. And we're seeing this massive clarity that kids will not go to small schools, mid-major schools, if they have an opportunity to go to the large media markets. They'll get, you know, they're being paid, they're being paid a lot, right? So, and, um, that whole context, um, was a difficult one for me, that, okay, do we feed this, um, knowing that the outcome is going to be create this imbalance? Comparable one as well is I lead investor in, uh, an esports school. So High School Esports League, country's largest esports league. Geez, the metric was how many hours per day we got a kid in front of the screen, right? So, so, you know, that, that amount of time dictates the media plays we have, the sponsorship plays. So how do you, how do you deal with things like that? So those have been interesting ones for me, and I always question whether I'm Do I want to get out of this thing? It's doing well. The investment's a good investment. But it begins distracting from some of the core values. I'd like to know how you get out. Real quick, the esports play, we insisted that they begin developing courses as well. So if a kid is glued to a screen for 6 hours a day, can you teach them math through that screen? So we actually got colleges to begin giving— or high schools to begin giving credit for streaming courses, for esports courses, how to build an esports business, things like that. So we launched a curriculum that was a money-losing curriculum at start, but it helped. It took our audience and the channel that they were using. It became a good delivery mechanism.

I thought you were talking about how to get your money out.

The money's still in.

Yeah. Let me just pop in before. But, you know, personal experience, you know, We've had this company 32 years, The Op. We make games. We're 70 employees. We've created this game called Flip 7. Oh, thank you. Anyway, it's the hottest game in the world. And so you try to unpack how it came together and checks all these boxes. It's just really, really tricky. You just almost never know. But my point is, relative to this, we're in the game of games, but we're in the game. And we're now pouring gasoline on this thing. We're literally going to double the value of our company in 2 years with this thing and maybe more. It's just crazy what's going on. But you're never going to get a return unless you're in the game. I had a real estate business and we were closers and people would bring us deals before everybody else saw because they knew we were going to perform. And there's risk with everything. So, I think angel investing is a perfect example. Unless you're in the game and writing checks, You're not going to get nothing. You're not going to get a Viori or these different deals. But I think it's really important to your point that if you're serious about it, you've got certain expectations. And depending on what your risk tolerance is, if you do the work, I think you raise the probability that you're going to have success. In our case, we got lucky in some, but we were in a lot of different deals. We were in the game. And something good was bound to happen. I don't want to live like that, but we could afford to lose the money.

So I'll just, I'll quickly say that one thing that I always, or at first always underestimated was, was the risk. And I made one particular investment. One of my earliest investments was in a company called Coin. And this was back in 2014, 2015. Coin was a company that basically was trying to solve for the problem that I actually really wanted to have solved, which was I was tired of carrying so many different credit cards and debit cards in my pocket. And Coin came up with like a metal credit card that was programmable and you could like click on this digital display on this little credit card and it would change the strip and the card number to be whatever card you wanted it to be. So you could have one card in your wallet and it could handle all of your cards. They pitched probably the best pitch I've seen in a pitch competition at some startup incubator, and I was sold. They became a client, and then I put in some money in their first angel round under a convertible note. Immediately after that, they went and raised like a big round with the who's who of investors, and they started developing the prototype, and they started giving out like the sample card to early investors, and I was thrilled. Come 2015, I think Apple has like, it's like, you know, Apple, Apple event. And the first thing they announce is introducing Apple Pay. And just like that, the investment pretty much went to zero. Nobody was going to use a physical card anymore. Everybody was going to use the Apple Tap to Pay. So my, the moral of that story for me was you can pick the right founders, you can pick the most disruptive technology that you think is disruptive at the time. And we can never predict is tomorrow somebody can come out with something completely different that's more innovative and just wipe you out. So that was, that was definitely a good lesson for me to learn.

I was also an investor in that and it was a classmate of mine who was co-founder, Karthik. So yeah, I feel that pain as well.

You know, the flip side of that is the company that I'm super obsessed with and we have a license with them now is Liquid Death. Who's heard of Liquid Death? Yeah. So, here's a company, they're a water company, started 7 years ago. And had I been pitched that deal, there's no way in hell. I mean, that would have been grounds, I think, had I insisted on— if I'd written that check, which I didn't. Company's worth almost $2 billion now. They've been disruptive in water because they're putting water in cans. But what's been more disruptive is their marketing. And we're going to slipstream them with a Liquid Death Flip 7 game, which I think, given the cult following, But on the flip side of it, to have a company go into water, I mean, I can't imagine anything more competitive than that. So it works both ways. So the founder was a disgruntled advertising executive. He was a pretty edgy guy. Everything he used to pitch, he'd get turned down by these risk-averse clients. He was at a music festival. There was a metal band. He was behind the scenes. And he saw all the talent drinking out of a can of Monster Energy drink, but it said, "For talent only." It was water. And the light bulb went off for him. Let's make water edgy and cool. And what it's turned into is water is edgy and cool now. And kids, you know, are drinking water out of cans with this edgy advertising. I mean, if somebody read about the founder and some of their, you know, podcasts and things, I mean, it is a remarkable story of creativity and I got a lot of envy around it and a lot of inspiration and motivation too. So we're looking at, you know, how do we disrupt, you know, a business where I'm creating joy, laughter, connection? And when people ask me what I do, I don't say I make board games. I say I create joy, laughter. It deepens the conversation. And I know we're getting a little off track because I'm so excited about this stuff. But then somebody tilts their head and says, you know, that is what you do. And if we lean into that, as opposed to making board games, And these guys have made water cool. And it's— I just— it's a fascinating story.

And we're going to turn over to questions here in a second. But, you know, we're sitting in front of a room where people potentially are making their first angel investment. And one thing I already heard from you say is get in the game, right, is step one. What other advice do you have to people in front of the room who are about— who are about to, you know, look over the ledge on should I do this, should I not? What should I do around this?

Ken? Yeah. So, so one of the key ones for me is, is your idea disruptible? Who can disrupt it? I had a call literally this week with someone that I asked the question, if I try to build what you've built using AI, how long will it take me? And the answer was about a week, right? So that was a short call as well, right? So, so Technology is changing so quickly. AI is incredibly impactful. Really looking not only at the idea, but who can obviate that idea. Not as good as your word, but— So, that's a key element for me that is there a moat here? How long would it take someone to replicate? All those sort of things.

I mean, I think, you know, maybe you can relate to this, Ken. One thing I notice in my life, you know, at 67, my pattern recognition is getting better and better. Just when— and I've been a pretty good networker, nothing like this guy, but I think the more you can network, the more you expose yourself to people, you know, and over time, I think the pattern recognition gets better and better. And I think that just comes with grinding it out. So— Anyone else?

I would say that if you are making your first angel investment or if you already have and it wasn't successful, don't beat yourself up about it because it's going to happen more often than finding something successful. But the most important lesson to learn from that is what did I learn from that? What went wrong? What corner didn't I see around? Was there something in my gut that told me, "No, I shouldn't," or did I do all my due diligence? Or is, you know, when I asked the the founder, do you have any hobbies? And he said, oh yeah, I love to do this and I love to do that and I do that. No, you don't. No, you love to work on your business and that's all you do, right? So, I mean, there are all these little, as, as Dane says, pattern recognition. So when you get in the game and if it's not successful initially, again, just, just, just look for the things that you would do different next time.

Yeah, I, and I would say, um, pattern recognition gets a lot better as, as everybody else has mentioned over time. Uh, for your first investment, try to go simple. Try to find an investment in a company or a technology that you truly understand, and then just be decisive. So make this decision. If you pull the trigger, it may or may not work out, and if it doesn't work out, just learn from it. Don't go back and say, "Oh, man, I regret it. I should have never done it. This should be my last one." If I would have stopped that, I would have missed out on some pretty good exits that I've had in investing. So, just be decisive, try to start with a simple one, and learn from failures.

I think, Katherine, you said something really important about do the postmortem. We had a series, 3 or 4 years ago, we had a series of missed games. They were just a bunch of— everybody was excited about them. They didn't sell. And so, we were in a meeting and I went around the room. I said, "Well, is this a good game?" And they said, "Well, it's a very good game." And I said, "Well, is it a great game?" "Well, it's not a great game." So, we set down the law that day, we don't do anything but a great game. And I think what connected to that too was getting out of our echo chamber. We developed a bunch of games that never made outside the walls of our company until they hit the store shelves. And we changed our entire protocol around developing games where we go into breweries, with games, with real people, observing, you know, teaching, maybe teaching the rules, maybe not, because we've discovered that, you know, the rules, if people can't learn the rules without having somebody in the game, you know, they've got to read the rule book or look at a video in a minute, you're going to lose them. And so we discovered, you know, the postmortems are really critical in asking those questions and making the observations and just not being cavalier about it. The amount we learn from losing was a lot more than we learned from winning.

Who has questions from the audience for our esteemed panel here? We want to keep hearing stories. We can go stories all day.

I guess we're not that interesting.

You're fascinating. People want to hear more. Yes. Oh, so the question was when you invested in Viori and then you asked the follow-on investor what they liked, what they liked about versus— and you said you didn't like that. How did you synthesize that? Actually, there's a little more of the story.

So, let me just give the background. So, in 2019, Viore had $40 million in forward projected revenue. And Norwest came in with an investment that valued the company at 4x revenue or $160 million. We actually tried to sell all our stock. We only could sell a third, thank goodness. 2 years later, SoftBank came in and valued the company at $4 billion and made the— I think it was a $400 million investment. They bought 10% of the company. So, we were at a closing and I tracked the Norwest guy down. I said, "You guys came in really aggressively and I was stunned by it and I tried to sell my stock." And I said, "What were you guys thinking?" He said, "Well, we had a 7 or 8-year horizon with our fund and we love the company. We've been tracking it for a couple of years." And they And Viore to their credit was profitable from almost day one after the second round of funding because the stores are ridiculously profitable. They work on like 78% margins. And the Norwest guy said, "We really like Joe. We really love the company. If we had to pay a year ahead on value, we would because it would catch up." And then they ended up making, on that initial SoftBank investment, they made like 28 times their money in 2 years. But I thought it was really fascinating that they were prepared to hear the flak from their peers about, oh, they overpaid. And that's a really important lesson to me. If they have a longer-term vision, are we going to get all caught up in our underwear about investing and my peer group is going to hammer me about it? Because that's what happens. You call your friends, oh, I got a behind-the-scenes deal or it wasn't even on the market. And these guys saw something and they went against the typical grain and they've been paid handsomely for it.

Okay, that's not really how it happened, but anyway. Dane might have wanted to sell all the shares, I didn't. Anyway, I think also to your question, if I understood a different angle of it was, is that for me the postmortem on that And it's not postmortem yet, but on my decision basically saying, "I'm not gonna trust a guy who has a degree in accounting and who worked as an accountant and who was a model," right? That to me did not say, "I'm gonna create a very successful men's athleisure brand." What it ended up being is that thing that I thought was a weakness was actually a strength. And now, you know, having somebody now looking back and saying, gosh, this is a CEO. And yeah, he does have an accounting background. And that is why Abyori finances are the way they are versus Lululemon versus Alo versus other athleisure organizations who are not that buttoned up as an accountant. So, what I thought was a weakness was actually quite a strength. So, that was just something that I just keep adding to my little bucket. It doesn't, you know, the founder of a company, doesn't have to have experience in the category per se. And oftentimes it's just a great idea, it's a category disruptor, and then, you know, then it takes off from there.

Yeah, I think the question was, can you speak to how you generate and maintain deal flow? For me, it's pretty simple, and I have access that I think others don't, which is I, I representing a lot of these startups who are having term sheets come in and I get to kind of see those deals as they progress. And usually what happens with, with me in particular is once the company decides on the term sheet, negotiates all the terms with the investor, whatever else, and those terms are set, I look at that company and say, is that something where I would like to invest in? Or sometimes even the client will approach me and say, would you like to invest? And I get to make my decision that way. So that's probably not going to be applicable to most of you. But going to these like pitch events and like the Evo Nexus events here in San Diego or coming to like the Zip Launchpad to see some of the pitch, pitch events and meeting more people, I've also found, you know, you when you're in the ecosystem, more deals kind of find you because you're putting yourself right in the middle of it. Yeah.

I'll add deals are very accessible in San Diego. So Connect is a good place to link into. Neal Bloom is a good place to connect into. Launch Factory. All these are very open, open systems here. So I mentioned lawyers. So connected to Procopio and Cooley. So I actually get a lot of inbound and every now and then it's who do you think is hot? And then I do something interesting as well. I'll talk to VCs and say, what deal did you almost invest in. So, so something that didn't meet their parameters might be very interesting for me. It may be often it's just they can't consume the amount of capital that a VC's minimum might, might be at. So things like that. But San Diego is very easy to, if you plug yourself in, to get visibility. Is there the opposite?

If you put investor in a profile, you get overwhelmed and now you have too much noise and then have to Yeah, I'll have to come back when you also— the third hat and say publicly you are an investor.

Yeah, yeah, there's a bit of it. But again, you're able to filter fairly quickly through what's interesting.

I have a follow-up on that. When you said that sometimes you ask the VCs what you almost invest in, do you have an example and how does it turn out?

Yeah, I mentioned earlier the esports one, right? So that was a Kansas City-based company. There's a group called Serra Ventures that's out of Champaign, Illinois. One of their big managing partners is a guy named Steve Beck who lives in Del Mar. And, you know, through that relationship, hey, we love this company, they just can't take as much capital as we need to deploy. And I flew out to Kansas City and wrote a check.

He's still out there.

We actually sold the company to the larger player, Play Versus, in that space. Yeah. Last year.

Yeah, I had a different twist to his question. I was wondering, from a distribution percentage, where do you find most of your green deals that have been successful for you? From what stores? The golf course. Was that the golf course? The golf course. I mean, seriously.

No, that's the kind of answer I was looking for.

Yeah. Yeah. I suck at golf, so I only play with my wife. And so there's no social activity there. I drive off the red tee. Funny you say that. When my wife beats me 3 times in a row, she has to move back a tee or move me up. So I too am on the red tees. Send me your contacts, we can play together. Okay. Yeah. You know, so I do triangulate deals. So something might look interesting to me and there's a lot of folks I run things by. And again, in San Diego, again, small network. Neal Bloom brought me a deal recently and I think I shared with you, I'm not investing in the deal, I'm investing in you. And so there's a lot of that. That there's a lot of openness and sharing and you can fairly quickly, I think the earlier fellow mentioned non-disclosure of a legal event or overinflated numbers, things like that. So there's a difference between, I call it, I don't call it, Associate Mike calls it sophisticated begging. So CEOs out there looking to raise money versus derating, with some math saying, okay, this is— I'm going to divide these numbers by 2, but here's what I really think is going to happen. So, you're able to get the filters in place and you're able to get enough outside information if you roll your sleeves up to kind of de-risk your investment and not be surprised.

I guess I'm dealing with Neal Bloom. So, if you're sitting in— I guess two-part question. One is, do you have your sourcing your investments from pitch contests. Essentially, that's one. Two is, in a 3-minute, 10-minute pitch, what are you looking for to say yeah, no, yeah, no, yeah, no? Because we're going to be doing that pretty fast.

So, great question.

Anyone want to go? I actually— there's a fellow named Brad Chisholm who launched Launch Factory here. So he showed up at my house with— I just want to pitch competition. I think it was— it was— was it SDSU? I forget where it was. It was— yeah. And it was, I'd like to turn this into a real company. And we sat down and we figured out who might be interested in it. And we got an investment from oil and gas. So he figured out how to measure vibration differently and do it very accurately. And we decided that oil and gas, putting a thump into the ground and reading more accurately what comes back is important. And we got an oil and gas investor. And fast forward 5 years later, he sold the company to Google for $85 million, and they were going to use it to, instead of GPSing, tracking where you are through in cars, the vibration dynamics can tell you what direction you're moving in, things like that. So that one went from clearly business, collegiate business plan competition to a nice exit, and he's giving back in the sense Launch Factory launches new startups.

Um, I invested last year, Santa Angel Conference, on the spot in the winner of the competition. Uh, I would not say that was from pitch competition. The story is I've heard him pitch many times, but we were in the same space, so I was LinkedIn students, used LinkedIn for hospitality workers, just got to know each other. And then when he had a co-founder breakup, which I had just gone through, I came to him and kind of advised him and then said, whatever you do next, I'm in. So that was it.

Can I just say something to that? I think it would be so cool to be in one of those pitch competitions because you're going to learn so much about so many different companies and about so many different people. And you're going to be saying to yourself, I like this woman because there's something about her, or I like this company. Yeah, I've had that problem and whatnot. And you're just gonna get so much information such that you can start filtering through. And again, we're, gosh, we're just not as buttoned up and sophisticated and so, you know, good at analyzing as these guys are. But, you know, we operate a lot more from our gut. Using all the parameters that they do. So you're going to get just so much information from it that you're— it's automatically going to winnow down to like 2 or 3 or 4 that you're going to say, I want to learn more about this.

But what's that 1 or 2 nuggets? Because there's a lot of information that flows, right? So what's the, oh my God, this is incredible, right? And they've got to convey it in 3 minutes. Yeah. What is it that's like, aha?

I just think there's a million intangibles in play. It's like when we look at games, we look at 3,000 or 4,000 games a year and it winnows down to 6 games. And I can never figure out— a lot of times it just comes to instinct and gut and getting outside the echo chamber. I just wanted to— I would glom onto this guy. Nobody works harder at networking than you do and the deal flow you create. And you're doing the work. I mean, I get your emails constantly. Come meet me here on Tuesday night. I've got this.

I mean, it's— 6:30 this morning, we had the founders like—

Yeah. Oh, that was— Anyway, and here, you know, the guy's accessible. So, if you want deal flow, just track Neal. And this guy, he's a prodigious worker and networker, and it's pretty inspirational. Thank you. Appreciate it.

Any other questions? Or we have lunch sitting right in front of us.

Yeah, I'm curious, given AI and how that's moving into business as angels, how you're thinking about being back up SaaS apocalypse and the jobs report this morning, how is that changing your thoughts about the inventing of angels in San Diego?

Yeah, so— Can you repeat the question, Ken, real quick? Yeah, the question was AI's impact on companies at large in San Diego. Specifically, right? Yeah, so I used to have a simple model, and I think it's unfortunate— I know, unfortunately, I think it's going to happen, which is I used to think that the factory of the future is going to be a bunch of computers and robots, one person and one dog, and the computers and the robots build the product. The person's job is to feed the dog, and the dog's job is to bite the person if he touches anything, right? So Yeah, so I'm a big believer that there's going to be significant impact starting with unemployment. In fact, some of my investments right now are trade, right? That if there's an unemployment dynamic, do trade schools fill up with folks that, you know, move into different directions on it? So, I clearly— I think there's a timing dynamic. So, I, I, so the good news in my mind is it'll settle out and there'll be new industries and new opportunities and things like that. And people will come back, but there's going to be this disruptive phase that we go through that's going to create massive instability. And with instability comes opportunity as well. So, so, so my filter on AI, if I'm looking at, at that space specifically, is what's going to be disrupted, disrupted when? How big is that disruption going to be? What's going to be the collateral opportunities as a result of that? We went immediately from the NVIDIA is the play. And by the way, I had a chance to merge our company with NVIDIA, and I turned it down 30 years ago. S3, a graphics chip company. But it went from NVIDIA to, gee, if you're an investor, Bloom Energy, right? The companies that are providing the energy solutions that enable AI. And you can just go down that first order, second order, third order derivatives around AI specifically and say, okay, this hasn't gotten the big run-up yet. So that's one path. And the second path, as I mentioned, is in my mind is, okay, where the shift happens, where does the shift go to and how do I get in early on those? And I can't really, you know, relate it to San Diego, but I think in a macro sense, that's, that's how I'm looking at it.

And maybe not looking at it from a technological perspective, but, um, so I'm on the board of Sanford Burnham Prebys, which is a medical research, um, nonprofit organization that is purely research-oriented in how to cure cancer, Alzheimer's, dementia, etc. So, um, we have 36 scientists that are, you know, PhDs, double PhDs, whatever the case may be, and they're all lab-based. Our two most recent hires were AI experts, and I remember standing at an internal event and the new AI expert scientists scientist came on board and we were talking with a couple other scientists and one of the guys said, "Hey, Sanju," to the, you know, to the AI expert. He said, "Listen, I have literally billions of reams of data regarding this particular cell having to do with the deviation of the Alzheimer's gene of the," you know, and this was going way over my head, but it was all very, very scientifically oriented. And said, "If I gave you this, all this information, this worldwide information, do you think by the time I have to I write my paper in a month and a half from now, you would be able to give me some conclusive evidence that suggests what I'm thinking about these radical cells? And Sanjay looked at his watch and he said, listen, it's 4:30 now. I'm going to go grab a bite to eat. I could probably get it to you by 6:00. That work? So what I'm saying is that the categories that have been lacking in AI this whole time, like the scientific and the medical world, I think is ripe for opportunity in terms of now cancers that have been a life sentence— death sentence. Well, yeah, that's how it's going there. Thanks, honey. Now are going to be something that you can take a pill every day for the rest of your life and you'll just live with it like a chronic disease. So, the companies in this type of world, I'm saying, have huge opportunity in terms of how AI is going to improve human health. Sure. So, on that note, we do need to wrap up.

Let's give a big round of applause for Anne.

Yeah.