Part 3 - Off the Beaten Path: Wall Street to Startup Investor - A Fireside Chat with Pankaj Jain, Founder of Invest Stream

Foreign. Hello, everyone.

Welcome to investream. I'm Bunkaj and today we're doing a very special, special episode. We're turning the tables.

This is going to be part three of a multi part episode talking about my journey from Wall street to being a vc, an entrepreneur, an angel investor.

And kind of all the things that.

I've experienced along the way. Hope you enjoy it.

You've done about, I think it's about roughly 70200 investments.

Yeah, somewhere around that. I don't remember the exact number.

And about 15, 20 exits.

Yeah, I don't remember the exact numbers. You know, so you know, to clarify, some of these are personal investments, some of these are venture investments that I might have done at either T Labs or at 500 startup, and some of them could be investments that I did through AngelList, backing other people's syndicates as well. Right. So the three different buckets there.

Right, so what, what things do you want to see in a founder who comes to you asking for a check?

Okay, so I mean, there's, I mean.

I know I miss pattern matching and there's no one rule that applies to everybody. And there could be some people who don't have this and you would give them money for other reasons. So there's no rule book for this. It's a complex process, but let's just generalize.

Yeah.

And again with the caveat that you could not have this and still be fundable.

Okay, so there's two different ways to answer this question. And the answer is different, depending on which hat I'm wearing. If I'm a vc, I have a slightly different perspective.

No, as an angel.

As an angel, my perspective is slightly more different when I'm investing. As an individual, I tend to prefer investing in things I know something about. Partly because if, you know, like for example, yesterday I saw a deal for essentially a new age, extremely healthy, something that you would really get excited about as a customer. You know, low fat, high nutrient drink. Right. And I looked at it, I was like, look, it sounds really interesting. I just don't know anything about this business. I don't know anything about this vertical. I don't know how you manufacture this or distribute this or market. I just, I don't know how I could ever be helpful. So now if I take that particular investment, if it was being done by somebody I had known for a number of years or somebody that I had worked with in the past or something, I might be a little bit more inclined to say, okay, fine, I'll invest, but I'll invest because of you, the individual. And I trust you, the individual, and I'm ready to help you, the individual. So I'll give you a small amount of money, you know, that could be a thousand, five thousand, ten thousand dollars to just say, look, here's a token investment just to help in some way. If that same deal is not being done by somebody I know, I'm less likely to get excited about that. Like it's an exciting opportunity and it sounds really cool. I just don't know anything about it. I don't even know how to evaluate the deal to say, yeah, this is something that I want to put money in. Right. So I tend to focus on things that I can understand and wrap my head around and make sense of or be able to help with in some way, whether it is being an early user or customer of the product and say, no, this doesn't work the way that it should and this is how other people are going to want to use it. Right. Or, hey, I know people that could be potential customers or something like that and help in that sort of way or in an operational capacity. Right. Like I can understand how the operations for this type of business should be run and I can help you set that up and do that. Right. So I like to look at companies where I have some value to add and I understand what the business is.

But let's go beyond your comfort level. Let's say you have comfort level. It's a field you know about, right?

Yeah.

What do you want to see.

In the founders in the team?

In the founder in the team, in what they have done? Let's say you don't know them from the past. So it's not a repeat serial entrepreneur. You don't have that confidence level because that's a very easy decision. If they've done something in the past, they had a good exit or they did a very, very good startup and still failed, but you know, they did everything right, then you're back in the team. That's a different equation. Let's take it out. You don't know them. They walk in the door and before they walk out, you have made up your mind that you're going to fund this founder, she's worth funding. You just want to do some due diligence. What has this founder shown you that made you think that?

So there's a couple of things that have triggered that type of reaction in the past. Impact is one thing. Right. Like, is what the founder doing impactful in some sort of way? Right. If I see I think every startup is an impact business and you know.

Whether you mean like social impact or.

No, very broadly, like something like this create significant impact and, or disruption in some sort of way, right? I don't know what that is necessarily and it defers business to business. Right, but can this have this potential?

So you're saying, is it radical enough?

Well, yes and no, right. If you're talking about doing a TikTok clone, it's not going to be radical, but it could still be impactful, right? It can still affect a lot of people depend. Like you build a version of TikTok that works on very low end Android phones, right? Suddenly it could be very impactful for people that are, are spending 10 to $20 on an Android phone, right? And that's retail price, that's not a subsidized price, that's a retail price. But it's not radical, but it could be impactful.

So impact as you know what impact means, but impact, yes.

And like I said, impact will be different based on what the company does. And then kind of me just saying, could this be impactful in some way, shape or form that's interesting to me. It really comes down to the team. At the end of the day, do I relate to the team? Can I sit and have a conversation with the team where I'm not looking at my watch and saying, hey, what's going on here? I want to get out. Let's speed this up. It can be about the product, right? Like, wow, this is just an amazing product that you guys have put together very quickly, right? So a lot of times it might just be like, that's the hook that gets somebody interested. It's like, whoa, two weeks ago you had this and today you have this amazing, right? Like how do you move so quickly, right? Other times it could be about the.

The.

Overall market size, right? Like, then you're targeting, it's just like, wow, this is a huge market and if you're able to just make a small dent in this, this could be a massive business, right? So it kind of depends on a couple of different factors. And you know, if, if it's a complete stranger that has not been introduced to me that is pitching me on Twitter or LinkedIn or Facebook and you know, then I start looking for certain things, I try to filter things out relatively quickly and just say, look, here's a form on my website. Just fill this out. If it's something that looks interesting on paper, we'll set up a time to chat. After we set up a time to chat. If that goes well. Okay, maybe what we'll do is we'll set up a weekly chat for the next couple of weeks just for us to get to know each other and for me to kind of build out.

This map, like a map of their.

It's like, you know, it's a picture, it's a. It's a model.

It's a model of their.

Yeah, it's. It's a moving timeline of what's happening in the business. Right. Rather than snapshots. And, you know, even a couple of weeks isn't necessarily enough, but generally it's enough for me to say, okay, this looks interesting enough now because I'm a small, irrelevant investor. If you're raising a large enough round, you're probably going to have a lead investor. Right. Or even if you're not getting a lead investor, you're probably getting a bunch of other angels involved. Who are some of these people? Are they reputable? Are they notable in some way, shape or form so that social signaling also matters? At some point, I might say, look, I'm interested, I will put in a small check, but my final decision rests on the final terms and who is leading with those terms. Right. So, you know, there's a lot of things that go into making a angel decision, and a lot of it also rests on, you know, what is the overall view I might have on, you know, macro conditions as well, if I think.

Sure.

All right. Because this is. This isn't. This is money that I take out of everything else that I do to invest. Right. As all angels do. So there has to be a. A pool of that capital that you are comfortable gambling with. Right. And when you angel invest in a startup, you are gambling. Right. Like, the chances of you making money on most of your investments is relatively small. If you can get 20% of your investments to be positive outcomes that are generating significant returns, you're doing great. Right. Most 80% of the companies that you invest in are either going to be negative, meaning zero or very small returns.

So. But I'm trying to drill down on the takeaway here for founders. So when a founder walks in and they're pitching an angel, not vc, because by the time they get to a VC firm, you're significantly de. Risked. You have traction, you have a team, you have a product. Right?

Yeah.

And so I'm trying to create takeaways here for what a founder should do, because the initial part is where I see a lot of founders wasting their time. You mentioned on a previous podcast people trying to File patents, do IB protection. Right. One of the worst things you can do at the startup, like just don't do the startup if you're filing a patent. That's step number one. There's a very small number of startups in the medical device space or whatever where you do that. So what is the takeaway here for founders, especially early founders? Because a lot of existing advice is around companies looking to go and raise a series A or a series A pre seed from an established VC firm. And those are dynamics significantly beyond on the risk spectrum where the company has a team, has a product, has traction, has somewhat of a defined product market fit, if not perfect, but they are well on their way. So when you look at it at an early, early angel stage, again, a guy with an idea or maybe a founder and she has a product.

Yeah.

What are you looking for and what is for you the same time an anti pattern, removed from the macro, removed from these. So you told me, yes, you're looking for progress, some movement on a week by week basis. You're looking for impact, which could be disruption, which could be an existing market causing some level of shift. A big, a big addressable market. You talked about having an amazing product, but what else, what else for you is like a pattern or anti pattern? Again, very early stage. You talk to them in a cafe, you met them for the first time.

So I'm going to change, I'm not going to answer your question exactly the way you're looking for an answer. Instead I'm going to reframe it differently. I think the biggest problem the founders have when they try to approach angel investors is they don't know who they're approaching. They don't know what that individual cares about or looks for. Right. So founders go in and shoot in the dark and hope that something sticks. There's so much information that, you know, angel investors put out on a regular basis, whether it's on Twitter, it's on Facebook, or it's on their blogs, or it's on a podcast they've been on. Do your research. Right. Like that to me is the lowest hanging fruit that a founder should do. Do your research and understand who this individual is and why you should approach them to invest in your company. Right. If you can figure out why they should invest in your company now, you can formulate your pitch on why they should invest in your company. Right. There's no point in somebody who's building a dating app to come and pitch me. That really isn't. It's just not an Area of interest to me, I've never been interested in. I have invested in dating apps before, but that was as a vc. And again, my perspective as a VC and an angel are different. As a vc, I would still invest in that, but as an angel, there's no reason for me to invest in something like that. It's not an area of interest. So do your research on the individuals that you are approaching. Shooting in the dark and throwing darts and hoping something stinks is not going to get you around quickly. In fact, people are going to be like, look, you just thanks for reaching out, but not interest. You're going to get more rejections that way. And I understand, you know, increase the top of the funnel and go after as many people as you can and kind of filter it down, but you're going to waste a lot of time. If you put that time towards research, your funnel might be smaller, but your conversion rates are going to be better. Right? So really try and dig into. Look, some people don't have any information out, so it's harder. But those people that do have information in the public domain, research it, find out what they're thinking and what they're looking for or what they've invested in in the past. Right? Use that as a starting point to figure out like, okay, I'm building a hardware device that does something and, and this person has never invested in hardware, doesn't care about hardware, doesn't care about the vertical I'm in. Why am I pitching them? Right? Why should I? Just because they might write a check. Well, they're probably not going to write a check unless a friend vouches for you and says, look, I've met the founder, I know the space, I am, you know, whatever, just put $10,000 into this. All right? Then that investor might find, follow along and say, look, somebody I really trust and I've invested with in the past, it's always work, is telling me to do it, so I'll do it. But if you come to me directly cold, it may not work because that's not something that I do or I care about. So a lot of what investors look for is out there in the public domain. Use that to gear your pitch towards that investor. The biggest problem that I think founders have is that they come up with one pitch deck, one pitch, and they use that. It's a one size fit all type of scenario. You can't, especially at the early stages, right? It's about you as an individual and me as an individual. And we have to meet somewhere in the middle. And our minds have to match, right? And we have to say, yeah, I connect with you, you connect with me. I see where you're going with the product, with the vertical, with you as an individual. And it fits with my thinking. So, yes, let's move to the next stage. Right? So I think the biggest problem to solve for founders is do your research. You don't have to spend months on it. It can be done in days or weeks. Right? There's so many lists that are out there today that talk about, here's, you know, angel investors in this industry, that industry, blah, blah, blah. You can go to signal, you can go to all these different places to get this information, pull it together, do something with it, to say, all right, this is why, like, what? On my form, one of my questions is, why do you want me as an investor? Right? And a common answer I get is, oh, because, you know, you've. You're an experienced investor, you've invested in startups and. Okay, but that doesn't tell me why I should invest, why you want me in your company. Right? Like, I don't know anything about your type of business. I had another company that pitched me about. I don't. I actually haven't met with the company yet, so I shouldn't talk about it, but it had to do with packaging. I'm like, I don't know anything about packaging. Right.

Like, but so, so what we're saying is find people who, who know about the space who can literally be a mentor for you.

Not necessarily be a mentor. Right? That's not. I never said the word mentor. I said, if you are a founder and you are right, you. You didn't go out to raise money. But if you were planning to go out and raise money, the first thing I would have said to Radish, listen, let's get a couple of lists together of potential angel investors that you should approach. Okay? Not just random angel investors, but people that invest in your type of business. Right? It's a SaaS business. It's a B2B business. It's focused on real estate. Right? Like, let's target specific investors that like these verticals. It doesn't have to be all of them, but they like at least one or two of those criteria right? Now let's build out that list. Let's find some information about, hey, and this might be hard, but what kind of check sizes do they write? Right? Is it a $5,000, is it a $50,000 check? Something in the middle, something bigger, you know, do they do angel syndicates. Right. Maybe they write a small check personally, but then they do a larger syndicate. Right. Let's pull this information together and now let's try to find out who do we know that can connect you to these particular individuals? And right. Not like, hey, let's, let's just grab this list off the Internet. Let's just start pinging them on Twitter, on Facebook, on email and just saying, hey, I'd love to get five minutes of your time. That's not going to work. Right, right, right, right. As a founder, you have to be more surgical and more tactical in who you're approaching and how you're approaching them. Right. Because otherwise you're just going to waste your time, forget about what's going on on the investor side. As a founder, you're going to put so much time following up with these guys, they're not going to respond like, okay, you're just going to keep following up. Okay. Instead, you could be following up with somebody who is interested in your particular business or could be, or more likely to be interested in your type of business. Right, right. They're tapped out. Maybe they did all their investments for the year and like, look, you know, economy's not so good. I don't want to write any more checks. That's a different story. But they historically have shown that they like a SaaS business, they like real estate. They, you know. Oh, okay. Makes sense to approach them. Right. So they don't necessarily have to be a mentor, but they have to be somebody that has a affinity for some aspect of your business or have shown some sort of history of, of engaging in some significant aspect of your business. Maybe that was a job that they had five years ago.

Something, something.

Yeah.

All right, folks, there you have it. That's probably the most valuable tip you'll hear in a long time. So if you're an angel, review that answer a few times and maybe reach out to Pankaj and answer his form correctly and he might talk to you. So thank you for your time. Pankaj, that was. This is very good.

Thank you, Radish. I appreciate you taking time and asking such detailed questions about my past. It's now, you know, public record. I don't know how I feel about that, but it was fun.

Thank you.

And to everyone who is still with us, thank you guys for sticking around. This was definitely the longest live stream that I've done and it was fun. To some of the folks that threw comments up. Arjun. Hey, nice to see you. Great catching up. Danny, Same thing I don't know if I had a vision, but it was something abit. Thank you again for watching here. On virtually every episode, I want to answer this question really quickly if I can. So, you know, specifically in India, and I think your question is about India. From the early 2000s to today. The venture industry has changed drastically in the early 2000s. And definitely around the time that I moved in in 2007, most VCs were doing more private equity types of deals, more brick and mortar types of businesses and less tech startup, you know, some food companies, hospital chains, things like that. So if you look at like older portfolios for, you know, some of the older VC firms, you'll find those types of businesses in their portfolios. Whereas around, I want to say 2009, 2010, you started seeing that change a little bit and more, more moving more towards tech and what more of the VC industry in Silicon Valley has done. Check sizes have also changed quite a bit during this time in terms of protecting equity and limiting your dilution as founders. There are numerous episodes of Invest Stream where we've talked about this. Also the Raise where we've talked about that. So check out the Raise. That's something that we've talked about extensively on the Raise. That's also on the YouTube channel and a couple of the older YouTube videos that I've done. You'll be able to find them there. All right, and feel free to reach out to me directly if you want more information. And thanks a lot everyone for joining me. Ritesh, thank you so much for taking the time and doing this. It was a lot of fun. Next week we're going to be doing a interesting chat with another colleague of mine, a former colleague, Arjun Dev Arora, who is the founder of Valence Advisory. We're going to be talking about how to get started raising your first early stage venture capital fund. All right, so join us next week on Tuesday, August 4th at 1:30pm Eastern Time for a live discussion with Archer. Thanks again everyone. We'll see you again soon.

Well, I hope you enjoyed the episode that was the last part. And you know, it was a little bit of an insight into my background and kind of how my journey has gone in a lot of different directions before ending up here. And if you'd like to share your own story about, you know, the path that you've taken and where has it taken you and what's happening happen, feel free to drop me an email@infoveststream.co. also check out investstream co for the latest episodes RSVPing if you'd like a calendar invite for any of the upcoming live streams and old episodes as well. And if you haven't yet followed us on YouTube, Twitter, Instagram and Facebook, please do so. The links are are on the investream site. Thanks again for joining me and I look forward to talking to you guys again soon.

Thanks.