How To Become A Successful Angel Investor

Well, I spent the better part of yesterday trying to teach my mom and my sister how to create Coinbase accounts, transfer, transfer, buy Bitcoin, transfer Bitcoin into the cloud.

Sean, do you think that angel investing— like, is this going to be— what's the future of Sean Puri? I mean, do you think that this is going to be your full-time job?

Angel investing is a way to, for me, It's like just dipping a net into a stream of flowing water with a bunch of fish inside. I'm not taking a boat out, spending, you know, an afternoon out in the water fishing and trying to catch something. It's just in front of my house, there's this stream with fish going through. And if I just put a net in, I can catch some great fish. That's what angel investing is for me. And that's what it's been basically for the last, I don't know, 6, 7 years where my own friends, my own personal network, or things that come inbound through getting more popular on Twitter and the podcast podcast, it leads you to some opportunities. People want you in their deals and you get to see deals early. And before I used to sit on the sideline and I watched a bunch of those companies get big. And then I started, you know, I asked a rich friend, hey, if I give you a good deal that you invest in, can I get a piece of the carry? He said, yeah. That's how I got into Lambda School, which is already kind of like a big winner. And then as soon as I did that, I was like, man, instead of a big carry, like instead of getting a piece of this guy's carry, why can't I just do this myself? So as I got a little more money, I started doing it myself. And then with the rolling fund, that just lets me do it on steroids where I could just do more.

And so what percentage of your net worth— well, let's be— you can not answer this, but let's just say that you invest $4 million a year. In 8 years, how much income do you think you're going to make? Do you think you're going to make an additional $200,000? Do you think you're going to make $200 grand a year? Do you think you're going to make $1 million?

So a A good fund is going to, like, let's say, 3x its money over the kind of like 7 to 10 year period. Uh, great will be, you know, 5x or more. And like, if you're— if you count— if you caught an Uber, if you caught a Coinbase, uh, you know, you're laughing. Your returns are going to be super skewed just by this one company that's now worth tens of billions.

But let's assume for this conversation, let's assume you're only—

so let's take, um, let's take— let's take 3x. Let's take the most cons— like the most conservative version of winning, right? Right, is I triple the money. So over the next 3 years, I'm going to deploy $12 million. Let's say I 3x that money, that's $36 million, um, that gets— that comes back into the fund after returning the money. So, uh, so a total of, what, $48 million. And so on the $36, that's the profit, I get to keep 20% of the carry, right? So that's about $7 million-ish. Is my mental math right? Roughly $7 million. And that's $7 million over a, let's call it, 8 to 10 year time span. It's not the biggest, like, that's why I don't go all in on it is because I can make way more money building a business in that same amount of time. So if I—

Well, in 7, so, but that's the recap. That's your, how much in 7, you say $7 million?

That's my target, Terry. Yeah.

That's a significant amount of money. That's $1 million a year. So you're thinking this will make you $1 million a year for 7 years, starting in 7 years?

No, I think it's like kind of like a lump sum that you get in 7 years, more like it. I get nothing for 7 years. And then as these companies, as many of them die and some of them do okay, then a few winners emerge.

Eventually you reach a steady state where you keep going and you are making $1 million a year. And where it really gets interesting is where you scale. And you start doing, you know, $20 million a year, $50 million a year, $100 million a year, uh, and, you know, eventually that's why you could see yourself hiring investment professionals. You could have a whole fund.

Have— has any of yours paid out, Ryan?

Yeah, yeah. But I, I, but I think there's another important point is it's not just about money, it's about well-being, as I'm always saying on the show. Like, it's about, like, what investing has done for me is it's been a vehicle for learning and for connecting to really interesting people and for, like, getting to, like, kind of like go on these fun adventures where I'm like learning about like the latest things in crypto or the latest things in e-commerce and I'm connecting dots. And then the other thing it's done is it's made my, my primary businesses far more successful because I'm borrowing ideas. I'm learning like, oh wow, look how this e-commerce company does performance marketing. I've never even heard of performance marketing until— and then I brought it back to a newsletter company and I'm like, oh, at our newsletter company we can buy Facebook ads and Google ads like this e-com company that I invested in called Warby Parker or whatever. And like, I'm now I'm like cross, you know, I'm taking, you know, I mean, kind of like what your show has done a really nice job of for you.

But does it distract you from your main job?

Well, that's where like, that's why I think it was smart that this guy hired some people and how, you know, Sean's hiring some people because then you can kind of like be, as you said, in two places at once. But no, that's—

You just have to take the risk of hiring $150,000, $200,000.

Well, you don't have to. I mean, I haven't done that and I've still made a bunch of investments, but I missed a lot of investments because of that very reason. Because I was like, hey, I'm really laser focused on BizNow and Summit and Powder Mountain. I'm not going to look at a deal every day. I'm going to look at like a deal every like 3 weeks. And so I'm just gonna miss a lot of stuff, you know. I missed like— I mean, I, I have a— one of my— the COO of my company invested $150 grand in a, um, in a, in a crypto hedge fund, and he's, you know, he's up to like almost $6 million of value. I don't know if I should be saying that here, but you know, he I missed that because I was just like, I'm busy. I can't look at that right now.

Yeah, that's totally true. And by the way, most of the time when people say like, oh, it's not about the money, it's about the journey, it's about the learning, it's about the people you meet, you know, the kumbaya thing. Normally that's like, you know, that's the tell. It's actually almost always about the money. Because if you took the money out, they wouldn't do any of the shit. This is actually one of the rare things where that's actually true. Because I actually was doing all these things. I was meeting founders. I was helping them with their businesses. I was getting excited and digging into new spaces. I was keeping keeping a fantasy portfolio of like to learn like, oh, I'm tracking these spaces and I think these are going to be big and I want to learn about these spaces. And here's some of the companies that are doing cool things and let me observe their growth tactics from the outside and try to see what's working and maybe apply that to my business. I was literally doing all those things for fun before I ever put a dollar in. You know, I was subscribed to like, I don't know, 50 different AngelList syndicates because you didn't have to put money in, but you could get the investment memo. Because I literally loved the learning so much. And I had no plan at the time to be investing in any of those. I put $0 in. Sorry to all those syndicate leads. I was that annoying guy that was subscribed and never invested. But it was because I actually genuinely actually wanted to learn and I wanted to meet these founders. And so this is one of the rare occasions where when you hear that, normally it's bullshit. In this case, I'm 100% on board with what you said, Ryan. And like, that's how I— that's exactly how I think about it, is this is like a My other friend described it as like, it's a great way to just blow off some entrepreneurial steam. It's like your brain, if you're operating a business, you all of a sudden start hearing about vertical farming and crypto and then like, you know, oh, what the hell is, you know, what the hell are NFTs? And like you learn about all this shit and then part of you is like, should I be doing that? Like, why the fuck am I doing this stupid like real estate newsletter? I should be going out there and building, you know, this ridesharing company or whatever. And so investing gives you a way to like get the high and dabble in that and have some financial upside, but you don't, it lets you stay focused as an entrepreneur. So that's the other like, like weird psychological things that comes from investing is aside from the learning, aside from the good friends you make and the network you build and the learn, you know, the cross ideas you get, you literally just get to like, it's like a release and, and then you can go back to doing your thing.

Do you, but, but are you, Sean, are you the reason I did the syndicate thing? I'm doing it with Joe and we're, I bet my own money. It's, it's kind of like a rolling fund, but it's not. It's only deal by deal basis. Whereas Sean, you have like money that you could deploy a little more freely. I didn't do the rolling fund thing because I didn't want to have customers that I have to appease and talk to on a regular basis because I didn't want like a job. Do you feel now that you have like a job because you have 100 people who have given you money?

No, I write once a month updates and I like doing it anyways. It's just, hey, here's the new companies we invest in, why I would do that for my own documentation anyways of what was the conviction at the time I made the investment. Here's what I believe. Here's why I believe investing in it. I like having that anyways for 5 years from now. That's an important thing for me. So in this case, I just publish it to my investors. Great. So that's the, that's all the maintenance that goes into it. There was a little bit again early on of like actually getting the investors on board, but I took no meetings. I took no phone calls. I just said, here's the link. And because of this podcast, because of my newsletter, because of my own track record and the deck I made, that was enough to raise the money for me. And I know that that's kind of like a— not everybody can do that part. Most people would have to go knock on a bunch of doors and really sell this thing. So that's that. But the other thing you mentioned, like for you, if you just get busy and you just don't care about angel investing, you could just not do a deal for the next 6 months and no sweat. Whereas for me, I actually do need to deploy this money. And so there is like a certain amount of like startup pitches I need to take every month in order to be doing great investments. Um, and so, you know, I actually have to deploy this money. I can't like just sit on my hands and decide I want to go, go on vacation or like just go super heads down in my own business. I can't like, I can't do that because I've taken on a fiduciary like obligation to deploy these people's capital. What I thought would be, man, I used to invest, I don't know, like 50K a quarter, 100K a quarter max. And now I have to deploy $1 million a quarter. And actually I run out within the first 2 months of every quarter. So it's actually not been an issue because I just, my check sizes are bigger. And once people know you're investing, they send you deals. Your friends send you deals. They're like, hey, I'm doing this. This is a good deal. And they're like, oh wow, I didn't need to, like the fundamentals make sense. It all is all good. There's other good co-investors there. I didn't need to go find this deal. It came to me. And that's the best thing that happens.

What percentage of your liquid net worth did you allocate to AngelList?

Before this?

Because now with the rolling fund, I'm investing OPM, right? Other people's money. I only put a small amount of my own money into the fund. Before this, I was doing roughly $200K, $250K a year was what I put in. And I don't remember what that was at that time of liquid net worth. It was kind of substantial. It wasn't, I don't know, half a percent or something. It was like like that mattered to me. But also, if I lost that money, or if— like, I knew going in, at the very least, this money is locked up for a long time. I can't use it to go buy a vacation.

Over or under 15? Over or under 15 or 10%? Like, was it more than like 10? Because that's a lot.

I don't know. I'd have to think what I— I don't know how much money I made at the time because I made more money in the last couple years than I did back then. So I don't know actually how much money I had then. What I do remember is thinking when I very first started, I thought I need about $300,000 of a bankroll to even do this, to have enough of a portfolio to give myself a shot. Because angel investing, so many of your deals are going to be losers. And so I thought, okay, I need to have, you know, 20 to 30 bets. I need at least $300,000 to $500,000 of bankroll to go do this. And at that, at the very beginning, I didn't have that. That would have been an irresponsible amount of money for me. That was like, at the time, I don't know, half of the money I had or something like that. So I said, okay, I can't do that. That's why I started talking to other people and being like, hey, if I scout for you, can I get carry and you put up the capital? And that's how I got started.

Although, you know, go ahead.

Even when you have almost no money, I really like this as opposed to buying public equities when you have very little money because of the learning and the connections and like the benefit that that could have on your own business. Like I was betting a very high percentage of my money initially. And it really helped me because I, rather than just buying like Coca-Cola or Walmart or some publicly traded company where I learn nothing, I meet no one, you know, it doesn't really help like the day-to-day of my like newsletter business or my community business or, you know, the, the real estate business. If these things were basically benefiting my ability to make money on my day job. So that's why I, I actually think when you're small, it's actually not a terrible idea.

And in fact, I read a Tim Ferriss thing a while back. He wrote a long time ago before he started investing. And he was basically like, I'm just going to fund my own MBA. Like, if I was going to spend $200K going to business school, I think I can learn more investing that $200K in a mix of public stocks and private startups. And when I read that, I was like, oh, absolutely. Like, I will build a network. I will build business knowledge. I'll have skin in the game. And actually, this might become a profitable thing. but the worst case scenario, this was my, rather than going to, you know, Wichita State and like going and get my MBA, like why, why would I not do this? And so once I read that, that's how I started thinking about it was like, I'm gonna put $120K in. That's like a, you know, that's business school. And let me, let me just get going.

Well, so we, we not only thought about that with investing, but we, we lost $25,000 on the first summit. We held various private summits in between summits where we would lose 20 grand here, 10 grand there to throw like an event. And I always saw that as an investment, like you're saying, like in like my network or my learning. And the same thing, I was talking to a guy the other day about, he wanted some coaching and he was like debating whether or not it was worth like the monthly amount. And he had like 400 grand in his savings. And I was like, well, what do you want to do? What else do you want to do with the 400 grand? He wanted to put it into like Robinhood and buy stock. And I was thinking like, man, if I had known about coaching or consulting or some of the things I now know about, you know, trainings that you could go get online, you know, taking like a writing course from like, you know, Perel online. Like, those things are so valuable. Like, they're so worth the like $3,000 here, the $5,000 there. If you have, you know, a little bit of money saved, I think that's so much better than trying to make like, you know, the index return on the stock market when— at least when you don't have that much money. I think, um, somebody said to me, you know, concentrate to get rich, diversify to stay rich. Like, When you don't have that much money, like, put your money into building yourself up, building up your learning, building up your network. And then later, when you're, when you're much richer, then diversify and have a, you know, an allocation and a portfolio like that.