In this monologue, the speaker outlines a practical framework for angel investing. He emphasizes that every startup should have the potential to reach roughly $100 million in annual revenue, which translates to a billion‑dollar valuation, to justify the high risk and illiquidity of angel capital. The core evaluation criteria for founders include: deep subject‑matter knowledge, demonstrable execution ability versus mere talk, realistic assessment of risks, and a track record of success in unrelated domains. The speaker stresses that investors should allocate small checks across many companies, expecting only 2–3 winners to generate the bulk of returns. He illustrates the approach with two examples—The Hustle (a friend’s media startup) and Lambda School—explaining how clear founder communication, differentiated business models, and realistic revenue pathways convinced him to write a check. Expected returns are framed as a minimum 4–5× return over a 7‑year horizon (≈20 % IRR), with the possibility of outsized outcomes (e.g., a $25 k check turning into $25 M). The overall narrative blends founder vetting, portfolio construction, and return modeling to guide aspiring angel investors.
Chapters
And what that means is that you need every company you invest in to be able to get to about $100 million a year in revenue. What do you look for when you talk to the founders? You know, how do you make your decision if you're gonna make the investment or not? So here's what I said. I said, you know, there's a million intangible signals that you're thinking about and going over, but really, you know, it boils down to the following. Does this person know what the hell they're talking about? When I talk to them, do I get this sense of confidence and certainty that's not about the style of speech, but that the things they're saying actually make sense? And when you push and probe a little bit, you can tell that they've already thought through those things, they have a thoughtful answer about it, and they know more about the subject. They know about— they know so much about the subject, which is what you should expect from somebody who's building a company in a space. The next thing I think about is, are they an executor or just a talker? Of course you want an executor. Are they all in on this or are they doing this as a side project? Do they have a habit of quitting projects or a habit of splitting focus? Like, you know, I don't want somebody I invest in to go have a podcast and go speak at conferences and do all this other shit. And some people get caught up in that. And there's a reason I started this podcast after I sold my company, not during. The last thing I really think about is, are they in touch with reality or are they a delusional optimist? What I mean by that is, do they actually understand the main risk and challenge of their business? So like, have they correctly identified what the big challenge is to make their vision come true? And are they thinking about, you know, have they appropriately assessed that risk? There's a lot of people who don't have what I'll call a credible view of reality. They're out of touch with reality. You know, you bring something up that's a risk, they just don't think it's a risk. And I think that can be a very, very big problem. And so, you know, the overwhelming feeling I get when I walk away from those conversations is either, wow, this person had a lot of clarity and quality of thought about their business, or they don't. And I basically just don't invest if they don't have clarity or quality of thinking around their business. You know, the other thing that I sort of think about is You know, what have you done in your past? So a track record of doing interesting and unique stuff does tend to carry forward throughout your life. And so sometimes somebody has zero experience in a given domain, but I look at their background and they also went into other things with zero experience and came out 6 months later as a winner, as being a leader in the space. And so I think that looking at somebody's track record for success is obviously a good sign. So just because they don't have it doesn't mean it's a bad— it doesn't mean, you know, you eliminate them, but it is obviously a huge, huge factor if you can do it. The other thing is, you know, the other question I got, and this will be the last thing on angel investing, is what are the type of returns you're looking for? Some people think, and Sam often talks about, like, he loves great businesses that are like The Hustle. So this is actually a good example. So when Sam started The Hustle, I had an opportunity to invest, 'cause Sam was a friend, and at that point I had learned, invest in your friends, think of yourself as an investor, but I went to The Hustle's office, which was this like, you know, tiny rinky-dink place, and they sat me down, they walked me through the vision, and I thought to myself, this is totally gonna work, and I totally don't wanna invest, and my thinking was, I don't think this type of business will generate the type of returns I'm looking for. So what do I mean by that? Angel investing works best when you put small checks into many companies and you're not looking for what the sort of median return is, but you're looking for what the maximum return is. You basically need 2 or 3 winners in your portfolio to make everything else a rounding error. And what that means is that you need every company you invest in to be able to get to about $100 million a year in revenue. $100 million a year in revenue is a billion-dollar company. And this isn't about greed, it's about the risk and reward profile. The risk is so high that you need winners to pay off so, so well to justify the risk that you're taking, because you're taking both— you're taking risk and illiquidity, right? A startup that you invest in is probably not going to be liquid for 7 to 10 years. And so if you have illiquid investment that's extremely high risk, you need the payoff to be huge to make up for those two downsides. I'll give you an example. With Lambda School, I realized pretty quickly, I was like, okay, so it sounds like the average student is worth, what, you know, $25,000 for you? Okay, so you need 4,000 students in a year to generate you about $100 million. Okay, 4,000 students, I believe you can get there. That's not a crazy number. That's not 400,000 students, that's not 4 million students. 400,000— I think 400— I think 4,000 students will take you up on this offer. At the time that I invested, I think Lambda School at that time had graduated maybe 81 people total. You know, there wasn't— 81 wasn't 4,000, but it was clear to me that 4,000 was an achievable number and that 4,000 would get them to the point where their somewhere between $50 and $100 million revenue business, depending on what the value per student was, was going to end up being. And so that was believable, and that, that alone was enough justification to say write the check. In addition to Austin's an incredible founder, he spoke very clearly about what he was doing. There was clearly evidence that their approach was different than other people's approach and might get a different result than what other people, other companies in the space had gotten. For example, most of the coding boot camps were in person and Lambda School was online. Most of the coding boot camps were in a very short period, 3 months, and Lambda School was like a 9-month program. And what ended up happening was that most online learning things had like a 95% dropout rate. People did not complete the course. And Lambda School had like, I don't know what the exact numbers were, but 80 to 90% of people finished the program. and 80 to 90% of them got jobs, high-paying jobs. And so I was like, whoa, they've, you know, those are amazing signals, and I believe that they can get to 4,000 students. I believe they can give that experience to 4,000 students, which would get them into a $100 million a year range. So that's what type of returns you look for. And so I assume that in a batch of 30 companies, 3 of them will drive 95 to 99% of all the returns. I hope that in the end this nets out into, you know, I put in, let's call it $500,000, and I basically quadruple to 5x my money over the 7-year period. And so, you know, $500,000 in, and let's say I 5x it, that's $2.5 million out. And, you know, this is not like the biggest, craziest life change ever, but There's a chance it's much more if you hit one of the real winners, then I've seen a $25,000 check turn into $25 million. That can happen. But I would say the average or the expected return of what I would call the minimum bar of success is to 4 or 5x my money over a 7-year period, which nets out, I think, to like, I don't know, like a 20% IRR, something like that.
