Key Moments
Jeff Clavier and Andrea Zurek - Startup Investor School Day 3
Y CombinatorKey Moments
Angel investors Jeff Clavier and Andrea Zurek discuss asset allocation, portfolio construction, and personal branding for startup investing.
Key Insights
Angel investing is a long-term, high-risk endeavor requiring significant capital and patience, with potential for losses.
Asset allocation for angel investing should be a small percentage of net worth, and one should only invest what they can afford to lose.
Portfolio construction involves defining check size, investment pace, target sectors, geographies, and stage preference.
Building a personal brand as an investor is crucial for attracting founders and distinguishing oneself in a crowded market.
Key brand elements include trust, loyalty, quality, perception, and integrity, with a focus on what others say about you.
Diversification across time and sectors is vital to mitigate risk, as is understanding the math behind potential returns.
THE NATURE OF ANGEL INVESTING
Angel investing is characterized as a long-term, high-risk venture. Jeff Clavier emphasizes that investors should be prepared for losses, which often occur early. He advises that it typically takes 8-10 years for significant outcomes, and VC funds aim to return capital within six years before generating carry. Therefore, the fundamental rule is to only invest capital that one can afford to lose entirely. Furthermore, patience is a virtue, as even getting initial capital back can take years.
ASSET ALLOCATION STRATEGIES
Determining how much of one's net worth to allocate to angel investments is a personal decision, but a prudent approach is recommended. Clavier suggests that 10% of net worth is a sound figure, drawing comparisons to institutional investors like pension funds which allocate 5-10% to VC/private equity. He also notes that minimum investment amounts can be low, as little as $1,000 through syndicates, but a professional approach might involve an initial budget of $100,000 divided among several investments, spread over time.
BUILDING A SOLID PORTFOLIO
Portfolio construction requires defining key strategic factors: check size, number of investments per year, preferred sectors, geographies, and investment stage (pre-seed, seed, etc.). Clarity on these elements helps normalize deal flow and establish a consistent investment thesis. Clavier advocates for a target of 10-12 investments annually, leading to 35-40 over three years, a manageable yet diversified portfolio size. Diversification across time and sectors is essential to spread risk.
THE IMPORTANCE OF PERSONAL BRANDING
Andrea Zurek highlights that building a strong personal brand is crucial for angel investors. She defines a brand as what others say about you when you're not in the room, emphasizing reputation, trust, loyalty, and integrity. Successful brands, like Apple or Google, are built on consistent delivery of value and innovation. For investors, this means founders should want to partner with you, and your brand should reflect what you stand for ethically and professionally.
CHOOSING YOUR INVESTMENT PATH AND BRAND IDENTITY
Investors can choose different paths: being a standalone angel, joining an angel group, or creating their own firm. Zurek advocates for learning from others, perhaps by joining groups like Sand Hill Angels or utilizing platforms like AngelList. She and her partner founded XG Ventures, leveraging their Google background to build a brand focused on supporting entrepreneurs with time and expertise, not just capital. Defining what makes your firm unique, such as investing in disruptive technologies or backing specific types of founders, is key.
INTEGRITY, CONSISTENCY AND LONG-TERM VISION
Zurek stresses the importance of integrity, especially when dealing with challenging startup situations like those at Uber. Consistency in communication, responsiveness, and treating investing as a serious endeavor are vital. She also notes that the landscape has evolved from a handful of investors to thousands of micro-VCs, making differentiation through a clear brand and value proposition essential. Ultimately, investing is a long-term game requiring resilience, the willingness to fail, and the ability to pivot.
DEALING WITH UNCERTAINTY AND MATH
Both speakers acknowledge that there's an element of art and science to investing. While intuition is important, Clavier advises investing only when conviction is high, as doubts often lead to wipeouts. Zurek notes that sometimes their biggest winners were investments made with initial hesitation. Understanding the brutal math of venture returns, where a few big wins drive fund performance, is critical for portfolio construction and determining appropriate check sizes, even for individual angels.
THE SUPER ANGEL VS. ANGEL DISTINCTION
The distinction between a super angel and a regular angel often lies in professionalism and responsibility. Super angels, like Clavier with his fund, are often expected to take a lead investor role, sit on boards, and bear more responsibility for the company's success. This involves larger check sizes and a commitment to actively support portfolio companies, which is a key expectation from both entrepreneurs and the market.
THE ROLE OF THE NETWORK AND RESOURCES
Networking and leveraging one's connections are paramount in the startup ecosystem. Both speakers emphasize the value of building and maintaining relationships. Resources like blogs, industry publications, and communities like Y Combinator's Startup School are vital for continuous learning. The ability to make trusted introductions and share deal flow, rather than hoarding it, contributes to a positive reputation and collaborative spirit within the investment community.
MANAGING ONLINE PRESENCE AND OTHER FACTORS
Managing one's online presence, website, and social media is part of branding, though some successful investors operate discreetly through word-of-mouth. Key factors include responsiveness, quality of deal flow, partnership with complementary firms, and attending relevant industry events. Playing well with others, sharing opportunities, and being a trusted resource are crucial for long-term success and reputation in the investment world.
Mentioned in This Episode
●Software & Apps
●Companies
●Organizations
●People Referenced
Angel Investing: Key Considerations
Practical takeaways from this episode
Do This
Avoid This
Common Questions
Angel investments are a long game, typically taking 8 to 10 years to yield significant outcomes. While billion-dollar exits can happen sooner, this is extremely rare.
Topics
Mentioned in this video
A firm co-founded by Jeff Clavier, which has completed 200 deals and invested in numerous successful companies.
Andrea Zurek and her partner were early employees at Google, influencing their values like 'don't do evil', customer focus, and user experience.
A portfolio company of XG Ventures.
Mentioned as one of the world's most valuable brands in 2017.
Identified by Jeff Clavier as a company they regret passing on without a clear rational reason.
Used as an example to illustrate the impact of investing at different valuations (pre-seed vs. Series C) on potential returns.
A portfolio company of XG Ventures.
A sports brand leveraged by Run DMC to create their own streetwear identity, demonstrating successful brand association.
A platform where accredited and non-accredited investors can participate in startup syndicates.
Cited as the world's most valuable brand in 2017, exemplifying companies that brand themselves based on product innovation.
Included in the list of the world's most valuable brands in 2017.
Listed as one of the world's most valuable brands in 2017.
Mentioned as a well-known consumer brand to illustrate the concept of branding.
Mentioned as a reputable accelerator and event host that attendees might participate in or be invited to.
An early search engine company that served as a 'gateway deal' for Jeff Clavier, helping him build connections despite not being a major success.
Ranked among the world's most valuable brands in 2017, and its founder Jeff Bezos is quoted on the definition of a brand.
Cited as a significant missed investment opportunity, illustrating that even with access, a pass can be made. Also mentioned regarding founder/CEO fit.
A portfolio company of XG Ventures, used by startups and law firms for managing company shares and cap tables.
An early investment by XG Ventures, with hopes of an IPO in the current year.
A tech brand mentioned as an example of companies that brand themselves based on their core offering (like search for Google).
Mentioned as having discussed the concept of the 'right size check' in investments.
Associated with the early 'gateway deal' Feedster, which helped Jeff Clavier build connections.
An investor who provided lessons on being a good investor and investor partner to founders. Known for emphasizing focus in startups.
Quoted for his definition of a brand: 'what other people say about you when you're not in the room.'
Quoted on the importance of following through on actions rather than just promises when building a reputation.
A prominent figure whose posts are used as a source for understanding what the network deems important.
Andrea Zurek's business partner at XG Ventures, who was also an early Google employee and brings operational and finance expertise.
Known for the 'Rise of the Rest' strategy, which involves investing in startups across various locations, not just traditional tech hubs.
His posts are utilized to understand important industry insights from the network.
Mentioned in the context of Uber's early leadership and the decision-making around his role as CEO.
Founder of K9 Ventures, noted for establishing himself as a pre-seed investor.
Mentioned for his connection to the founder of Uber, which led to an event where investment decisions were made.
An accelerator mentioned in the context of networking and attending relevant industry events.
Jeff Clavier previously worked as a senior executive at Reuters for seven years.
A firm mentioned as an example of a pre-seed focused investor.
Andrea Zurek's investment organization, founded by ex-Googlers, focusing on giving back to the startup community.
An association of angel groups that can be used to search for or create angel investment groups.
An angel investment group Andrea Zurek joined early in her career to learn from diverse industry professionals.
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