IPOs Are for the Last Investors in Line

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Financiers now come to Silicon Valley to invest in companies first

Naval: The tech industry is still underestimated. People used to think of Sand Hill Road as a nice, little backwater compared to the gargantuan Wall Street. Now there’s an acknowledgment that Sand Hill Road is an important place, even though Wall Street still captures the headlines.

If you’re investing in the IPO, you’re literally last in line

It’s becoming increasingly apparent that Sand Hill Road produces the technology that generates much of the wealth in the U.S.

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You’re Living Inside the Gold Mine

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There’s no better place to invest today than technology

Naval: The returns in angel investing are interesting. There’s this meme that angel investors lose all their money and venture capital is a terrible business. It’s true if you aggregate VC and angel investments across the world. But if you stay focused in technology hubs, it’s largely not true.

A competent angel investor in Silicon Valley who’s plugged into a good network, knows what they’re doing and has a broad portfolio might make somewhere between three to 10 times their money over a decade.

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Living in a Tech Hub Is Half the Battle

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It’s a gold rush era in technology hubs like Silicon Valley

Naval: We’re living through a unique time when, as Andreessen says, software is eating the world. We’re undergoing a phase shift where technology is being adopted by everybody, not just knowledge workers.

This transition has created a gold rush era in technology. If you’re in the tech industry and living in one of the tech hubs, you’re already halfway to being a good investor. That’s half the battle.

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Strong Opinions, Loosely Held

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This is not investment advice; it’s just one unique approach to investing

Naval: Now, this is the Internet and this is America, so we have to give you some disclaimers. Angel investing is a great way to lose your money. There’s an old quip, “How do you become a millionaire? Start as a billionaire and start investing.” This is a good way to lose money if you don’t know what you’re doing, or if your timing is bad, or if you’re just plain unlucky.

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How to Angel Invest

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A new podcast with advice for angels in technology hubs

Naval: Hey everybody, it’s Naval and Nivi. We’re going to talk about something very different than what we’ve discussed in the past.

Back in the day, we did Venture Hacks, which was all about the game theory of venture capital and helping entrepreneurs raise money. Later, we talked about “How to Get Rich,” which was general advice on wealth creation for the average person who’s starting a business.

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Apply To Spearhead 2 For A $1M Fund

Today, we start accepting applications for Spearhead 2, a program that gives startup founders their own fund, so they can start angel investing.

Founders start with a $200K fund. If they make promising investments, they receive up to $1M to invest over 2 years.

Nine months ago, Spearhead 1 accepted 19 founders from companies like PillPack, Handy, and Clearbit. These founders have now invested over $2M in 50 seed and pre-seed companies.

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Say no to early liquidity

“Compound interest is the eighth wonder of the world; never interrupt it unnecessarily.” – Charlie Munger

Summary: Say no to secondary offers to buy your investments unless you can return your fund for a small piece of the stock. Instead, consider doubling down with your pro rata. Offers are a signal to hold onto the investment—not sell it. Selling early eliminates the startups at the head of the power law.

If an investment is doing well, people will try to buy it from you. Say ‘no’ unless you can return your fund for a small piece of the stock.

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11 Angel Investing Lessons

In the words of Charlie Munger, investing requires a latticework of mental models. Here are 11 lessons to begin filling out your angel investing lattice:

  1. If you can’t decide, the answer is no
  2. Proprietary dealfow means ‘they want you’
  3. Investing takes years to learn, and longer to see returns
  4. Valuation matters
  5. Back $0B companies
  6. Judgment is important but overrated
  7. Invest only in technology
  8. Some of the best investors have no opinions
  9. Incentives make for bad advice
  10. Play fantasy football
  11. Power beats contracts

Details follow. 

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Introducing Spearhead to fund new angel investors

Today we’re announcing Spearhead, a program to fund and mentor new angel investors. Spearhead backs founders with a $200K fund so they can start angel investing.

Founders also receive mentorship, including monthly masterclasses from top angel investors and VCs. If they make promising investments, founders receive up to $1M to invest over 2 years.

Apply by January 26 to join the first cohort.

Founders backing founders

Founders are some of the most helpful startup advisors.

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