How to Think About Angel Investing

Alex Lieberman: What's up, everyone. This is Alex Lieberman, co-founder and Executive Chairman of Morning Brew. Welcome back to Founder’s Journal, my personal audio diary, where I give you, the business builder, the tools you need to think better in order to build better, whether that's building a business, a team, or a new product. We are serving up a special episode of Founder’s Journal for you today. I am once again joined by fellow entrepreneur and friend of the pod, Codie Sanchez. We discuss and debate our respective angel investing philosophies. Let's hop into it. We're going to talk about angel investing.

Codie Sanchez: Yeah, let's do it.

Alex Lieberman: Where do you want to start here? Do you, do you want to share your, your approach to it? You want me to share my views? What do you think?

Codie Sanchez: Let’s talk about your strategy, but let's also talk about like, I want to talk about unfair advantages, too, because like a little bit of a riff on creators. But I was talking to this guy yesterday, Mike Johnson, who was like a former Bachelor, I think. He was a Bachelor or–

Alex Lieberman: Oh yeah, that, that guy followed me on Twitter last week. And I was wondering how he found out about, did you mention me or no? 

Codie Sanchez: I’m sure.

Alex Lieberman: I don't know. But out of nowhere, this former Bachelor contestant found me, I was like, yo, do you know Morning Brew?

Codie Sanchez: Yeah, he's great. She's a part of one of my communities. And actually he was like a class act, too, because like unlike most creators, he like joined the community. It's like not cheap, 1500 bucks or 5,000 bucks or something like that. Anyway, didn't ask for a discount or anything. And didn't say who he was, which is cool. But I like to like, look up everybody that's in the group to kind of see what's going on. Anyway, so I was chatting with him and he's smart because actually I'll connect you two because he is looking at, I told him, you could invest. You could go right now and you can be an angel investor or you could do these one-off things. But I think that's dumb. The reason why I think that's dumb is you have an unfair advantage. One, you have like a million-person audience and like two, you've done this unique thing, which is, you know, The Bachelor. And then he was saying two of his other, like, you know, unique attributes are, he's former–he's a veteran, former Air Force guy, and he's Black. So I'm like, dude, you need to be playing up all of those things when you invest, because people want vets on their cap tables and people want minorities. And so you should get unfair access with every deal you do. So let's talk about your thesis, but then I think people should also think about, like, I try to not do deals where I don't have some unfair term. I'm just, I'm talking to a company right now that I sent you yesterday. And I was like, listen, I'm going to give you money, yes. But we're also going to do all these other things for you. And you're going to use my name. So in tandem with money, why don't you give us access to this other round instead of this new valuation you're at, because capital right now is cheap, but introductions and audience are not. And so let's talk about both of those things, but first give me your, your thesis.

Alex Lieberman: Yeah. Yeah. And just one thing on what you said is you said that Mike, his name's Mike, right? 

Codie Sanchez: Yeah 

Alex Lieberman: That Mike, you think it's dumb for him to angel invest because he's not using his unfair advantages, but like, wouldn't he be able to use his unfair advantages of like, because of the distribution that he's built up in his brand, doesn't that give him unfair access to deals that most people couldn't see?

Codie Sanchez: That's the way to do it. But he was saying like, “Yeah, I'm gonna allocate capital to this. I'm gonna invest in this.” I'm like, we can't just give money because your money, we don't have enough, you know, for that to be your main lever. You have audience instead, which is more powerful when you have more of it. So like use that and give them some money too, because I do think you should always have skin in the game, but like use both.

Alex Lieberman: Yeah. Got it. That makes sense. Okay. So I will go through, I’d written a thread a while ago on, you know, my nine principles of angel investing because as one does, they write a thread on it and it has an odd number, but I'm going to take you through my top three and see how they land with you. And then I also want to just hear, like how you think about angel investing yourself. So principle one is probably not the one where when a professional angel investor writes down their principles, they're probably not writing down principle one because at the end of the day, they're trying to make money and this is a business for them. But for me, principle one of angel investing is simple. It is an investment in yourself. As an angel, you surround yourself with energized big thinkers, and it brings out the greatest creative energy in yourself. All this to say, when I invade angel invest, I'm allocating money to make money. Lik that, that is, that is table stakes. But I also think it would be naive of me to not attribute a level of value to how much entrepreneurial and creative energy I get from these conversations. One could argue, hey, you could get this in other ways. Sure. But I find that, you know, because of the ability to angel invest, it is very direct access to founders when I want that access. And the way that I think about this is actually as like a virtuous cycle, as both a creator, a builder, and an an investor. Actually my friend Dickie Bush, like he calls this the full-stack builder and it's this cycle of creator, builder, and investor. But here's how I think about the cycle for myself. I build businesses. That's step one. And that includes Morning Brew. That includes potentially a creator brand. That includes maybe the mini golf courses that we talked about last time, as I have those experiences, right, as I build these businesses, that creates surface area of learning and experiences. That is amazing surface area, to create content around. So I ended up creating content around the businesses that I'm building. I show that knowledge online, on Twitter, sometimes on Instagram, on LinkedIn. And by showing that knowledge, it attracts an audience. And by attracting an audience, it attracts deal flow in startups. That leads me to getting to talk to startup founders. By talking to startup founders, I support them while I also get smarter as a builder myself, this goes back to the principle of it is an investment in myself. And so then what happens is, as I am talking to startups, not only is there content that I can create from having startups pitch me and learning about new and different businesses that I would never have experience around, but it also makes me a better builder. Because by going through the thought process of a bunch of other founders, it creates amazing leverage for learning because I'm not just relying on what I'm learning from my singular experience. And by doing that, it gives me ideas which leads me to building better and more things. And by doing that, it leads me to creating content and the circle of life continues.

Codie Sanchez: I love it. You need a little, you need a little Twitter graphic for that, you know? 

Alex Lieberman: Oh I was going to, I was going to say, if we turned this into social, this is going to be like some wheel action going on.

Codie Sanchez: Yeah, exactly. Yeah. Well, hand-drawn action. I really like it. I think you're spot on. I was chatting with a founder the other day that I think we're going to invest in. And he said something that I was like, oh, I'm here interviewing you, but I'm going to take that down, which I loved, which he was like in the last startup that failed, he said what they did is they hired a lot of caterpillars. Like they had potential to turn into butterflies, but they weren't butterflies yet. And he's like, I, in this startup, the main difference, ‘cause I was like, why'd your last one fail? He was like, the main difference is, I don't hire caterpillars. I hire butterflies. He's like, it's more expensive, but we already have lift. We don't have to crawl. We get to fly. I was like, motherfucker, this is a great analogy. 

Alex Lieberman: I love it. 

Codie Sanchez: I’m gonna steal it, but I'm going to give you credit. And I think you're exactly right. I was energized after the call. He gave me an idea that I was like, oh God, I got to apply this to some of my businesses. This is a bad idea. And then I actually pinged his information to a few other people. So now I'm a connector of other people to deals and simultaneously I think he's going to do well. And so I think that company will grow. And so anyway, I actually agree a lot with your first bullet point. In fact, it's why I don't think that most people should angel invest until they have some money. Like I do not think angel investing is the way to become rich or wealthy early. Like you need to maximize your earnings. You need to get cashflow because you don't want to, you don't want to go to angel investing hungry. You need to be like I'm full. And like, these are bets that I'm going to take on top of my full plate.

Alex Lieberman: Yeah. I mean, just to talk about it specifically, like my plan for angel investing as of right now is to write 10 to 15, $10,000 checks per year. And that is an amount of money that I feel comfortable if it all went to zero. If I was horrible at picking, or if there is secular decline in the venture market, I would be able to stomach those things go into zero. And that is how I always think about angel investing. I'm not thinking about this being something that provides for my savings or my children's education. I look at it as the same as the Bitcoin bet. The amount of money I have in Bitcoin, I have to be okay with that going to zero because there is a, you know what I would personally assign a 25-to-50% chance of that happening.

Codie Sanchez: Yeah. I mean the only pushback I would have for you there is for you, 10K is like not really skin in the game. I mean, this is like an annoying conversation to have for like most people because God, you know, 10 years ago or 15 years ago, 10K was like a bajillion dollars to me. But like, I do think if I was talking to you about it, not on a public forum, we're going to be, we're going to tell everybody your net worth. I would probably say like, you need to get a little bit more in the deals because none of them will have a material outcome. I mean, you'll have to have a thousand X and even then, you know, it'll be really interesting, but that's like unlikely.

Alex Lieberman: Yeah, no, I hear that. And again, I will say I'm always physically uncomfortable talking about this because, because it's like an allergy to like, again, this is such a first-world problem that I'm so privileged to be able to be discussing. But yeah, I would agree with you. And what I would just say is because I'm early in the angel investing game, I'm almost looking at this as like my learning period right now, where if some of my bets end up five-to-10 X-ing that's great. And yes, I probably missed out on, you know, potentially serious capital accumulation, but it's like, I almost look at say the hundred to 150K I allocate a year as hopefully the shit goes up, but it is also an expensive version of education to get better at picking and to accumulate better deal flow. So going into the second principle, the second principle for me of, of angel investing, and I want to caveat all this by saying again, I'm not a professional angel. I do this on my weekends and my nights. I am still learning, but I find that as I am learning people who also want to get into the process, they will find it valuable as well. So the second principle is add no bullshit value. And I think this is what you already spoke about, but the, at the end of the day, and maybe things are going to dry up now, given what's happening in the economy. And I want you to talk about that tweet that you had about where the economy is headed. But right now capital is abundant and capital does not differentiate most investors. The only thing that does differentiate some I would say capital reliant investors is speed of capital, right? So it's like, why do the tigers of the world win deals? Is because they were, they are faster than anyone with their capital. And they're willing to pay higher premiums than anyone with their capital, but generally capital is commoditized. And so unless you're a tier-A VC that can give more capital faster than others, you're not going to build your reputation as an angel through money. And so when I think about myself, what can I do to add value as an angel? I would actually say, this is an area that I'm very self-conscious in because at the end of the day, I'm like a 28 year old. I've been involved in one business for seven years. It's like, there's not fricking that much that I can help out with when there are, you know, these angels who have been around for 15 years, they've started four businesses, blah, blah, blah, blah, blah. And so it's actually something I feel like I'm a definitely an imposter and then I'm kind of faking it on. But I would say there's a few things I keep in mind. One is advising around my superpower. So for me, my superpower is distribution, brand, and marketing. And what I would describe as like conscious leadership. The second is given I am relatively well connected in the startup scene, giving intros to investors, employees, partners, et cetera. And the third, and honestly I find this as kind of how I serve even in my executive chairman capacity, which I enjoy, is acting as like a quasi-exec coach where I'm a voice of reason or just like a third party level head to a founder that they find to be kind of soothing as if they're talking to a professional coach or a therapist. And so that's how I think about it, is just adding no bullshit value, not trying to be someone I'm not. And for me, it's like two or three things I'm really good at. But what I will say is I've used that as a way to get into some of the tier-A VCs right? So I've become close through Twitter with a lot of top-tier partners at Andreessen and at Tribe and at these different companies. And I basically say, look, I don't know Jack shit about SaaS. I don't know jack shit about B2B SaaS. I don't know jack shit about space companies, but if you have portfolio companies that you think creating audience or thinking about organic marketing is really important, hit me up and I'm happy to meet with the founders and just talk to them about it. No strings attached. And I have found that as the best way that I've worked my way into better deal flow and into making some of my investments.

Codie Sanchez: That's actually such a good idea. I'm going to totally steal that from you. Yeah. I think, well, a couple things, one is that's legit because you and I talk all the time. I mean, for me, I've been an investor for a long time, but you know, certainly I'm a small fry in the whole world of, you know, nothing like these big guys at the, at the VC firms whatsoever. But you know, I'll call you and basically be like, Alex, fires everywhere. What should we do about this? And you know, and you, I can tell you like it, you know, and it's funny ‘cause that's not really my personality. I'm not like a coach type per se. That's why I create a lot of content because one-on-one is not my strength, but you like it. I can tell. So. And that's like a huge value add. I mean, if I can steal your 10,000 hours, how much faster am I going to grow from you being willing to share because we're not in competing niches or what you did to get where you are today? So I think that's a huge value add for people. Sometimes I find that startup CEOs, the easiest value add that I add is what you said. I'm like, Hey, here's five people that can get you in front of a 25 and 50 million person audience period. It'll take me 30 seconds. It would take you a lot to get into them. I'm going to get out of your way otherwise.

Alex Lieberman: It's high-quality, a high-quality broker,

Codie Sanchez: That's it. Yeah. And, and, you know, and, and I try to not bullshit myself in that, you know, they want my sage advice. I mean, sometimes they do, but I'm like, listen, you're running this thing. I don't have to deal with the consequences of the actions on a life-changing scope. You know, if you decide to do X with your business based on my advice and it's wrong, like I have skin in the game, but not like you do. So I'm always kind of like, hey, two cents and that's probably all it's worth. I think there's a lot of angels and VCs that like one of my friends was telling me yesterday, one of the guys that sits on the board of his company is a big VC at another company. And he told him like, I'll do this for you. And I'll give you, you know, and I'll invest in the company, blah, blah, blah. But you're not allowed to poach from any of my portfolio companies. And I was like, you know, I’d probably tell the guy to pound sand because like, that's not like that could be a material difference. If you can steal from your top competitor, you should. And so I like your strategy. The other thing I think is interesting for people listening is like that last part you said though, reaching out to those VCs with your particular skillset and being very specific, Hey, I don't know anything about these things, but I know about X, Y, and Z. Like I think a lot of people could do that and create a much better network for themselves with their unique skillset, whether it's e-comm marketing, branding, Instagram, you know, whatever the case may be. So I think that's smart.

Alex Lieberman: And by the way, the, the thing here that I find so difficult, and this could be a whole ‘nother conversation we have, which we will have, is it's sometimes painful to be, be branded as just like the media person. Right. It's like, I feel this. And maybe this is because I just have a brain that's constantly thinking of ways to expand or because I fear that it's so limiting, but it's like, the gut part of me is like, oh, do you really want to be known as like the media guy or the digital media guy or the newsletter guy by all these people? And that is how you work your way into these companies? And the head part of me is like, yeah. Fuck yeah. That is like such a unique angle to work your way in. Like you'd rather be top 1% of the world in digital media and newsletters, then top 50% of the world in like five different things. But I just find it that my body's constantly fighting me to expand out of that and we'll talk about this in the future. But I even think about this, like with content creation, like I think you're so good at staying focused on creating content around boring businesses and cash flowing assets. But like, for me, I've found like if I just do that, I, how do I, how do I basically fight that urge to create content around other things? Because Alex Lieberman is more than just media and Codie Sanchez is more than just boring businesses.

Codie Sanchez: Yeah, no, the, the, you know, golden retrievers-squirrel phenomenon is real and I have the same thing, but one thing I would flip on you there is like, so in my career I started out as an ETF specialist and then I became private equity specialization. And then I became Latin America investments. And then I became cannabis investing and then I became small boring businesses. And now I'm small boring businesses plus media. So like, I actually think you probably, yeah, you're the quote unquote media guy, but you're also this how to build out an organizational structure from like a remote teams perspective, right. How to build out a 21st century, like really low, I would assume overhead and expense business that has incredibly high margins, how to do distribution and marketing. How to do sales. Like you guys have an incredible sponsorship and sales business. How to do partnerships and collaborations that matter. How to get to anybody anywhere because that's one of your superpowers. So I think, you know, when I think about mine, I'm like, okay, what am I good at? I'm really good at building sales and distribution teams, both like traditional B2B and B2C, because I've done that for years. I'm pretty decent at investing. You know, I'm pretty good now at media and I'm pretty decent at organic growth and marketing. And then I'm a little bit like you, I can connect to people across the board. But like you talked about what was that? I like Dickie’s framework, which was like–

Alex Lieberman: Oh, the, the full stack builder? Or like builder-creator investor? 

Codie Sanchez: Yeah. So I feel like you have this other stack, which is like the Alex skill stack and we all do, and we have to just continue pushing people to always like, you want to be top of mindshare for people. Like you said about one thing. ‘Cause then they'll always think about you. And if I had to pick one thing that I was top-of-stack at, it would probably be, how do I get more money into my company? Because without money, everything fails. And that is definitely you through marketing and media. And if I could be the second thing we needed, neither of us are, it would be like, how do I build this technological genius innovation thing, but that's just not going to be probably either one of us in our lifetime.

Alex Lieberman: Totally. So your viewpoint is like, you can have many things, but there's like the one thing that you want to be known for, because being known for that thing is what gives you kind of like unfair advantage or access, which I, which I think makes sense.

Codie Sanchez: Yeah. I think it's your wedge. And then once you're like a little bit wedged, then you just like open it, open it open, and open it, but then they realize you're all these different things, you know, too. 

Alex Lieberman: Totally. 

Codie Sanchez: Yeah, I agree. 

Alex Lieberman: All right, guys, that was part two of my latest three-part conversation with Codie Sanchez. Are you an angel investor? What do you think that I should be considering when investing in an early stage company? Shoot me an email to alex@morningbrew.com. And we might just talk about your ideas in a future episode. Finally, we are also sending out a survey to get more feedback from you all to help inform the future of Founder’s Journal. So please subscribe to our show newsletter at foundersjournal.morningbrew.com and get your chance to weigh in on the future of the show. Thanks for listening, and we'll catch you next episode.