Episode #379: Peter Livingston, Unpopular Ventures, “The Best VC’s Actually Have A Lower Batting Average But A High Slugging Percentage” – Meb Faber Research – Stock Market and Investing Blog



Episode #379: Peter Livingston, Unpopular Ventures, “The Best VC’s Actually Have A Lower Batting Average But A High Slugging Percentage”

 

Guest: Peter Livingston is the founder and General Partner of Unpopular Ventures, which invests in early stage technology startups globally. His experience is almost entirely in startups. He was the first engineer at iRhythm, and later, founder and CEO of Lifesquare.

Date Recorded: 11/17/2021     |     Run-Time: 1:10:08


Summary: In today’s episode, we hear what’s gone on with Unpopular Ventures since Peter’s first appearance last year and what led him to hire multiple partners to build out his syndicate. Then we take a look at the investment landscape in places like Asia, Africa, and Latin America and hear what he thinks about the high valuations in the private market today. And of course we walk through some names, including Jeeves, his best performing investment.

Be sure to stick around to the end to hear what Peter thinks about some recent news in the venture space about Tiger Global & Sequoia.


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Links from the Episode:

  • 0:40 – Sponsor: GiveWell
  • 2:39 – Intro
  • 3:24 – Welcome back to our guest, Peter Livingston
  • 3:57 – Episode #199: Peter Livingston, Unpopular Ventures
  • 5:34 – Running an AngelList syndicate and rolling fund
  • 8:09 – Sourcing and scouting new early-stage opportunities
  • 9:43 – What a good range is of startups to invest in if you want to find a winner
  • 14:36 – Recurring themes of the winning bets he made over his career
  • 21:27 – What percentage of Peter’s deals are made outside of the US?
  • 26:51 – The state of valuations around the world
  • 30:35 – What Peter has had his eyes on lately and themes he’s contemplating
  • 33:05 – Valuable takeaways from being an angel investor for so long
  • 40:52 – What SMBX does and why they’re an intriguing opportunity
  • 44:38 – Opportunities emerging in continental Africa
  • 49:37 – Some of Peter’s biggest winners so far
  • 52:07 – Ideas Peter would love to fund as he looks out to the horizon
  • 54:02 – Tiger Global: How to Win
  • 55:30 – Yummy’s explosive success in Venezuela
  • 56:21 – First Check Ventures
  • 1:01:10 – Could distributed Syndicate models become the next Sequoia?
  • 1:05:31 – Tiger Global and thoughts on the funding scene in Europe
  • 1:06:58 – Learn more about Peter; unpopular.vc

 

Transcript of Episode 379:

Meb: Welcome to the “Meb Faber Show” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.

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Meb: Hey friends, today we’re back with one of our favorite guests who’s the founder of Unpopular Ventures, which invests in early-stage technology startups all around the globe. On today’s show, we hear what’s going on with Unpopular Venture since our first episode with our guests last year and what led him to hire multiple partners and build out a syndicate. We take a look at the investment landscape in places like Asia, Africa, Latin America, and hear what he thinks about the high valuations in the private markets today. And of course, we walked through some current names and ideas, including Jeeves, one of his best-performing investments. Let’s not ask Jeeves by the way. Be sure to stick around to the end to hear what our guest thinks about some recent news in the venture space about Tiger Global and Sequoia. Please enjoy this episode with Unpopular Ventures, Peter Livingston.

Meb: Peter, welcome back to the show.

Peter: Thank you, Matt. It’s great to be here.

Meb: I have a long-standing rule that when a guest makes me money, they have an open invite. So you now have an open invite, you’ve been really hitting the ball out of the park, congrats.

Peter: Well, thank you so much, man. I appreciate you saying that. That’s cool to hear that I made you money. Which one made you money?

Meb: I can’t say made me money in VC world. That’s all femoral until it’s cash in the bank. So we’ll see. I should say you have a lot of potential. We had you on the show last time slightly pre-pandemic. I can’t remember if you were in Florida, in San Francisco or where but you are embracing the real VC digital lifestyle. I want to hear, where do we find you today?

Peter: Yeah. I guess so. Well, thanks, Matt. Today I’m in Scotland. And yeah, as I should briefly, we were chatting before this, my family and I recently became digital nomads as it’s now called. And we got rid of everything we own. Everything we have is in two suitcases. Me, my wife, and our two kids are just floating around the world from one Airbnb to another. And it’s been really neat because, one, it’s cheaper to live this way than it was to have a small house or apartment in San Francisco in this current day and age where everybody is working remotely anyway, everyone’s on Zoom. There’s really no impact to my ability to do my job. And yeah, my wife and I have always loved travelling and seeing the world. So this is a great way to do it.

Meb: Awesome. Are you in Edinburgh? Where are you?

Peter: We went through there. Right now we’re at a house out in the countryside.

Meb: Some of my people, if you see anybody that looks like me, you can give them a wink and a nod and say you need to listen to “Meb Faber Show”, he might be your long-lost relative. What’s on the to-do list for the rest of 21 and 22? You got any stops are particularly excited about?

Peter: Well, it’s been tough because the whole world is changing constantly depending on who has a COVID surge and who doesn’t, and what laws are changing or restrictions. And so we really had to take it one step at a time. We’ve made a lot of plans along the way that we then had to cancel because the dynamics of the world changed. Right now, we’re going to be in the UK and Ireland for the next month and then we’ll just see where the wind blows next.

Meb: We’d like to hear you just briefly remind the listeners what you do and then within that story, walk us forward the developments over the last couple of years. I know you’ve added some people, you’ve continued to expand, you have some of my favorite deal flow of anyone out there. I’ve invested I think over 20 companies along with you. So kudos, but walk us through, like, it’s a little different setup than it was a little over a year and a half ago, almost two years ago.

Peter: Yeah, happy to share. Well, first of all, I mean, Matt, it’s such an honor that you can say that. So thank you so much for your kind words, and also all your support with us. It’s been really great to have you as a backer with us.

Meb: Yeah, don’t blow it.

Peter: I’ll do my best not to. So what I do. My background, pretty much my whole career has been in startups, first working in startups. And then for a long period of time, I was a professional angel investor investing my own money. And then over the last few years, I’ve been both a syndicate lead and more recently a venture fund lead on AngelList. And what that means is, look for startups to invest in. Before used to be me just putting tiny amounts of my own money into startups that I thought were good. For the first couple of years, we in my firm called Unpopular Ventures, we did syndicates where basically, we would still find companies that I wanted to invest in. I’d write about why I thought they were good investments, share them with my syndicate backers and they could individually decide if they want to invest on individual deals. And we’d pull all that money together to invest large amounts of money in startups. And it has now evolved further to where we have a dedicated fund, called a rolling fund. It’s a new innovation on AngelList where we have these quarterly subscription venture funds that we raised from our backers and can deploy and in contrast to investing on a deal-by-deal basis where we invite people and they get to decide. We still do that but we also have funds to invest from. So we are, I guess, technically a Venture Capital firm now. And the other big development is it sounds just me.

Meb: Yeah, even adding some headcount in like the most modern way possible, you guys are pretty spread out all over the place.

Peter: It’s really been remarkable. I found them through the Angel’s network. The first partner that joined me was Thibault. I actually met him because he was an LP, an investor on AngelList who invested with us a lot. Both picked a lot of our best investments, referred a number of our best investments, and then just sort of leading them with us. So it was an obvious next step to join forces and then we brought on three additional partners that have really been fantastic, Chris and Dec in Europe, and then Sergei, who’s out in Palo Alto, and Thibault is in Dubai and I guess, I’m all over, originally, from the U.S.

Meb: So how would you describe like, is the majority of their role sourcing, is it kind of like scouting, or is it like managing the operations, the syndicate, is it just varied by person, like, how is it all set up?

Peter: Yeah. So I count all of them as partners with us. They all have the authority and agency to find and lead investments with us. I get input on everything but one of the things that I’ve found in my journey as an Angel. So the background on this, I’ve been in startups since 2007, as an operator, and then I’ve been an Angel investor, since technically 2012. So I’ve been around this for a while, had a few wins, I’ve also made a ton of mistakes. But one of the most important things that I’ve, well there a couple really important things that I’ve learned. The first is, when you’re investing at the early stage, there’s a quote that I’ll steal from Brad Feld, and what he said is that in Angel investing, it pays to be promiscuous. And what that means is that the very best startups end up being so valuable that they can potentially return your investments so many times over. When the public stock market at 10x would be considered good. But some of these angel investments can return 1,000x, or even 10,000x. And if you can get in on one of those, it almost doesn’t matter how many investments you’ve made. For an individual or a firm, it’s not possible to make more than a few hundred investments a year. And if you can just try to get in on one of these that returns 1,000x or more, that makes your whole fund, if you ever transfer your fund many times over. Anyway, in this game where the potential returns are so huge, in general, it pays to build a bigger portfolio of investments because you don’t know which ones those are going to be, and the more investments you make, the higher the chance you have of getting one of those mega home runs.

Meb: What do you think that number needs to be? Let’s say your syndicate investor or LP on the inside and you’re saying, “All right, I’m going to start allocating to Unpopular Ventures and others.” What do you think that number needs to be sort of like a reasonable amount. I got a range in my head but let’s hear what you think?

Peter: It’s a very good question. It probably depends on the individual and kind of the access that they have and/or skill that they have. Maybe a random person who has no exposure to this, if they were to just start throwing money into tons of random things, even if they invest in 1, 000 companies they might not hit one of these. But if you are tapped into this deal flow, and you’re seeing high-quality startups on a regular basis, I would guess that, at least in my experience, it’s at least about 1 in 100 returns at least 100x or more.

Meb: So you need to get essentially 100 shots.

Peter: I believe that if you can build a portfolio of 100 investments, that’s a good amount.

Meb: Yeah. I’m right there with you.

Peter: There’s no right answer on this.

Meb: I think there is a right answer, which is more is the better. But as a quant who talks a lot about breadth, the risk of missing a big winner and the impact on that portfolio versus that dilution of having too many bets, but still getting the winner is a huge difference in the outcome. So I’d say definitely take more shots, listeners because if you do 10 or 20, and you miss the big one, or the big two, you torpedo the entire portfolio. And if you invest in 100 and get it or even if you invest in 200 and get it, it’s still going to be better than 10 or 20 missing it. Anyway, I don’t know how consensus that view that you and I hold is, but I think it’s the right approach and it applies to public markets as well. But anyway, okay. So keep going.

Peter: One of my biggest learnings and my journey as an Angel is, in the beginning, I tried to be very selective. I would see and hear about a lot of opportunities. And I tried to do some fraction of those for maybe bigger and more concentrated amounts. And I did well. My first personal Angel fund ended up being like extracting at about an 8x fund right now, which is certainly great. I feel very fortunate that I did well with that. But the crazy thing is, if I just sprayed and prayed as they called it and invest in every smart friend, every classmate that I knew, I would have done even better. So a couple of big misses of mine were DoorDash, was founded by two classmates of mine from Stanford Business School. And I heard at the time, I was co-presidents of Venture Capital club with them at Stanford Business School and knew them very well. They’re good friends. I was chatting with one of them one day and said, “Hey, we’re doing something in food delivery.” And my initial thought was food delivery is a low-margin business, not very sexy, not even worth looking at. And gosh, if only I had just said, “I’m going to invest in every smart friend that I know that’s doing anything, even if it sounds stupid.” That one investment would have been 1,000x. I did something like 100 investments in my first personal fund. And that would have been another 10x right there.

Meb: Well, if it makes you feel better, we tried to order DoorDash today, and it was down. So we had to go through Uber Eats. I mean, look, that’s a perfect example. And I think, now listeners, the takeaway is not to spray and pray and just invest in everything. I think the takeaway is, you still want to invest in companies that can scale. It doesn’t mean it has to be totally audacious like we’re going to invent teleporting to Mars. It could be a really boring industry, which you talk a fair amount about where you’re just in a different country converting yellow pen and pad to software, and that’s a $100 million opportunity. So I think having more breadth is better.

Peter: The way we think about it is we try to invest in every credible deal. Every single one worth something that the founders have great backgrounds or are highly credible, and/or they have compelling traction, or other smart people are betting on them as well. Like, the bar is high but it’s also pretty open where if it hits that bar, we always do it. Every credible deal is the way we go.

Meb: I like that. I might steal that phrase, “every credible deal.” Because it’s funny if I go back, and I was talking to Jason Calacanis about this yesterday and I said, “I wish I could go back in time and write down having invested in over 300 companies at the time of my investment,” once it passed the credible deal threshold, meaning this checks the boxes of what I would like, I’m going to invest, then rate it 1 to 10 on how confident I was that this was going to be a home run. I’m guessing it wouldn’t have the correlation that I would expect but I don’t know. I think overall it would, because of all the deals that didn’t meet the threshold probably would underperform but I could be wrong on that. How accurate, and now that you look back, how many investments have you guys done, 200?

Peter: We’ve done about 160 now.

Meb: Okay. Wow, the pace is accelerating as I’ve seen. What’s your take on that? If you could go back and you now can review the big winners or at least the ones that are starting to have the traction, do you think there’s a pretty high correlation to when you made the bet and where they are today, or is it a scatterplot or what?

Peter: Yes and no. So one of our kind of tracking to be best investments so far, I had a lot things that made it very credible. The founder had prior successful startup experience. He had some traction was coming out of Y Combinator, the idea seemed to potentially big. So it had like enough to where it’s like, yes, this looks like a deal worth doing. But it was not obvious at all that this would be our breakaway winner. And the company I’m referring to is Jeeves. I think you’re in that one with me.

Meb: Yeah, I am. Tell the listeners what it is. It’s a search engine from the 90s, right?

Peter: Right. So it started as kind of a corporate credit card for international startups. So similar to Bricks or Ramp in the U.S., they started doing something similar for startups that are outside the U.S. And what they quickly discovered is that it was a problem for U.S. startups to begin with, but it was a much bigger problem for startups outside the U.S. because in the U.S. there are a lot of substitutes, other types of credit cards, other financial services offerings, but in Latin America, or a lot of Europe, and elsewhere there’s nothing and so it’s really very valuable. They launched that and they’ve actually expanded across more things. Now they do revenue financing for startups and they’re up full expense management and what they’re now pitching themselves as. They are aiming to be the global business spec. And we’re very lucky, we came in very early, we’re the first investor in them, was on a $10 million valuation. Put in $200k there, another $300k, and then on a $13 million valuation, and they have just turned into a rocket ship. They last raised it on $500 million, and it’s continuing to shoot upwards.

Meb: Do you think that was obvious from the get-go or you were just like, “Yeah, this is a cool one and this seems like a good idea?”

Peter: Now, it appears it’s obvious, it’s like, “Gosh, if only we had put even more into it would be like,” but no if I’m being honest, it was not obviously better than any other investment we made around the same time. And it’s evidenced by the fact that the VCs were not all over it at the time. They got some other VCs in but it was not a hot deal.

Meb: You talked about this in the first episode where I asked you something along these similar lines. Obviously, it’s a nod to your naming in the syndicate that a lot of the best ideas were not these like 20 VCs clamoring over each other but in reality, like people weren’t that interested in it.

Peter: No, it’s exactly right. Over and over again, I keep finding that many of my best investments are the ones that either others don’t want to do or it’s hard to get others to do, and yeah, it keeps proving true.

Meb: How much is the change in the last two years now? It seems like the VC as an asset class, angel investing, valuations, talk to us a little bit about what how the world’s changed in the last two years, like are you getting sharp elbows in these deals now, or are you still just finding yourself in a little dark corner of the room where there’s not as many people?

Peter: Well, we’re actually finding it more true than ever, right now where it’s very hard to even get into the high signal deals. I kind of talked about this kind of bar that we have, that we kind of think of as this makes it credible investment. And most mainstream VCs have a much higher bar of what they want to see, a certain amount of traction and unit economics, and a lot of things happening and before kind of the wave of VCs come in. And what we found is that once it satisfies the threshold that a lot of VCs would want to do it, then we can’t even get it anymore. And there are a lot of dynamics at play. So one is that the VCs funds are bigger than ever. And so to deploy all that money and return their fund at the multiple they want to, they have to take as much ownership as they can. So when an Andreessen Horowitz or Sequoia or Benchmark Driver comes in and wants to do a deal, usually, they want to take the whole thing. There’s no value to them and having all these other angels on or smaller VCs, they want to do the whole thing. And even if they don’t want to do the whole thing, as soon as somebody, a brand name VC comes in like that everybody else wants to invest too. And when that’s the case, we’re nobody special. I mean, we’d like to think we’re decent investors, we have good judgment, we can find good opportunities, and produce good investment returns. But beyond that, there’s not that much that’s special about us compared to a lot of the other people that AngelList has out there.

So what often happens is once one of the famous VCs comes in, they then invite all their portfolio CEOs to invest as angels or celebrities to come in. And the founder has the choice between people like that, you know, CEOs of other companies that could be their customers, or advisers, or people that can get them a lot of media and press, they’re always going to choose them over us. And so because of this, because these premiere rounds are so competitive and we can’t even invest, it’s more important than ever that we find companies before they hit that stage. What’s been challenging about that, though, is that a big part of our business is the syndicate where, you know, we have our fund and we invest in that, but we’re able to invest a lot more money when we can convince all of our syndicate followers to invest with us on a deal. And a lot of the syndicate followers really care about there being these brand-name VCs in the deal. And so the funny tension is that for those deals with the famous VCs, we either can’t get an allocation, or if we do, it’s going to be too tight, or it’s going to be so small that we’re going to oversubscribe it 10 times over by all the syndicate backers and we can’t fit everyone in, or we do these ones that are the unpopular deals. And it’s much harder to compel people to invest in those and raise mutual mass money to invest. So it’s been a constant tension for us where we get more money when we do the brand name VC deals, but we get much more allocation and we also think we’re getting better deals at better prices with more potential when we invest while we’re still unpopular.

Meb: I mean, my experience mirrors yours, I mean, almost to a tee. I look back and all the deals that I look at where I was like, “Wow, this looks awesome. This is really interesting.” Very rarely do I see the ones where it’s like, it’s a super popular idea or cap table end up being the big winners. That’s fascinating to me, it’s like, I wonder how hard it is to retrain the brain as an investor say, “Look, think for yourself. Don’t make a decision just based on Tiger Global or Sequoia, or whomever being on the cap table.” That’s probably hard, particularly the beginning, harder for people to not want the sort of country club safety of, there’s a lot of other people that have blessed it.

Peter: For sure. I mean, it’s enticing for a lot of people that if they’re considering Brazilian deals on a platform such as AngelList, and they see one where maybe they can invest alongside Andreessen Horowitz and they know, wow, Andreessen Horowitz, these returns have been fantastic over their life. And, gosh, I get to get on this deal and on average, produce returns like that, or I can take a risk on this no-name one that may flop. It makes total sense when most Angel investors and LPs and syndicates prefer to invest with the safety of these brand-name VCs.

Meb: So you guys have sort of ramped up the action but what percentage of these deals do you do are outside the U.S. because you guys seem to have a pretty high percentage of non-U.S. domiciled or focus deals?

Peter: Yeah. That’s right. So this is kind of an unpopular thesis, though, it’s becoming more popular recently. But the consensus belief for a long time was that all the great companies were founded in the Bay Area and that they should only invest or start companies in the Bay Area. And in fact, most of the VCs were based in the Bay Area, and they only wanted to invest within driving distance or a bike ride from where they were. And for a long time that was actually kind of true. All the really valuable companies were in the Bay Area, with few exceptions. And what I and my team believed is that that’s starting to shift as everything that’s more global, as everyone has more access to opportunities through the internet, as people work remotely and can reach talent and capital and all these things from anywhere. We think that this whole thing is going to shift where more great opportunities are going to be founded and built outside the Bay Area. And on top of that, how many people are in the world now 8 billion, or 7 billion, there’s 7 billion people out there that aren’t in the Bay Area, and particularly outside of the U.S. that have needs and want to spend money on great products, and they’re great founders too that are maybe even either starting there or coming from the Bay Area, trained in Silicon Valley, startup mentality to go and found a company there. And so anyway, we just believe that there’s so much potential to build really valuable companies outside. And still today, especially for the last couple years, we were finding what we thought were fantastic investment opportunities that were undervalued, with great founder’s great potential, incredible traction outside the U.S. and so we invest a lot in Latin America. A lot of our Latin American companies have been doing incredible. We have a few in Africa, we’ve done some in India and Pakistan, and Southeast Asia, a lot of those are doing great. The challenge, though, is that this is becoming more of a consensus view. The last couple of years, we invested outside the U.S., very few others were doing it. We’ve done great with it, people see that we and others are making a lot of money, at least on paper in this and some more people are coming in. But even so it’s still a little bit scary and a little bit off the beaten path from most VCs. But yeah, so anyway, we do invest globally, invest in Latin America, Africa, throughout Asia, we don’t really do China, we just don’t have an edge there. And then we’ve started to do more in Europe, so a lot of our partners are in Europe as well.

Meb: What’s sort of like the breakdown do you think as far as percent of the world is it like three-quarters U.S., 10% in Latin America?

Peter: I think it’s about 40% U.S. and the rest outside?

Meb: Wow. And then what are the other pie pieces?

Peter: So Latin America has been big. I think that I got access to a lot of great Latin American stuff because I lived in Miami for five years, and invested in some companies in Latin America then. And for a while, apparently, I was one of the only angel investors from U.S. that would invest in Latin America so everybody who joins me is about to see a lot of good stuff there and we have done well there. See, I think Latin America is probably like 15% of what we’ve done. We’ve done I think, four companies in Pakistan, probably four or five in India, I think three or four in Southeast Asia. We’ve done a lot in Europe lately. I don’t know the exact metrics right now but I would guess it’s about 40, 50% in U.S.

Meb: Part of this is I’m sure is aided by the rest of your team but how hard is it to be the boots on the ground sourcing these deals, validating these deals, particularly in a remote world, all over the place? Like is that getting easier? Is it there’s some particular funnels that spit out into whether it’s accelerators, or just friends and contacts, like how do you come across all these early-stage startups all over the globe?

Peter: So the number one thing is, we don’t go super far off the beaten path, me being totally lost. Most of the founders that we backed that are operating outside the U.S. have a clear existing track record of success that’s relevant to what they’re doing there. They’ve been in startups, they’ve been at a leadership role in a successful company, we can reference check them with people that we can get to easily and/or there are some other investors either that are local or that knew them that can kind of provide that extra reference. We never go and invest in some random guy across the world that we’ve never met, and have no connection to, and maybe has no traction. That is very risky. And I think that will feel risky to other people. An example is Jeeves, we’ll go back to that one. So this is a company that is technically a U.S. company, but it’s serving a global customer base, initially focused on Latin America, but now in Europe and Canada and all over the place. They’re in 24 countries on three continents now. In this case, the founder was a business school classmate of mine. I knew him really well. He had founded a successful company before and now he was doing this. So there was no need necessarily to diligence the market opportunity on the ground in Latin America where they started, it was that, “Hey, this is a smart guy who I know who has had success in the past.” Another one is a company we invested in Pakistan called Bite. It is a food delivery company. The founder there had literally run Uber’s business in Pakistan before that and we were able to reference check him and they were also good VCs then. And, once again, very credible founder who we think is very likely to succeed and has enough of a track record of resume that it actually felt like a relatively safe bet, even though it was across the world in Pakistan where I’ve never even been to.

Meb: Yeah. You continue to see a lot of interesting startups in Pakistan and India. You mentioned Latin America. I mean, it doesn’t seem like and you can comment on this, what is the state of the valuations around the world? Seems like I see some of these in the U.S. now and I’m like, did that person really just justify that at a 80 times sales because I don’t know if I’ve ever seen that before. It seems like the rest of the world is still more reasonable, is that the case? Like, talk to us a little bit about the lay of the land on the valuations going on?

Peter: Evaluations are so tricky. And it’s another thing where there’s often no right answer, particularly in the venture world. They’re both in the U.S. and outside, there are cases of companies being valued outrageously, that went totally bust and never lived up to their valuations. And there are other cases of companies having outrageous valuations and growing into that and surpassing it many times over. One example I like to give is that for most of Airbnb’s life, it was valued at 200 times revenue. And clearly, that worked out just fine. It grew to its potential. Now to your question, specifically of valuations in the U.S. versus valuations say in Latin America merging markets around the world, the challenge is weighing what is the relative potential. So historically, the U.S. companies grew into much larger valuations. And so if you see a company that’s growing super fast and has that very high potential that it could be worth $100 billion or more, and it seems very likely to do it, then maybe you don’t even value it on a multiple of current sales, it’s that, “Hey, look, we think there’s a 10% chance that it becomes that $100 billion company,” therefore, anything under a $10 billion valuation is reasonable even if that is many hundreds of times the sales. And of course, historically, the exit valuations in Latin America or other emerging markets were much lower than what they were in the U.S. I don’t think there are any companies in Latin America that are worth $100 billion, I could be wrong. I’m not an expert in this. But therefore, valuations there should be lower. Having said that, if you do value companies on current metrics, a delivery company in the U.S. versus a delivery company in Latin America, the multiple of revenue that you tend to get in a place like Latin America is generally lower. Now, what’s weird is that it seems like I believe that some of these companies that are now getting started outside the U.S. are going to end up being worth more than their U.S. comparables. One example of this is Nubank down in Brazil, which I think was last valued at about $40 billion, it seems to still be growing crazy fast, and I think it’s Warren Buffett that was in on that at $30 billion. If Warren Buffett doesn’t invest at a $30 billion valuation, if he thinks it’s only going to go $40 or $50 billion. The bet there is that it’s going to be worth $100 billion or more. I think what may be changing in a lot of the world is that some of these markets have been so undeveloped but are so big if you serve them successfully that the developing markets versions of these companies are going to be much more value than anybody expects. And if that is the case, then evaluations that are given to these companies for sales or traction could potentially be justified this time.

Meb: Part of it is you’re starting to see the footprints of success around the world whether it’s M&A, whether its IPOs, or whether it’s simply funding rounds or revenue some of these companies, that draws a lot of attention and then also creates a sort of spillover effect that the founders from those sort of the company is an on and on and on, start a VC firm. Like, it just creates like a whole ecosystem. Nothing attracts money like money being made somewhere, right? And so as you start to see some of these headline-making news it starts to have that impact, I think. And it seems to be happening, it doesn’t seem to be theoretical.

Peter: I think it’s right.

Meb: Cool. Let’s talk about some themes, some ideas. What are you seeing out there? Feel free to talk about some portfolio companies, case studies, what looks good, you’ve been busy. So I’m not just drinking scotch by the fireplace in Scotland which is what I’d be doing and losing some golf balls and hanging out and reading a bunch of old books. I feel like that’s what I would… hiking, a lot of hiking up there.

Peter: It does sound nice.

Meb: Yeah. What do you see? What’s on your plate?

Peter: One thing that might be worth talking about that I think we jumped away from, I initially talked about the reason that we’ve grown our team and the reason for that is to try to get into more high-quality deals to increase our chances of getting in on 100x, or 1,000x, or 10,000x outlier. But another part of this whole equation is that these partners that we have, and partners that we’ll continue to add, and by the way, if anyone was interested in joining our team, please reach out because we’re always looking for great people to work with us. We give everybody a lot of autonomy.

And what that has to do with this is that a lot of the best opportunities don’t look like good opportunities in the beginning or tend to be very non-consensus. And many venture firms do make decisions by consensus and in doing so tend to be slow. And, you know, maybe the partner finds it but then he has to convince all of his other partners to invest. And that’s a time-consuming process. And because of that they often miss out on deals or entrepreneurs don’t even want to deal with them because it takes too long to get through them. By having a high degree of autonomy where each partner can make their own decisions but with input from the rest of the team, it’s going to make it more likely that we get in on these deals that are initially unpopular but are actually the outlier successes. So as an example, one of our partners, Chris Murphy, did the Seed Round of Hopin, which it’s last valued out at I think $7 billion. From the point that he got in on it, the company is now well over 100x return in only two years. And the crazy thing is he showed it to a lot of people, including to one of our other partners, Thibault, at the time. And Thibault and many others thought it was a terrible deal, and never invest. And yet that was the one that returned 100x. And if we had been a team then, if Chris had brought it in, and we had Dylan, not sure if we can do it, we would have missed that 100x. And in this game where the worst thing that can happen is you lose one extra money but the best thing that can happen is you make 1000 times. It’s much more important that everybody do the deals that they have conviction in, and it’s okay to make mistakes. But it’s much more like the bigger mistake is not doing those deals. And so anyway, because of that, because we want to keep doing these unpopular investments, we give everybody on our team a high degree of autonomy to find companies that they believe in and do them.

Meb: Have you learned anything on whether it’s the whiffs or companies you invested in that went south over the handful of years? Any takeaways as to you’re like, “Okay, well, that was something that was part of my process that clearly, it was either not important or was a negative filter that I’ve removed,” just in a general learnings from having done this over 100 times now.

Peter: It’s such a tough question to answer. The crass thing to say is that they don’t even matter and I don’t even think about them. I say it’s crass because the losers still suck in a lot of ways. It sucks because these founders poured their blood, sweat, and tears into it and worked on this thing for many years and they walked away with nothing. I feel terrible for all the founders that start companies and they don’t work out. On top of that, it sucks to lose other people’s money. We’ve had a few deals so far in the syndicate that didn’t work out. And it felt really horrible to me to explain to the LPs that invested in us that, “Hey, sorry, you aren’t getting our money back.’ Even though we make it clear that this is very risky and a lot of investors lose money, there are still people that are surprised. And it still feels terrible on each deal when we lose their money.

Meb: Let me restate this question because I don’t mean as much like when things don’t work out, like how do you deal with it because listeners, it’s funny because every investor and also every operator says I realize most startups fail but are surprised when either there’s due, or their money goes nowhere or it goes to zero, like that should be almost the norm that’s probably half to two-thirds are probably going to be either zero or just 1x, meaning you get your money back or it’s just not a material outcome. People are always surprised when it happens to them. But what I mean on this is like, I mean…

Peter: I know you’re asking what were the lessons. It’s a great question. I’m sorry. I had a roundabout way of getting stuck.

Meb: Okay. Yeah. What lessons you would change meaning like, for me for example, there’s a lot of areas that I think I was probably too close to or too smart for my own good where I looked at history and I was like in asset management, for example, and said, “this hasn’t worked 100 times, there’s no way this could work. The 101th person doing it, but kind of ignored some of the shifting plates of what was going on, and then missed it because just being dismissive of something in general.” So I tried to be a little more open-minded when it comes to that, in particular. Anyway, take it any way you want.

Peter: The truth is like there are always things to analyze and look at and be learned from the failures. But I really do think that a lot of this is so random. And they’re both companies that I invest in, where I look and didn’t work out. And I look at the profile of the investment, I look back, and I’m like, “Gosh, like, it was a good bet.” Like, everything looked like it was good. And there are also a lot of ones where like, I didn’t do it and it was wildly successful. And I look at it like there were so many red flags in it for some of these super successful ones that I’d missed. If I had done those ones and they failed, I’d have been like, “Oh, it’s obvious. That’s why I failed.” But no, they were wildly successful. And so it’s like, I feel like you can’t analyze your failures too much because there’s these things that make the startups look like bad ideas or unproven or any of the stuff. It’s also random. And they all pivot to, so like, oftentimes, I’ll be great founder with a bad idea. And if you mix it on a bad idea, then they pivot. I missed Instagram because of this, the founder of Instagram was a good friend, I heard he was trying to raise a little bit of money. The app was called Bourbon at the time, and I downloaded it and I was like, “this is stupid, like, I don’t get it.” Didn’t do it. And then he pivoted and it was Instagram. And he was wildly successful.

Meb: Yeah. The pivots you can’t really control. People make the argument that it’s the founder or whatever. But like looking back on this, there’s obviously the survivor bias of the ones that worked or didn’t. And it’s hard to kind of correlate the process and outcome in many cases, I think. One way that I think smooths over a lot of this is what we mentioned in the very beginning, which is breadth, the number of coin flips or turns the die. I think it helps this process and also removes a little the anxiety of like, the feeling of having to be right. One of my old favorite investing books is called “Being Right or Making Money”. And so the trend follower in me, those guys have pretty low batting average, but the big winners and it’s pretty similar methodology. But a lot of people really struggle with that concept of they want a high batting average, which I feel like isn’t the right place to be if you’re in startup investing.

Peter: That is a very interesting topic. Actually, there are two different things that I wanted to say, on this general topic. So one is the batting average thing. The other thing is, I remembered another example of the randomness of all this. So earlier this year, we made two investments in instant grocery delivery companies. So kind of Instacart 2.0. It’s these companies that deliver your groceries in 15 minutes or less. One of them was based in Spain and one of them was based in India. And they’re both around the same stage with valuations. We did both. Initially, they were both on extraordinary trajectories growing super fast. The one in Spain hit just a random thing, where they signed a term sheet with series ABC. The ABC brought them down on due diligence, and at the 11th hour pulled out and the company was out of money, and they went bust. Luckily, we’re actually able to get our money back, but it was a very unsuccessful outcome. Meanwhile, the one in India has just marked up 10x. In six months, two companies, very similar ones, effectively 01 to 10x.

Meb: Listeners, you got to be like Eli man, and you throw a pic you like forget it, you have like immediate amnesia. Get back out there, throw another pick, amnesia, go out and throw four touchdowns like that’s the key to this. It’s like the way I think about it is like you’re putting these in like a lockbox and you’re going to open the lockbox one day each investment and it’s either going to be nothing there or it’s going to be worth like, you can’t do anything about it in the meantime anyway. So it’s like, why even have anxiety about it, which is, so much of a feature in my opinion, the Angel investing asset class is it removes the public stock anxiety where you just look at these tickers all day and going up and down and causing you to have emotional attachment about having to make a decision or not. These startups, goodness is you can’t do anything about it. So there’s no reason to worry.

Peter: It’s right on. The other thing that I want to address is what you’re talking about, which is the batting average or slugging percentage. And this is a very tricky thing in investing where a lot of people focus, at least with an AngelList. A lot of people focus on having a high batting average, and they think, “Gosh, if I lose money less often, and I hit singles, doubles, triples on a relatively frequent basis, then I must be a great investor.” And what the data shows, at least the data that I’ve seen and a lot of other leaders in the space that I respect that have pointed to, is that the best VCs actually have a lower batting average but a high slugging percentage. And so this is in terms of Babe Ruth effect and for those unfamiliar, Babe Ruth had both the record for most home runs at the time and also the record for most strikeouts. And because he was always swinging for the fences on everyone, he hit both records simultaneously. And it’s very similar conservativeness.

Meb: That’s really interesting. I tell my friends who were kind of getting started in Angel investing, I say, “look, you’re going to see a lot of deals that you’ll look at them and be like, Wow, this is actually like, a pretty high conviction 5 or 10x.” And that’s fine. Like, if you want to exist in that sort of series A or B world where the companies have a lot more established revenue and traction and it’s a very clear picture, there’s probably a lower chance of going out of business, like you can do that, like, that’s fine. That’s just probably not as much this where if you’re down the road at series A, B, you’ll probably have a higher batting average, but the slugging percentage will likely be less. That’s my guess.

Peter: It’s right on.

Meb: Cool. Just talk to me about a couple other names, feel free to give a shout-out or a case study and any of these recent deals you’ve been doing, who’s doing some cool shit, or who’s doing some stuff that you’re particularly excited or optimistic about?

Peter: You know, I love all my children equally. That’s the tricky thing about this. But let me ask, are there any, I know you’re in a ton of investments on AngelList, so it’s probably hard to parse which are with us, which are elsewhere. But are there any that you remember investing in with us that you’re particularly excited about? Maybe we could talk about those.

Meb: So there’s like a whole spectrum and I like yours, again, this has already been mentioned, but I have a particular attraction to off-the-beaten-path names and ideas. So I see your deal memo and it’s talking about Latin America or Pakistan, I immediately perk up. But there’s some that recently, while there’s a couple we can’t mention because they haven’t closed yet, probably. But you mentioned Jeeves already. There’s one that’s doing some cool that I don’t know that they’ve had their moment yet. That’s early, probably. But it’s a new idea to me and it’s vaguely in our world, which is SMBX.

Peter: Yeah. That’s a cool one to start with.

Meb: You want to tell listeners what they do.

Peter: Yeah. Happy to share. The SMBX is a small business bond marketplace. What that means is, so small and medium businesses, traditionally, when they want to borrow money they go to a bank, and the bank goes through a whole underwriting process and decides to issue that company a loan. This company SMBX is trying to take that business and basically crowd source the loan. So the company still does the due diligence and underwriting work that the bank would do but rather than having their own base of capital, that would be the bank’s capital, in this case, they open it up to the crowd to invest in those loans. And so you can lend money to these SBA level, which is that the highest quality and tier of small business lending, it’s kind of the safest type of business lend to the SBA level. Individuals can invest in these businesses for as little as I think, $10 or $100, and earn 6 to 8% interest on them. And the businesses pay back these loans over a period of time. And it’s really neat because in many cases, a lot of the customers of these businesses can through the SMBX, lend their local business money, and earn interest on it, and thereby support their business, feel like an investor, and it’s really pretty cool. And it has a lot of parallels to AngelList, where AngelList is, in a way, they’re partially displacing the VCs by opening up angel investing in startups to the crowd where people can follow a lead, invest money through a lead in small amounts into startup that has taken it. And in the same way, the SMBX is doing effectively syndicates for lending money to small businesses.

Meb: Yeah. I don’t know that I’ve seen something like that before, it’s pretty cool. And they’re just kind of now just getting their product out and getting the word out, often when you’re in sort of a new offering, it takes a while to educate the potential user base. So listeners check it out. It’s a fun one.

Peter: Now you’re right. It’s very early. I mean, they have traction. They have issued a lot of loans. They’ve had zero defaults, they’ve moved a lot of money, and they’re doing great. I think they’re well, proving it out. And they, as you kind of alluded to, they’re now at the stage where they’re figuring out how they really grow. It’s a tricky situation where a lot of startups out there are in kind of this grow at all cost mode, where they just try to get as many customers and grow as quickly as possible. And it’s a little bit dangerous in the case of SMBX, where if they try to grow too fast, they might start doing lower quality loans and lose money and therefore serve older investors poorly. And so they’ve deliberately taken a very slow and steady approach where they’re very cautious, always trying to put forward high-quality investments. But I think it’s come at the cost of not being able to grow as quickly as other startups. Even so, I think it’s probably been the right choice.

Meb: You guys have recently been doing a handful in Africa as well. That’s an area we’ve been kind of doing a whole series about on the podcast. What’s the attraction there? You’ve seen a lot of opportunity, is it a particular region and any names particular that you think are worth mentioning?

Peter: Yeah. I mean, once again, they’re just a lot of really smart people that are building companies in Africa. And obviously, a lot of people live in Africa who want the same products and services that we enjoy in the U.S. or Europe. So one company that we’ve been invested in for a while that’s really hitting their stride is Yassir. It started as kind of an Uber for North Africa, Algeria, Morocco, and Tunisia. So they really took off at that business. And they’ve now expanded across a lot of other products and services as well. So they’re now, what they’re calling a super app, where they both still provide the rides, they also do food delivery, they provide a degree of financial services, I think they do, you know, telemedicine and pharmaceutical delivery now. And so there are a lot of things and I believe that in the countries where they operate, so they’ve started to expand beyond just that North Africa into more of Francophone Africa or French-speaking Africa. And they’ve just done really great. They’re growing super fast. I think they’re the biggest tech company in this whole region.

Meb: Out of the 300 odd investments I’ve done, it’s less than 10%, it’s probably less than five. And this is a little anti consensus I think with a lot of the way traditional people investor or recommend. I usually don’t do follow-on investments unless to me, it’s like such a clear obvious thing to not invest. We actually talked about this on this webinar the other day, I said, listeners, this is the wrong term to be using for this but in public market investing, insider trading is illegal. In private investing, it’s like a huge benefit, like insider trading is the wrong way to describe it, just like the ability to talk to the CEO, have information to be able to talk to other companies about it because you’re not trading the stocks on the exchange. It’s a huge benefit. But being able to see once you start to read enough these deal flows, starting to see the pattern recognition but then seeing the companies where they have some serious traction. Now the problem with that a lot of times it’s accompanied by massive valuation increases. And so if something is up 10x, all of a sudden your position size went from 1x to 10, it’s hard to follow on in a size that’s meaningful. But in some cases, you don’t necessarily have the valuation as much with the traction. Anyway, Yassir was one of the 10 or 20 companies I’ve ever done multiple investments in. And if I recall, and you could correct me it feels like in the beginning, like it wasn’t a totally hairless deal, like in a lot of seed investment, pre-seed investments certainly aren’t. You look at them, you’re like, “well, there’s these two or three things, or they haven’t any traction, or they haven’t done this, or there’s this that seems to be a challenge.” But once they unlock those then you have what you had here, which is obviously a pretty big upside.

Peter: It definitely had hair on it as far as deals go. But again, it was a case where it’s really impressive, founder and CEO, with prior startup experience who was a Stanford PhD, went back to his home country of Algeria to go do this. So he had kind of enough in his background where I was like, this guy probably knows what he’s doing and is likely to be successful. But of course, it felt scary because the company is headquartered in Algeria. In fact, I don’t know if it still is but at the time is the only company within Algeria to raise money from outside of Algeria, the only one. I think that’s a mark of how scary most people perceive that business climate. And, of course, you know, there are other things as well but once again, it was a case where we’re making this investment as part of the big portfolio, if it works it could be huge, if it doesn’t, hey, we have a portfolio and feel very fortunate that this one is working, it’s doing great and growing really fast.

Meb: Somewhere they have just like this photo, they’re like the only company to raise money outside of Algeria and it’s just a picture of you, like, it’s a picture of Peter in the background. It’s like, here’s the investor that started the entire VC industry in Algeria,

Peter: I should actually make it clear that I don’t get the credit for it. So it was actually my partner, Thibault, who was the first one to basically lead their first round. He was the first investor outside of Algeria to do it. It turns out Thibault’s family is actually from Algeria. He had some connections to him. He did it himself, pulled together a bunch of money and that was actually the first deal that he brought over to me in Unpopular and then we put in more money together, and it’s done great. And that was the start of our relationship and we did more deals together after that.

Meb: Well, I’m just glad you verify that his name is pronounced Thibault because every time I see his name, how do you say his last name?

Peter: I think it’s Reichelt.

Meb: Okay. Thibault if you’re listening, I’m sorry because every time I see it, I’m like, “Oh, my God, I can’t even.” There are a lot of vowels and consonants in weird places on that one. That’s coming from someone whose name is mispronounced every single morning at my coffee shop so I can relate. Investors love hearing this. What have been some of the biggest winners? Is there any that have consummated and are doneski or most of them, I assume, kind of in the TVD stage where they’ve been marked up or having amazing success, but not any sort of outcome yet. It’s been a short journey but what do you got for us?

Peter: So we do have one exit that’s done pretty well, it was going to be called clinical Prodigy. It was software for car dealers and pretty shortly after we invested, they got acquired by a public company called Upstart. We’ve got a markup into Upstart shares and Upstart stock has done really well, in a month. And so I haven’t looked lately but I think it’s like a 5 or 6x outcome on that.

Meb: That’s a good feeling.

Peter: Yeah, it’s nice. The thing I should share with this, though, is that it’s nice to return money quickly. But in general, the mega winners don’t come out so early. And in fact, it’s often kind of disappointing when a great company exits too early. Obviously, in the case of Prodigy getting a partway Upstart is probably the right thing for the founder and the team. And obviously, that was the right decision for them at the time. But for us, it’s off and actually a little bit disappointing when the companies exit too early even if it’s a positive outcome. I’m just a big believer in the compound interest of startups over a long period of time where if you can just get in on a startup that can grow in value by 2x a year, and you expect to hold it for 10 years, two extra year of retaining it 10 years in a row is 1,024x. And so if you believe in that compound interest or the compound growth of growing knowledge and traction and reinvesting all that money, and over a long period of time, it’s over a period of 10 years or longer that you really get those mega winners. And so as much as possible we want to hold our best companies as long as we can.

Meb: Yeah. Again, that’s like a hard thing to rewire your brain about. I think all of us if we saw stock double over the course of a year would be absolutely ecstatic, or even go up 10% a year for a long time. I mean, the challenge of trying to put that in context of how a company fits into this sort of angel space is it’s hard to repeat how important that is to have the big outliers.

Peter: It totally is. Taxes matter too. I don’t know if that’ll be interesting to your listeners. But taxes are a huge consideration.

Meb: It will be more interesting to see what the politicians do with the QSBS. Did that get taken out of the last one? Where do we stand with that, any idea?

Peter: I haven’t heard the latest on that, to be honest.

Meb: I think it has had a sneaky big impact on startup investing. I don’t know that for certain, but it feels like it has. What else as you look to the horizon, what are you thinking about, any ideas that you would love to fund that you just haven’t found the right one? Anything else on your brain where you’re just kind of thinking about something we didn’t talk about?

Peter: Yeah. Well, what is probably worth talking about that you alluded to is valuations, in general. I mean, I think we talked about it earlier in the context of U.S. valuations versus Latin American valuations. But one thing that’s been very front and center, the whole startup investing space, globally, is that valuations have really recently, across the board, both pre-seed and seed-stage valuations are much higher than they’ve ever been. And then later stage valuations as well are eye poppingly high. And a big question that I’ve been debating, and my team and I have been talking about is, is this the new normal, or are we going to have a big reset? I know that in the 90s, as well, during the dot-com boom and bust, the startup valuations in 1998 and 1999 were unprecedentedly high then as well. And obviously, you know what happened after that. And, in fact, startups couldn’t even get funded after that. And we’ve had a really hard time debating, do we lean into these higher valuations that are out there today, or are they going to come back to bite us later? And are we going to have a valuation reset? Is there going to be a broad bear market across all asset classes? And/or is there going to be a bear market and serve some extra capital? And we don’t know but it does feel very frothy and heated and the valuations are high, and the rounds are competitive. And my personal belief is that at some point, in the next two or three years, there’s got to finally be a reset of some kind. I just don’t know how this continues. Fred Wilson wrote about this recently. Fred Wilson is a very famous VC at Union Square Ventures. And he a few days ago, he wrote a post about how high valuations are, and how he thinks is insanity. And he thinks that the people that are investing at the valuations these days aren’t going to make money. And something has to break. We’ll see what happens.

Meb: Well, I mean, like a good example of the Fred piece we’ll link to you in the show notes is that, let’s say you invest in a company a starting point of $100 million versus 10. And just the differences on how that plays out and its material. The price paid affects some of these big outcomes. And Fred was talking about, and I could get this wrong, but he was like, looking at the public outcomes where it’s $10 billion or $100 billion, like how many of these 100 billion companies have I had. He’s like, we’re one of the most successful angel investors ever. And if I look at a lot of probably the on paper but also realize returns of the investments I’ve done, it definitely skews smaller. I think the median for me is $15 million, but some of the best performers, even during this environmental last few years, they hearken to what you’re talking about. They were kind of unpopular and it could be had for $8 million sort of valuation. One of my favorites was at a two, which you never see anymore.

Peter: Was that Yummy by chance?

Meb: No. Well, yes, Yummy is another one. That one also had some hair on it. There have been a few of those almost like instant rocket ships. Yummy is there. No, the one I was talking about was also not a U.S. company. Neither is Yummy. Yummy is Venezuela, right? But it was a French smoothie, French I guess, it’s European, I don’t know if it’s French or Portuguese called kencko.

Peter: Yeah. It’s amazing. You did that at two. That’s incredible.

Meb: I think it was two. That was one of my first ones. Maybe it was three. Sorry, somewhere down there. Anyway, Yummy is another interesting story that has seen some explosive success kind of in that super app category, right?

Peter: Yeah. It is super app for Venezuela and now they’ve expanded beyond there to more of Latin America. And it’s really been on fire. We actually saw it and considered it at a $2, $2.5 million valuation. And we ended up not getting comfortable with Venezuela. And another syndicate lead Ali Jamal who we really respect, he’s a great guy came in and picked it up. And man, he has done super well with it. He did this investment at $2, $2.5, I think they’re now raising another round at $150 something million valuation or maybe even higher. Fortunately, we got in with our fund a little bit in the later rounds, I think a $7 million valuation. So we still got it. But gosh, huge respect to Ali. And we feel like we really missed out for not doing it on the two-something million dollar valuation.

Meb: Yeah. Listeners, if you want to follow Ali’s on First Check Ventures. And one of the ideas that I think is thoughtful, you don’t have to always think in binary terms. So the example I give is, let’s say you have a set unit size and listeners that could be 1,000 be 10,000 100,000, whatever your money target is, but let’s make it easy. Let’s say it’s 5,000 per investment. To have a written investing plan, say, look, if I’m over the moon, this is the best idea I’ve ever seen. I’ll do 10,000, 2x your unit size, or maybe 20. It doesn’t matter what your parameters are, but to think about it ahead of time. But there’s also an opportunity that if you see a deal that you’re like, uncertain about, but would like to invest later, you’re like, look if this does work out, I don’t want to be left out. So like, if this doesn’t work out zero, whatever. But if it does work out, I see a clear path to where this could be a monster success. This harkens back to the old days of public stock investors that would buy one share so that you get the annual reports and you’re forced to track it, you get the updates. So Yummy was also one of these only few companies I’d ever done multiple investments in but you get the updates, you see the progress and you’re like, “Oh, this seems like it might have a chance. This seems like it’s going in the right direction.” So I think that way, you also don’t have to think in like binary terms, pull your hair out of, “I missed it. Like what a stupid idea.” Like, hey, just do a half unit or do a one-quarter unit so you can follow along. And that way you’re at least a part of the story.

Peter: It’s really wise.

Meb: We’ll see. One of the things you guys did, which I thought was actually pretty interesting. You’ve had one of the better performing fun syndicates, what or however, you want to call it over the past handful of years, which is interesting because going back to the earlier part of the discussion, you’ve done a number of investments. And when I would think about like what might have to push you into that universe, you would almost think that like it’s someone got lucky with like 10 investments, they hit one of those out of the park. And it’s like almost like a survivor bias but yours…tell us how you kind of compare about, obviously disclosures out to listeners, this is not gifts audit investment advice, but more of just like a general discussion. Talk to us about like, how you think about that.

Peter: Yeah. One of the big complaints from LPs or investors on AngelList for a long time is that there’s an incentive mismatch between the syndicate leads and the people investing behind them. And the mismatch is that these leads are what’s called deal by deal carrier, they earn a share of the profits on each individual deal, the syndicate. And because of this, the leads are incentivized to do as many deals as they can. And even if their overall performance is terrible, if they just get one that does pretty well and exits with some multiple, they’re going to make money off of that, the profits of the spread on that, even if, in aggregate, they lost money for everybody. So there’s been a perception among a lot of people, both investors on AngelList and off that backing these syndicates leads as a bad deal cause they’re going to do tons of shit deals and they’re going to make money off of us investors at our expense like we’re going to lose money, but the leads are going to do great. And what I really wanted to do in building our syndicate or firm was prove that wrong. Maybe that is the case with a lot of syndicate leads. Maybe the average lead on AngelList does lose money, but we want it to one, make sure we make money, make sure we’re not doing tons of bad deals just for that optionality, just for that chance of making a profit on it. And we want to really serve our investors and make money for them. And so from the very first year, and actually that I operated this, we started putting out a report of our performance and so we initially did it yearly, now we do it quarterly. We will report on our performance of the whole portfolio every quarter, and we show look on balance, that’d be so far we’re making money for our investors on paper. In aggregate, the returns look good so far. And I don’t know if every quarter we will always be in the green. But we want to be transparent about it. We want to show that we’re trying to get right by our investors and make everyone money. And we’ve been fortunate, maybe it’s the bull market, maybe we’re not terrible at what we do. But the returns that we’ve been producing have been very good. Our 2019 portfolio and our grid is currently marked at two and a half times the amount invested. So a gain of 150% and I guess it’s been about two years. Our 2020 portfolio, we’ve been fortunate it’s doing even better, it’s marked at 2.8 or 2.9 times the money invested. Our 2021 portfolio, which isn’t even over yet, you know, we’re still investing from this year but because of the markups we’ve had, that portfolio has already valued at 1.2 to 1.3 times the money depending on how you measure. So we’ve been very fortunate that we have good numbers to show. But it’s also been part of us trying to be thoughtful about being transparent about our numbers and trying to do right by our investors and make money for them in aggregate.

Meb: Last time you’re on the podcast, it was fun because you were like talking about how this syndicate distributed model could become the next Sequoia. Sequoia is now doing some odd things where they’ve created sort of a Evergreen fund, you have the advance of Tiger. I don’t even know what to call them, are they trying to become like the Vanguard of private equity? It almost feels like where they just are trying to index the entire space. Any other thoughts on the general kind of VC ecosystem today, you still have the belief from last time that the next Sequoia is coming from this sort of world, the syndicate model, and any other thoughts?

Peter: We’ll see. You hit on a lot of things. So one, there’s a lot of change happening in the big established venture world that’s super interesting. Two, yes there’s a lot of very interesting things happening with syndicates. And I did postulate then that maybe the next Sequoia will be a symbol, that might still be the case. I mean, a lot of these syndicates leads are fantastic, super smart, getting to great investments, moving a lot of money. We’re trying the best we can but man, the competition is fierce out there. Maybe a syndicate will evolve to be the next coil. But I think one thing that nobody’s talking about is, what if AngelList is the next Sequoia as a whole. And what I mean by that is that AngelList is effectively a venture firm on itself where all the partners are running these individual operations underneath this umbrella that is AngelList. And, you know, they brand them in their own ways and there are funds in their syndicates. They’re all named in different things but in a way AngelList has all these LPs that invested in that, it flows through, and then invest through AngelList into all these entities. And each of these entities is acting like a partner within this bigger firm. And if you measure it in this way, and if you look at AngelList as a venture firm in itself, I think I saw that they’re now moving over a billion dollars a year into companies and it’s probably even higher now that this was months ago. If they’re moving over a billion dollars a year into startups, they’re one of the biggest venture firms. I think that makes them in the top 10, definitely top 20, maybe top 10 venture firms, which is pretty remarkable. So maybe in a way, AngelList as a whole is next to Sequoia. And time will tell if maybe one of these syndicates, maybe yes, although the competition is fierce. There are a lot of things worth talking about. I could talk about Sequoia, I could talk about Tiger. I know I shared a lot about AngelList. Any questions or comments on…

Meb: Whatever is clever, whatever is on your brain, fire away.

Peter: Well, so certainly these megaphones, both Sequoia and Tiger, Andreessen keep getting bigger and bigger, but they keep producing good returns. They’re moving large amounts of money, and they’re making money. So far, that’s clearly working. I think that Sequoia’s new model is interesting. It seems like there’s some benefits to it. I don’t fully understand all the implications of it but I think it’s interesting. I think that Tiger and some of the other hedge funds are playing a very interesting role in this whole game. We talked earlier about this idea of trying to do just every credible deal at our level at the super release agency. And I think that Tiger has actually been kind of doing that same thing with these leaders staged and established in mature companies, and they’ve been doing great. It’s within this idea that the big winners in startups and venture are so massively big. The most important thing is just to get in on one of those mega winners. And the best way to do that is to actively index. And I think what Tiger has been doing is smart. They’re basically trying to get in on every good company. They do due diligence, they do a lot before they meet the company. So they can make quick decisions. But they’re being much less selective than the traditional venture firms were. Traditionally most venture firms are very selective, they create a concentrated portfolio, they meet with 100 companies for everyone that would invest in or sometimes more. And Tiger’s just taken kind of a fast and loose approach, building effectively an index on the venture or the best venture-backed companies. And that works. But because of how they’re doing it, it’s really disrupting all of the other players in the space. We’ve got players in the space that haven’t historically moved as fast as Tiger does or have been able to invest with as little due diligence or at least time taken from the company. And so I do think that there’s a big shift underway where maybe all of venture is going to move towards more of an indexing approach. I don’t know. We’ll see in a couple more years, but I do think that what Tiger has done and then what also we and others have done at an early stage, we’re kind of making all of venture a little bit more fast and loose, evaluations are a little higher. But it also works because we have these large portfolios, I think it is changing the nature of how the venture capital game is played. I don’t know if that makes sense. I realized that I’m probably talking to myself.

Meb: It does. No, I think it’s well said. I think you’re spot on. We’ll include the…there was a good Tiger summary article that came out last week to put it in the show notes. As we start to wind down man, I’m going to see Santa tonight. I’m sure it’s already late wherever you are. Is it like midnight? What time is it there?

Peter: Yeah. It’s 10:30 here.

Meb: Not so bad. I should have done this over a scotch in Scotland. What’s the funding scene elsewhere in Europe? Does it have the culture, are you meeting people that it feels on the angel side as excited and money-making waves around? Is it six months a year behind? Is it what?

Peter: The truth is I’m not very tapped into the ecosystem here. Because of COVID and just everything. I do everything online. So I’m not going to events or meeting people in person.

Meb: Well, the Wi-Fi is good in Scotland, I’ll give you that wherever you are.

Peter: It is working.

Meb: Starlink with Elon Musk can go anywhere.

Peter: Yeah. Really looking forward to that. I think that’ll be a new upgrade to being able to live anywhere or doing the digital nomad thing, or taking it a step further being able to just be on a boat in the ocean and still be connected to everybody. It’s going to be very exciting when that is full and mainstream. Yeah. All I want to say Matt is thank you so much for having me. I always enjoy talking with you. Loved it last time, loved it this time. And it’s really an honor to be here. Thank you so much for both having me and being a sport in a syndicate and…

Meb: Yeah man, keep hitting the ball out of the park. No pressure. Where do people go? They want to sign up for your syndicate, go to AngelList, Unpopular Ventures. When you find your reading, you put out nice reports on the fund, and what you guys are doing. Where the best places?

Peter: Unpopular.vc. That’s it. Just type it in and you’ll find us.

Meb: Easy. Peter and team thanks for joining us today.

Peter: Matt, thank you so much.

Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcast. If you love the show, if you hate it, shoot us feedback at [email protected] We love to read the reviews. Please review us on iTunes and subscribe the show anywhere good podcasts are found. Thanks for listening friends and good investing.



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