Episode #199: Peter Livingston, Unpopular Ventures, “All My Best Investments Were The Ones I Couldn’t Get Anyone Else To Do”

Episode #199: Peter Livingston, Unpopular Ventures, “All My Best Investments Were The Ones I Couldn’t Get Anyone Else To Do”


Guest: Peter Livingston is an angel investor and is the founder and General Partner of Unpopular Ventures. His experience is almost entirely in startups. He was the first engineer at iRhythm, and later, founder and CEO of Lifesquare. He has been investing as an angel since 2013, has made over 150 investments to date.

Date Recorded: 1/21/20     |     Run-Time: 1:10:00

Summary: Peter and Meb spend some time on Peter’s background and his experience as an engineer and a founder. They then dive into venture capital investing and Peter’s thoughts on the corporate VC model. That leads right into Peter’s early investment experience in private companies and trying to raise a fund of his own.

Peter explains that trying to raise a fund led him to a unique place and a perspective on the traditional VC model that ultimately was the origin behind his firm, Unpopular Ventures. He spends time explaining why he feels the syndicate model is superior to the VC model, and the rapid pace of growth he’s experienced since launch.

Meb then asks Peter to get into some of the investments he’s made.  As the conversation winds down, Peter touches on his thoughts for the future.

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Transcript of Episode 199:

Welcome Message: 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.

Disclaimer: Meb Faber is the co-founder and chief investment officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com

Meb: Welcome, podcast listeners. We have a great show for you today. Our guest is an angel investor and is the founder and general partner of Unpopular Ventures. His experience is almost entirely in startups. He was the first engineer at iRhythm and later founder and CEO of Lifesquare. He has been investing as an angel since 2013, has made over 150 investments to date and has produced investment returns well within the top decile of VC industry performance. In today’s episode, we get into startups in angel investing. We cover syndicates and the approach our guest has adopted to try to improve upon the traditional venture capital model. We discuss the all-important topic of building a network of deal flow. We even walk through some of Unpopular Ventures investments, and we finding opportunities that are off the beaten path and unpopular is the driving force behind the investment process. Please enjoy this episode with Peter Livingston. Peter Livingston, welcome to the show.

Peter: Thank you. Great to be here.

Meb: So Peter, you’re a fellow nerd. I can say that because I was also an engineer. You’re mechanical, do I have that right?

Peter: That’s right. I was.

Meb: You know, sometimes we start with backgrounds, sometimes we don’t. But yours is particularly informative because I think it leads to the path you’re on now. Would love to hear a little bit about your career getting started. Maybe post-school starting a company called iRhythm or joining a company called iRhythm, rather.

Peter: Join technically. But yeah, happy to share. And, Meb, thank you again for the invite. I’m really thrilled to be here and you have a great show going on here. So thank you for having me. Today, I’m a startup investor. How I got here was a bumpy road. Lots of ups and downs. I, as Meb said, I started as a mechanical engineer in college. I was really lucky to join a brand new startup right out of college. It was a company called iRhythm. We developed medical devices for diagnosing problems with your heart. And I joined it a couple million…three million of seed funding. There were two people in the company so far. I was the third. And I was just really lucky. It’s the case of right place, right time.

We built multiple products, launched them, it grew, we raised a lot of money. And the company end up being very successful and going public in 2016 and is worth about two billion now, at least last I checked. So that one worked. I spent the first three years of my career with them. The company grew from 3 to 90 people. And I’d always wanted to go back to business school. So I left iRhythm, went back to business school.

Meb: By the way, who wouldn’t want to go back to business school? Every friend that I’ve ever had has gone to business school, it’s like a two-year vacation. And it’s like…

Peter: But it’s really fun.

Meb: I was actually a Europe Bay area guide. Where was grad school? Stanford?

Peter: That’s right.

Meb: Oh, I don’t know if I disclosed this on the podcast. I owe a huge debt to Stanford, where, when I was in my late 20s, a friend who was at GSP, they have access to like all the quantum databases. And as broke as 20-something-year-old, I, of course, did not. And so there was one that Global Financial Data, which we’ve now…is a podcast sponsor and we’ve paid a gazillion amount of dollars for it, so I don’t feel bad about anymore. But at the time, access to all their data, which allowed me to write my very first paper, which I never would have done otherwise. So it’s partially thanks to the Cardinals down the road. But anyway.

Peter: That’s amazing. What a great end.

Meb: Yeah, just a random occurrence. But other than that, all my friends that have been in business school, it’s like one long giant, great party. I don’t know how else to describe it. People call it networking, but it seemed like a big party to me. Anyway, let’s hear it. All right, so you went to GSP.

Peter: It was a lot of fun. I enjoyed it a lot, met a lot of really great people. And it’s funny, I mean, it’s like you hear about in the real world, outside of business schools or whatever, but a lot of stuff happens at the local country clubs or whatever, where just successful people get together and chat and things happen. And I guess, I would think of business school is kind of a country club, to be honest. I know it doesn’t sound great, but I was very lucky to be able to go there. A lot of really smart people from all over the world were there too, and we got to hang out and just get to know each other for a long period time. And out of kind of a transactional environment, a normal business world when, you know, a job, every time you talk to someone, it’s much more focused, and here you just hang out, get to know each other and a lot of random and unexpected but great things came out of it. So I feel fortunate.

Meb: A lot of commentators love to kind of rip on business school and say it’s too expensive, not worth it. But you touched on a point where I was kind of joking but, in all honesty, like there’s not many other environments we get thrust into a massive melting pot of people that are highly intelligent, highly motivated, interesting people, and then it’s kind of loud deferment for a couple years. Like, that is not something that’s really probably should be marginalised, but actually is a pretty great opportunity. Anyway, keep going.

Peter: It is. I’m very privileged. I was very fortunate to go to go there and be able to afford to go there. And yeah, not everybody gets that opportunity. And I wish there was a way for everyone to have all the same opportunities. But anyway, I guess I feel lucky to have gone. So thanks for that. It was great. So anyway, I went to business school. I knew I wanted to do another startup. Over the summer in between years of business school, I founded another company in the healthcare space, it was called Lifesquare. Founded it with a couple other Stanford grad students. And we, again, got very lucky. We got a term sheet from Kleiner Perkins at the end of summer. We all thought good opportunity. Who knows where this could go? So all three of us dropped out of Stanford to run with it.

And that startup ended up being a complete disaster. It was really hard to talk about for a long time, because it was, without a doubt, the hardest experience of my life. Everything went wrong. It’s my first time in the CEO role. I made a ton of mistakes. But with my co-founders ended up losing all of our investors’ money, and just everything that could have gone wrong went wrong. And yeah, we ended up having to shut it down. And although it was terrible, the funny thing is I actually learned a lot more from that failure than I did from the prior success. In fact, I don’t know if I even really learned anything useful in the success, but going through that failure and trying so many things and working with difficult situations and different people.

And just really kind of being in there and seeing how the sausage is really made just give me a ton of perspective on startups in general. And it’s funny how now, as a professional startup investor, almost all the advice that I give to founders that you never know for sure, but at least it seems like they find valuable comes much more so from the failure and the things I’ve learned in that aftermath. So it really sucked.

Meb: It’s funny you say that because it’s pretty hard to be present in the moment when it’s hitting the fan and a company is doing poorly or imploding, you’re fighting with your partners, whatever it is, and miserable and be like, “You know what? Thank you. This is a gift. Thank you, failure gods, for blessing me with these wonderful gifts of learning and opportunity.” Because usual, it’s the most miserable experience on the planet. We, like, in a similar experience for most investors and traders as particularly the older crowd. You know, we say the biggest compliment you can give to someone is simply surviving in the investing world and being able to have those formative experiences, particularly when you’re younger, if you can help it, in retrospect is always everyone can smile and nod, but it’s tough.

Peter: It’s tough in the moment.

Meb: What were some of the biggest like problems? Was it you name it? Was it just there was the product didn’t work, the team didn’t gel?

Peter: I, for one, made me a ton of mistakes. And I would talk it up to inexperience. Actually one of things I counsel founders on, the single hardest thing about startups, in my humble opinion, is that the people that are right for each stage of the company are not necessarily right for the next stage of the company, or later stage of the company. And because the nature of the company and the roles and everything are changing so quickly, it creates a lot of friction between people. And in this case, the two people that I chose to found a company with are two of the smartest guys I knew, and I have a tremendous amount of respect for them.

But at the same time, we’re all kind of figuring this out at the same time. And I think we may have had some maybe slight chemistry differences or kind of different expectations about the roles that we would all play. And one of the hardest transitions that you often go through is when it goes from three people to then having…and you can kind of all make decisions together, to then having money from venture capitalists, customers you got to fulfill, bigger team that is trying to deliver the product and sell it and be successful in all those ways. It gets a lot harder to kind of get those three founders in the room every single time and get everyone happy with every decision.

And I handled that transition from three people to kind of a bigger organization really poorly, to be honest. I feel terrible about it. I guess I didn’t do a good job of kind of managing that and setting expectations right. And I don’t know. Because so many other people were involved, I also always wanted to be careful about respecting them and their privacy as well. So it’s kind of growth friction is one of the hardest things and kind of making sure that everyone kind of fits into the company in every stage longer.

Meb: It’s tough. It’s like marriage but times 10, times 100, plus adding a lot more money in interested parties. It’s hard. And a lot of the relationship dynamics are more obvious in retrospect than in the beginning. Many of us have been through it. All right. So Lifesquare kind of exploded on the launchpad as you… So I assume you kind of…there was a wind down period.

Peter: Settled down. I was very lucky I was able to go back to the country club for another year to finish business school. After business school, I ended up working at GE Ventures very briefly for about a year. It no longer exists but it’s a corporate venture arm of GE. Got some other good exposure. One of the main things I learned is that I personally don’t believe in the model of corporate venture. There are a lot of smart people there as well. But corporate venture is really hard and it’s really hard to get the incentives all aligned, because you have the incentives of the corporation and then you’ve got a different set of incentives and how you’re trying to successfully invest in startups.

Meb: Why is that such a struggle? Or why don’t you believe in it?

Peter: If you imagine any big corporate, not just GE, but any corporate venture fund, in most cases, it’s tied to a company that does often hundreds of billions of dollars of revenue and tens of billions of profit per year. And now if you imagine that they have kind of this venture fund on the side and they are trying to invest in great companies and drive financial returns, even if they’re successful in getting an investment in the next Google or Facebook or Uber, whatever, best case scenario, that might have a couple percentage points of ownership. And when that company goes public at $100 billion or even $200 billion valuation, their couple points of ownership might be worth a few billion dollars, which sounds great, except that they just made $20 billion of profit last year. So that doesn’t mean anything to them, even in the best possible scenario that they could possibly achieve with venture investing.

And what this leads to is that the entire purpose of the venture operation is actually to basically feed their main business units and ensure that what they’re really trying to do is make their 10 billion profit, your business unit 10% more profitable. And if they can find a startup to do that, great. But the thing is, that’s very misaligned from investing well in startups and just trying to make money on that. So you kind of have a double bottom line issue, where you’re trying to optimize for your main business and you’re trying to optimize for a startup investment at the same time. And as you know, most venture investors don’t even beat the public stock market. And so if it’s so hard already just to be a good venture investor, if you had anything else like a second bottom line where you also have to kind of create strategic value for businesses, it’s just almost impossible to be successful.

Meb: Interesting. So GE.

Peter: Did that around the same time. I started making some small angel investments in friends’ companies. This was actually inspired by a fraternity brother of mine at Stanford. His name was Kevin Systrom. He started this app. I think it was a few years earlier. It was called Bourbon at the time. And I remember he was trying to raise a little bit of money. And I remember I downloaded the app and thought, “This is silly,” and I didn’t follow up with him. I could have easily reached out to him and said, “Hey, can I chip in a little bit?” Six months later, he pivoted, renamed it Instagram. And you know the rest. And after that smart friend of mine was so immensely successful, and if only I had chipped in 10K or something I would have made 350X in 18 months. I realized, “You know what? I need to start making some small investments in friends’ companies and start learning how to angel invest.” And so starting shortly before GE, and then also in that year I did probably 10 small personal angel investments in friends’ companies.

Meb: What year are we at now?

Peter: ’13, ’14 was my year at GE. And over that span of time, probably did like 10 investments in 8 companies. And most of them seem to be doing pretty well. Most of them are solely liquid, but most of them got marked up, made good progress. A lot of them are healthy businesses now, they’re growing. And most importantly, I was really enjoying it. So at that time, decided that that was what I wanted to do. Left GE and basically focused on angel investing on my own for the next 5 years, and started slow, did those 10 initially. Around that time also, I think it’s the year 2014 AngelList kind of released their syndicates product on the platform. And so I ended up being one the first syndicate backers on that version of the product.

And so the next 5 years, I did about probably in the range of 120 to 140 personal angel investments, about half were direct and then half were through other people’s syndicates on AngelList, and then also some as part of a couple angel groups for a while. And continued to love it. Continued to do pretty well with a lot of it. And I guess my biggest win in that period time was I took a very big position in multiple cryptocurrencies. I guess fast forward to about a year and a half ago, I had done well enough, gotten to a lot of good companies, produced good investment returns, IRR above 50%. Returned the fund, 1X some cash. And then on paper, if it’s in the three and a half, 4X range.

And so it got to the point that a lot of friends and former classmates start to ask if they could invest behind me. And I thought, “You know what? Now I’ve kind of been at this while, I’m enjoying it. It seems like I’m okay at it.” So I tried to raise a venture fund. And it’s funny, I went out, talked to probably 40 or 50 big LPs, and got turned away at every turn. Got a bunch of notes. It’s funny there were two pieces of feedback from all of them. The first piece of feedback I got was that everyone hated that I was in Florida and they’re like, “Why are you in Florida? There’s no good companies.” And we LPs think that the VCs have to be close to the company to invest in. So that was one big piece of feedback. And then the second piece of feedback I got was kind of like, “It doesn’t count when it’s your own money.” So although I produced excellent investment returns as a solo angel, they didn’t really believe that I could produce the same results with bigger checks and other people’s money.

Meb: That’s funny because, like, that seems to me like it would be the exact opposite. “Who cares more? What do I care most about in the world? It’d be my own money. Like why would…” Anyway, LPs are the worst, I can say that. There’s nothing that investors love more than past success. The group think involved in that is part of it’s understandable, but it’s odd that certainly that the designation of other people’s money versus your own money would somehow be less relevant. That is a head scratcher. Anyway, keep going.

Peter: It’s certainly is. Now it’s funny. But I also understand it too, but you know them, they’re also missing out. So everyone gets to decide what they want to invest in and that was not what they wanted to invest in.

Meb: But before we get to the…as we continue about this potential fundraise over this, you know, kind of five-year period, what was the sort of…and I know where you are now, but over this five-year period, what was the sort of approach? Was it you’re trying to cast a wide net? Be a generalist? Look at all the different opportunities? Were you focusing only on seed and angel? Was it later stage, ignoring the kind of crypto for now? How would you source these? How would you find them? So like what was the whole experience over this time? Were you going to demo days? Were you going to local angel groups? Would love to hear just a little more about the process before we catch up to the present.

Peter: Mine, in all of this, was really just to learn as much as I could. I wanted to be exposed to everything, see how different people practice investing, see different kinds of deals. And so the three kind of prongs that I went out with, was first I tried to tap my network from Stanford and startups that I had been through and just find people starting companies that way. And then the second was AngelList. I feel like AngelList was such a big part of my angel investing education. And I know you and Jason Calacanis talked about this a little bit how you almost get to play like…it’s almost like fantasy sports but on the angel investing, where you can kind of look at all these other deals that are being published and kind of read about them and learn about them. And you can either choose to put in a little bit of your own money or not, but also track them. And so that was good way to see a lot of deals.

And then the other big part of my experience was that I was a part of two different angel groups in South Florida over there. I think that was one of my most formative experiences because I was simultaneously part of this old style version of angel group where 60 guys that meet once a month over dinner have companies come and pitch. And then I was simultaneously part of AngelList, which is kind of a digital version of the conventional angel group. And I got to see kind of the pros and cons of each model. And one of the things that’s really remarkable about the angel groups in South Florida was that a lot of the members were really, really impressive and really great people, former CEOs of Fortune 500 companies, founders of successful startups that are worth 10 billion.

We had like the former head of R&D of like Ford, and everyone was really smart and really impressive. And one would think intuitively that if you get 16 people like that in a room, they’re going to be making great investments. And what actually found was it was the opposite. And sorry to any of those people that are listening to this, I guess what I observed is that… So one of the things that I’ve heard over and over again from really great venture investors is that the only way to make money is to be non-consensus and right. It’s Andy Rachleff, who’s one of the founders of Benchmark, that really kind of pioneered this thought process. And for anyone not familiar, this idea of being non-consensus and right, the way he explains it is the two by two matrix.

And if you imagine that on one axis, you can either be right or wrong in investment. And the other axis, you can either be consensus or non-consensus. Everyone knows you want to be right, obviously. If you’re wrong, you lose money. But if you are right and you invested with the consensus, all the expectations of how that investment would have performed were already priced in and you actually don’t make above market returns. And so being right but being part of consensus doesn’t make you money. And so the only quadrant of this two by two matrix where actually make money is by choosing investments that were non-consensus but turned out to be right. Because if you do that, they were underpriced, to begin with, most people didn’t think they would work, you’re in, and then it works and turns out to be right. And that’s how you get the big delta in price appreciation.

Now, the nature of a conventional angel group where you get 60 people together, and I was part of two different angel groups out there, so they both kind of operated the same way, roughly. There were some differences. But people would invite companies in, there’d be a committee that would kind of go through all the companies and identify the handhold that were at all credible, there’s a lot that are not. And then they would have the credible ones presenting for the whole group. And then they will leave in a room and talk about it. And if enough people liked it and wants to do further due diligence, and those people would vote and say, “We’re going to do more due diligence,” they meet with company a couple more times. If they still liked it, they would then present it back to the group and the group had investment committee, and they would all vote on if the investment was true.

And the point is, the nature of that process drives a very high degree of consensus. You both have to get enough people to say, “Yes, we like this one.” And then they have to socialize with basically the whole group and get the whole group to say, “Yes, we like this one,” before to actually go through and get money. You end up with only consensus investments. And as I laid out, consensus investments don’t make money. And I guess the other component of this is that a very challenging part of startup investing is that if you do anything that leads to adverse selection, you’re not going to see the best companies. And what I mean by that is that so the very best companies raise money in a matter of days. If they were raising, talk to a few investors, the investors all say yes on the spot, they get the money and move on.

And if you kind of have a process where you’re trying to get buy-in from too many people at once, that can take too long and often times you end up negotiating too hard. And if you kind of run through a process like that, you’re never going to get it on those best investments that are actually the good ones. So they’re kind of a couple things going on this model where they’re doing consensus investing and there’s too much for processes that’s leading to adverse selection that, I guess, through that experience I realized that that is, in my opinion, not a good way to successfully angel invest.

Meb: So then you just go to the meetings, find the one that nobody wants, and then invest in that one. Take the least votes and flip it around.

Peter: True. The thing was the very best companies knew that they took too long, they knew they’re going to fill around in a week or two. They didn’t even come in the first place. But yeah, it’s tricky. I guess the other thing that I’ll share that I think is just kind of interesting on this topic is that what AngelList has created, I think, is actually overcome the problems that existed in the conventional angel group structure. And it’s that rather than having this consensus decision making process, instead it’s each syndicate that is run is led by one individual that has a high degree of agency. They find the deals they want to do. They negotiate the deal with the entrepreneur, the entrepreneur only has to deal with them, it would very fast. They’re right up there why they like the opportunity and then they publish it to all their backers.

And then not all the backers have to participate, only ones you like it do. The whole process is much more streamlined. There’s no potential for being slow or negotiating too hard or having maybe some people that are not as fun to work with. It’s really just, can that one agent, the syndicate lead, do the opportunity, get in front of people, get the money and it goes? I guess where I’m going with this, this was a very formative experience to see both of these models at the same time and see angels of all, and recognize that the model that AngelList has pioneered, I think, is actually going to be producing extremely good venture type returns. They’re still early.

Meb: It’s interesting, too, because if you look at a lot of the other platforms, AngelList, at least, seems to be the exception. If you look at Wefunder, if you look at the other 9 or 10, Republic, etc., etc. I think, and I could be wrong here, that AngelList is the only one that has this sort of filtering and selection mechanism of a syndicate lead bringing it to the community. Most of the other platforms, either platform approves it, or it’s just like everything gets approved. So then it’s 500 breweries, and companies that probably no one wants to invest in. And that’s a generalization because I’ve invested on these other platforms. But in general, at least, it seems like the deal quality from this selection mechanism seems to be quite a bit better.

Peter: I think you’re exactly right. And I think you make a really good point about how the other platforms don’t seem to be on the same level. And I think a big part of it, it’s kind of the same reason that YC is far and away the best accelerator. There are a couple others and then there’s a long tail of hundreds of them, but YC is the only one that seems to produce great returns. And in the world of startups, network effects are very powerful. And again, the adverse selection issue is very powerful. But startups, it’s a very, very small fraction of the companies that produce all the returns. I mean, depending on how you slice it, it’s probably less than a 10th of a percent of the companies that produce all the returns.

And if you’re not getting access to that top 10th of a percent, you’re not going to have good returns. And so in the case of accelerators, for example, if a top 1% company wants to do an accelerator, they’re going to do YC. Otherwise, they’re not gonna do an accelerator. So these companies don’t even show up to other accelerators. And I think it’s the same thing with AngelList, where AngelList has proven to be the best, they have the biggest following of backers, they have the best companies. So because they have the best companies, the more backers come there and more dollars are deployed. And then because they have such a brand, if a company is going to do a syndicate, or if a top 1% company is going to do a syndicate, they’re only going to do it with AngelList.

Meb: So was there any sort of particular range of size of sectors that you were looking for, you know, so you looked at your network, you started following some syndicates on AngelList, or were you traditionally looking at kind of seed? Were you looking at certain types of companies? What were you looking for in the early days?

Peter: Yeah, well, I mean, as a direct investor, my checks were tiny, usually 10K on average. At that size of investment, I basically had to beg founders to take my money. 10K is not a meaningful amount of money to any startup these days. And so in most cases, I would really have to find the founders, sell them on how much help I’m going to give them, and basically beg them to just let me participate even though they didn’t need it. And with a 10K check, the only stage of companies that I could get in on with that are the seed and pre-seed ones. So pretty much all valuations sub 15 million. But then at the same time, you know, I wanted to see and participate in later stage companies, AVCs. And so AngelList actually was really great at giving me that access. So direct investments were all early but then on AngelList, I participated in the other later stage companies as well. And it was really interesting to be able to see the traction that those companies had, the way the leads would talk about them, kind of what other investors were participating.

Some of the later stage ones that I got in on through AngelList. I did Cabify at 40 million pre. Last I heard, they’re valued at about three billion, that was through syndicate. Also did…I miss branch metrics early but got in on, I think, it was the 3C, when they were at 300-something million and they were just valued, I think, well over a billion. And so it’s cool, it’s great. The online syndicates were a great way to get access to these bigger and later stage companies with smart tech. And I guess to wrap your question, really, I was just trying to see everything and understand what made sense. And I threw money into a ton of companies. Today it’s over 150. And the way angel investing goes, I’ve lost money on a lot of them. And a lot of them are kind of we’ll see how they turn. You know, we’ll see, they haven’t broken out yet.

Meb: How many of the, say, 150 have seen a finish line, whether that’s bankruptcy, whether that’s secondary IPO liquidity? How many reached terminal result?

Peter: Very few. Most of them are still going concerns, as they say. I think it’s probably 20%, maybe 25% have either shut down or exit.

Meb: It’s funny because your experience is very closely mirrored to mine. It’s about almost nearly the same amount of companies. Almost the same start date and same with the companies as well. All right, so this experience, you know, at what point, so you decide, “Okay, I’m thinking about raising a fund,” but it kind of wasn’t getting the reception that you were interested in, what next?

Peter: One piece of feedback was that all the LPs hated Florida for some reason. So we moved back to the Bay Area. That’s why I’m calling from Sandhill today. And then the second issue, it doesn’t count when it’s your own money. I’ve been an LP on AngelList for a long time and I said, “You know what? Okay, I’ll try to do a syndicate, do some checks with people’s money that are a little bigger.” And I saw it as kind of a stepping stone to prove that, do it for a year, then maybe I’ll be able to go and raise the fund.

So when I started recruiting LPs, I messaged a lot of people on AngelList, and it got off the ground. It was a struggle for a couple months in the beginning, put up a couple deals and they weren’t filling. It’s hard to start in building a syndicate because people don’t know you. You don’t have the following yet. You don’t get enough…you have to get a certain amount of money in to be able to close. And it was hard for a while. But over time, I was able to do a few deals that were just, I guess, a lot of other people found very compelling and AngelList promoted them to the rest of platform and ended up taking off.

Meb: Was there a turning point or was it just kind of scratch claw, eventually it kind of build one by one member?

Peter: There were a couple things that I figured out that AngelList tells me have never been done before. But I was able to kind of do something where I was able to get my first 300 backers in a pretty short amount of time. And then from there, I was able to start to fill deals and then was able to get access to better deals. And then my following grew, and according to insiders at AngelList, I ended up being the fastest growing syndicate, at least for now. I was the only one to get through to 500 backers behind me in under 6 months. So it grew, the following grew, the check size grew. Now we’re at about 750 backers. Actually we’re really fortunate. It’s really amazing. We just did our first deal where there’s 1.3 million of interest in one deal. The company didn’t even want to take that much money, it’s just too much so we got cut back.

Meb: Congrats.

Peter: But we got there.

Meb: Now, fast forward, you come up with the name for your syndicate business, Unpopular Ventures. What’s the origin story there? Why do you call it unpopular?

Peter: All my best investments were the ones I couldn’t get anyone else to do.

Meb: Or I thought for a minute it’s just gonna be you, you’re calling it unpopular because you didn’t have any syndicate members in the beginning.

Peter: It could be, too. It’s funny that there are multiple kind of layers to it actually. So I actually I was going to call the fund Unpopular Ventures as well. What does it have to do with this one? Most of the best investments through all the time were actually very unpopular in the beginning. Airbnb was notoriously unpopular. They were rejected by like 60 VCs in the beginning. Google tried to sell themselves to a site for a million dollars and were rejected. And there’s so many others like that. And my own personal experience with that was with the crypto stuff in 2015, I personally got very excited about it. We’re in the midst of a really deep bear market in crypto where Bitcoin has one, had declined in value by about 85% or 86%. The headlines were calling it dead.

And as I started to read about it and learn about it, I actually got very excited about it and I thought we’re just kind of in a temporary dip in it, and I built a case where I thought this was a really good investment. And I thought my case was very good. I was so excited about it that I literally sold 100 people or over 100 people that they should buy Bitcoin. I emailed a group of 60 people 4 times about it. I was posting about it on social media. My family was so annoyed. I would talk with my family about it every time I saw them. And the funny thing is, even though I told everyone about it and said, “I think this is gonna be a big deal and I think it’s a good investment.” After telling 100 people, I only got it was either 2 or 3 people to buy any.

And then of course, you know, the rest, it ended up working out. The funny thing is that wasn’t the only one. So my other good one is Cabify, is one example. I showed that to a few other people and they were like, “Latin America, I don’t know.” And, in contrast, the opportunities that were very easy to convince others, though, where people got it immediately, and they said, “Oh, yeah, that’s hot. You know, that’s great thing. I want to invest in.” Almost none of those ended up performing well. I guess that’s the short story. I personally think that the best investments are unpopular in the beginning. But then also, there’s an element to the venture model that currently exists where I think there are a lot of inefficiencies in how venture capitals practice.

One of the inefficiencies, in my opinion, there’s a lot of smart people in industry. So this is just one opinion, but it’s what I see is that most of the big venture firms operate with what’s called a thesis-driven mindset. Where the way I think about that is, basically, they all get in a room, decide what they think the future is going to look like. And then they go out and try to find companies that match what they think the future is gonna look like, and then invest in them. And if a great company comes along with an amazing team, incredible traction, big market, but it doesn’t fit the first thesis, they won’t invest. And now, the second part of that is that a lot of the venture funds kind of have the same theses at the same time. And so the way you see this playing out is that the companies, you often…you get a lot of not great companies, but they hit the thesis and they’ll get tons of money at high valuations.

But then you have companies that are simply off thesis at a certain period time for most funds, but they’re great, with great founders, great traction, high potential. You know, everything you would want in an investment, but they don’t get funded because they’re all thesis. And VC is relatively slow to switch theses because the way this works is that most funds raise money every two to four years. They go to their LPs, they say, “What are you going to invest in?” And they tell them, they say, “Okay, here are three theses like digital health or blockchain or AI or whatever.” And it’s like, “Okay, these are what we’re gonna do.” The LPs say, “Okay, here’s the money.” And they have to only invest in those things that they promised for the next three years.

And so, obviously, trends and opportunities change faster than that. And so one of things that I really think a lot about as an investor personally and really through the syndicate is, what are the theses that are hot right now, avoid those. And then also just always look for really great founders with great businesses that are getting a ton of traction, but for some bizarre reason aren’t getting funded. And if it’s simply because it’s off thesis at the moment but it’s still objectively really attractive, those are the deals I like. So they’re the unpopular ones.

Meb: So the typical for you would be what? Sort of the seed series A sort of ballpark, or is there even a range which you wouldn’t consider?

Peter: The most important criteria is that I have to believe that it’s an objectively very attractive deal at this time that I’m making the investment. And the stage range has been very wide. In terms of valuations, the valuation range has been in 2.5 million valuation all the way up to $140 million valuation. And obviously, the $140 million valuation had a lot more traction than the $2.5 million one, but I’ll do anything. And I mentioned some of your past guests in startups have kind of talked about one of the hardest parts of being a startup investor is actually just getting access to the deals you want to do. And my average check is about a quarter million.

And yeah, if a company’s later stage and they’re raising $16 million, I’m probably not going to get time with them. You know, they don’t need a quarter million. But sometimes they do. Sometimes they’re just raising it an extra 5 million and maybe I know somebody there, have a good intro, and yeah, I’ll do that later stage deal if they’ll take a quarter million. But the reality is that in most cases, it’s smaller and earlier to build that kind of check.

Meb: And so what is the process for sort of this deal flow? And I imagine it’s a little different now than it was year two or three ago, you’re somewhat of an established syndicate now, you have a lot of backers. You’ve done enough deals. But talk to me about building that sort of network where you would see the actual companies, whether they’re reaching out to you or you’re reaching out to them. Like how does that work for people that were are listening and are probably in a similar situation you were a year or two or three years ago? How do you start to build that network of deal flow?

Peter: It is really hard. And I don’t mind. I’ve had a lot of unfair advantages. I think for somebody who is new and wants to build that deal flow, the most important thing to always keep in mind is, is that you really want to make sure you’re investing in the best people. And you got to go to places or tap into networks where you’re going to get access to the best people. So one is, yeah, go to YC demo days or join a niche group, or really probably the best way is just get on AngelList and start backing the syndicates and maybe invest in a few or help in some way and get some syndicate leads. And another good way is to just work for a startup that is doing well.

You know, there are a lot of investor groups that spin out of the most successful companies like out of Google and Uber and Lyft and others. And I guess I think that there’s sort of this myth that a lot of people that are outside the startup world buy into where it’s like, some college kid in a sweatshirt who doesn’t know anybody and has no experience is going to build a billion dollar company, or it could happen to anybody. And it’s the same thing on the investor side, where it’s like, if you’re nobody and you have done this before, you could still get lucky and invest in the next Mark Zuckerberg. But the reality is that that’s extremely rare and almost never happens in the startup world. The reality is that startups, just as in any other industry, most of the people that are successful kind of had experience that led them to their success.

They either worked in a company that was related or met the right people that became the co-founders or something like that. Or it’s like you wouldn’t expect to hire the CEO for a Fortune 500 company who had no experience. And in the same way, the most successful startup founders have usually either founded companies in the past, either failed or succeeded, but had that experience or worked in classroom tech startups or something like that. This is a long-winded way of saying this. But I guess the best way to tap into this is kind of play more of a supporting role for a while in the tech ecosystem, either be part of the startup or join and help people, and I guess that’s it. It will be hard.

Meb: It’s a good answer. I mean, it seems from my standpoint, your chair, your role is a lot of work. Short answer is do it for 10 years and do all the heavy lifting, but maybe not go to an angel group in Florida. Just kidding.

Peter: There’s a lot of great people there. There’s great group of people in both cases.

Meb: I’m going to get some hate mail. All right, so we’re up to the present unpopular over the last year, did something like 20 deals, you put 4 million bucks to work.

Peter: Yeah, actually five.

Meb: Five million bucks. And to the extent you can, I would love for you to walk through a couple companies or deals and just kind of spell out your thesis so the listeners can kind of hear an angel investor, walk through sort of how you met a company, how you just decided to invest, what the opportunity was, why you’re excited about it, why it’s unpopular perhaps.

Peter: The first thing that maybe I should take a step back and talk about is one of the things you asked about is kind of how I found companies. And this is something I’ve kind of been innovating on a little bit in the syndicate. And a very significant difference between an angel syndicate and a conventional venture fund is that on the venture fund, the carried interest or the performance fee, it’s effectively a share of the profits. It’s on a whole portfolio of investments. Whereas an individual angel syndicate, the carried interest, the performance fee, is deal by deal. On one deal, I get 100 angels in. We put in half a million dollars, we all in this together. And then the way I’m compensated as the lead is that there’s basically 20 points of carried interest and what that means is first I have to return everybody’s money.

And then for every dollar after that, that we return to them, we get a piece and it’s 20%. The way that divides when you run this on AngelList is angels takes 5 good points and the lead gets 15. And what I found is that there are a lot of people on there that are really well connected. They’re either VCs, like 40 or 50 of my backers are VCs. And a lot of them have great deals, but they just don’t have the time to run a syndicate. And I’ve made it known to everyone in my network that if they bring in a really great deal and they introduced me, and we’re able to do it, I give them a very big part of the carry on that deal. They usually get a third of it. If they actually end up doing a lot of work and really critical, I’ll give them two thirds of it. So it’s a more than I keep.

And what I found is my deal flow is basically exploded because of this. And it’s something that I wasn’t able to do before as a solo angel. As a solo angel, I would just hope that people would tell me stuff out of the kindness of their hearts, or entrepreneurs to reach out to me. But now in this case, we have 750 syndicate LPs, we have something 24 portfolio COs, and they all know that if they introduced me to a really great company, great founders, great opportunity, and we do it, there’s actually a really strong incentive for them. Basically, that’s how I source.

Over time a lot of people in my syndicate have kind of become know the types of things that I like and care about and as a result I do now have pretty crazy deal flow. I probably get, I don’t know, it’s probably in the range of 30 to 50 deals a week. I do kind of have a mechanism whereby I’ll able to see a lot. Now to go to back to your first question of what I kind of like to invest in. So last year, there were kind of a couple themes that ended up…we did a lot of deals in them. I didn’t plan this going in, but it’s kind of where they ended up. One of the themes that we did a lot in was Uber for X type things. So either Uber equivalents and other parts of the world or Uber-like business models in other applications.

And that end up being a really interesting one because everybody knows that Uber for X doesn’t work. There’s kind of a wave of those where Uber for weed and Uber for laundry or Uber for whatever, and so much money was poured into that about four years ago. And most of those companies didn’t work, except for obviously Uber and Lyft. So people got excited. It didn’t work. We passed through a trough of disillusionment. And what I’m referring to is, there’s a model called the Gartner Hype Cycle, where a lot of technology sectors first get over inflated, it doesn’t develop as quickly as people expect. People didn’t get the solution. But then over time, it often actually comes back and turns out it runs right. It just took longer than expected.

What I observed in the past year is that it seemed like we’re passing through a trough of disillusionment in all kinds of Uber like models. So it’s both that all the Uber for X companies didn’t work, but also Uber and Lyft had really unsuccessful IPOs. They started high valuations, have declined, and most investors have soured on it. And then on top of that, most VCs have said, “This age has passed. We’re going to move on to other themes now.” So it’s like now, yeah, it’s AI, machine learning, blockchain type stuff that’s more in, which is kind of happening is I kept finding really interesting companies that were led by really impressive founders with great relevant backgrounds and expertise that were getting unbelievable traction, but they were in the sector that everyone had decided wasn’t gonna work.

Startups are all risky. Most of them don’t work out. It’s a select few, their drive was the return. So I can’t really speak in blanket statements. But I do think we got a lot of really cool companies last year that were irrationally overlooked or overly unpopular. So that’s one. So transportation. The next thing that I think I do more than a lot of other syndicate leads is international. So this is another inefficiency in the venture capital model instead. Both the VCs and the LPs that invest in them believe that it’s best if you invest close to home, within driving distance. And most of the venture capitalist cluster here on Sandhill Road or in San Francisco, and they’re all these great companies elsewhere in the world, but they just don’t have the same access to venture capital. They just go unfunded because the VCs here where all the money is say, “Oh, we don’t want to invest in anywhere else, in another market.”

So we did really interesting deal in Colombia. It’s now expanded throughout Latin America, it’s something called PiCap. I’ll describe it as Uber on motorcycles. In Colombia, one, most people can’t afford to ride in a taxi car. And then also in Colombia, in particular, there are more motorcycles than there are cars. And the combination of a guy on a motorcycle with a smartphone is really interesting because he can now provide services in right of ways and get paid for it and earning income that it couldn’t before. Another company that’s more established is Gojek in Southeast Asia does the same thing. They’re in a few verticals, but one of them is right, hail motorcycles.

And so this company in Colombia, PiCap, when we originally invested, they had unbelievable traction. They were doing like 700,000 rides a month, 20 million in sales run rate per year, growing almost 20X year over year. And everything about it was objected really attractive. Like if that company had been here in Silicon Valley with those metrics, they would have been valued at I would imagine at least $150 or $200 million. And I guess not a lot of people wanna invest in Latin America, at least didn’t at that time.

Meb: How’d that come across your desk? Do you even remember?

Peter: It was a VC that sent it to me.

Meb: Oh, cool.

Peter: It was a VC friend. He’s in a firm on Sandhill. They have a hard rule of not investing outside the U.S. But he looked at the metrics and said, “This is really impressive. Seems like it’s working. Here, Peter, maybe you can do it.” So yeah, it was a thesis for a lot of people but they seem to be doing well. Time will tell if it works out but it seems to have been a good investment.

Meb: I was hoping you were saying you’re just cruising around South America on a motorcycle and said, “Hey, the boots are on the ground.” All right, that’s a cool one. And it’s interesting because it straddles the line of popular unpopular because the ride sharing, obviously, been super popular as far as some massive outcomes on the Uber and Lyft. But also you mentioned an area in a interpretation of it that might not be and for various reasons, people can’t fund it. Any other companies come to mind in the last year particularly memorable?

Peter: We did another one like that in Africa, North Africa, a company called Yasir [SP]. They are also doing great, continuing to grow traction. They’re actually in the current YCombinator class, and I think they’re going to have a very successful fundraise at the end of this batch. We just did another lifetime deal. And I’m also going to publish another one the next day or two, both in Latin American FinTech. These ones are more…a little bit more highly valued relative to your traction, but still I think they would have raised a lot more money more quickly in Silicon Valley than they’ve been able to in Latin America. Yeah, that’s the thing that I’d liked.

Other stuff. Like I’ve done a few healthcare deals. I did one deal that also seems to be doing very well investment in a company called Gildian. It’s very obscure enterprise healthcare. They basically help doctors get paid. And it’s remarkable. They’re repeat founders and very smart with really impressive traction. And I guess it was just an obscure part of healthcare. I think digital health as a sector has not done that well over the last decade. And a lot of the investors that were active in have kind of churned out. And I think we’re able to invest at a really great valuation. And I think just because it wasn’t the hot thing that everyone want to invest in at the time.

Meb: That kind of goes into the category for me of somewhat boring, but also like frustration arbitrage where it fits into a part of the ecosystem where it just makes life easier for certain people. What percentage of the time are you chatting up these companies? Are you looking at deals where valuation or the VCs may be clamoring over something becomes a deal killer? You know, we’ve just had a decade of great public U.S. stock returns. We haven’t had a recession for the first time in history in a decade, obviously, low super unemployment. So the U.S. is humming along. How often do you see a deal and the valuation is just stupid and you just say, “You know what? I can’t”?

Peter: It’s really hard. I see it all the time. And actually, one of the things I talk with my backers about a lot in my deal memos is kind of the challenge of weighing what I call value versus potential. And I think there’s kind of a corollary here to public market investing, where, in the public markets, there’s kind of two famous schools of thought and it’s value investing versus growth investing. And you can be successful with both of those. And I think the same is true in startup investing, but it’s just a little bit different because in many cases, they’re not growing yet, but maybe they’re growing in their people’s excitement about it. And so the way I segment this is sometimes you have what I call value investments, where everything about it is objectively amazing, great team, great traction, big market, fundamentally attractive business, everything is good. And the valuation is low just because it’s overlooked. And I think those are often great investments. And I call those value investments.

And then on the other end of the spectrum, I often see what I would call potential investments. And those are cases where they don’t necessarily have traction or the valuation is very high for the traction, or I try to only do deals where the team is really good. In all cases, the team is good. But in the potential cases, yeah, maybe they don’t have the traction yet, and the valuation is high. And the crazy thing about this world is that that works, too, sometimes. And the reason it works is that there are a lot of pieces you’re trying to put together as a startup CEO. You’re trying to get the money so you can hire the people to build the product, sell to the customers, and then you get the revenue, which helps you get more money and kind of the cycle goes around and around.

And if you can get the money from great people and lots more people then want to keep throwing money at you, you’re going to build a product and you’re going to get the customers and you’re gonna be successful. And so sometimes in cases where maybe the valuation is crazy, but there’s a word I use called kind of a solar system of people that starts to orbit around a company. And if a company is very effective at, and particularly the startup founders are really effective at growing that solar system, people around them, way ahead of their actual traction, in many cases, they actually still end up being very successful because they get the money, they’re successful in delivering the product and then they’re able to raise even more money at higher prices, and it all works. So it’s hard. I don’t think there’s any right answer. Those are kind of two extremes. Oftentimes, the companies fall in between the two extremes. But I don’t know if that’s a satisfying answer.

Meb: One of the things, you know, as I got to read your annual update letter, and I thought it was thoughtful. And one of the comments you made that I thought was interesting was that you talk about for someone who’s invested in over 100 private companies the past 5 years, there’s a couple things I find curious as an investor. One is you talk a little bit about your involvement with a company and how you help them succeed versus how traditional PCs may be involved, which I’d love to hear thoughts on. And second is one of the biggest surprises to me is the lack of a company’s ability or even interest in utilizing the vast resource that is the actual syndicate backers, if that makes any sense. So I think probably a fairly large chunk of the companies don’t even provide any updates or the syndicate managers don’t.

When in reality, I mean, you have this resource of hundreds of incentivized, motivated potential evangelists. You know, like you said, some are actual other investors, some are probably CEOs, some are marketers, influencers, whatever you want to call it. And from someone who’s done this, it seems incredibly strange, suboptimal way to go about raising money than just kind of saying, “This is a resource I’m just gonna let wither and die.” Anyway, I’d love to hear your thoughts on either of those things, kind of how you’re involved, are you totally passive, were you involved with the companies and your value add, and also what role, if any, do the actual end backers play and helping out as well?

I guess one thing that I believe is that the Vinod Khosla, I think, said it best. And it’s just that 90% of VCs or startup investors in general don’t add any value. And in fact, a lot of those actually add negative value. They end up being a drain on the company or demand things or cause the company to make bad decisions. And it’s probably only 10% or even less that actually add really significant value. But then here’s the thing, most startup investors are investing in tons of companies, whereas the team, especially the founders, and also their whole team is 100% focused on this one thing. And it’s kind of you can’t really expect that the investors that are spread between so many things are really gonna be able to come in, understand everything that’s happening, and then add a ton of value and more value that anybody that’s in the startup who’s been doing it full time was able to create already.

So I guess because of all this, I actually don’t think that it’s really the role of the investor to bring a ton of value, and especially talk about the value they add. Because even if they are adding value, the value that they’re adding, basically pales in comparison to the efforts of the entrepreneurs and the team in there. And for me, personally, I would like to think that I am very helpful and good to work with. And I think that if you were to reach out to a lot of entrepreneurs I backed they would agree. But at the same time, like, I’m not going to kick myself. What I do for the companies is they’re the ones that are the champions and putting their blood, sweat, and tears into this. And for me to think that I’m going to come in and change everything, not like they’re going to be successful with or without me.

Actually, Sam Altman recently released a pretty good blog post on this. And it’s just that the reality is that the best companies are going to be successful with or without you. Even if you’re the best and most value added investor in the world, they’re going to succeed regardless if you’re there or not. Now, your question about the syndicate, it is tricky. Sometimes companies are very good about publishing updates and they have very specific asks. I actually think that the quantity of help that the syndicate backers provide is pretty small. Most of the participants and the syndicates are also spread across tens, hundreds, or even more companies. And I think that the cases in which people usually engage and actually add some kind of value, it’s usually out of self-interest, which is actually great.

In many cases, when syndicate backers reach out and say, “Oh, wow, like, can you intro me to this company? I’d really like to help them.” In most cases, there’s a synergy where both the backer can provide some value to the company. And also the company can provide value to them, either in some sort of strategic partnership, or the person wants to be a customer because they find the service valuable, or they’re VC that wants to do the next round. And I think that’s all great. But the reality is that the only way any exchange of value gets done is when it’s an exchange of value and both people are able to bring value to the table. In most syndicates, most of the backers, there’s probably no synergy with most of them for them to either get anything out of it or be able to provide all you back.

But having said that, one thing I have been pleasantly surprised by is that on most of the deals I’ve done, I have had a few backers on each one, they’re different every time, they come forward and say, “Wow, this is what I’ve been looking for, this is what I need. Gosh, I need really need this for distribution. Or, it’s a VC that I’ve been looking for a company to it to fund like that.” And they do reach out and they end up being tremendously valuable to the company. So I guess it’s just kind of a skewed distribution engagement, where on any given company, most of the syndicate backers are probably going to add 0value, and that’s probably 95% of them. But sometimes you get lucky. And maybe there’s 5% or 3% or whatever it is where there’s actually a really great match. And so I guess I think of one of the value adds of running a syndicate is the matchmaking that I help the company get in front of a lot of people. I help them tell their story in a very concise way that they will be received by a lot of people. And sometimes serendipity happens where one of my backers sees it and it’s just great match and there’s value on all sides.

Meb: Fair enough. You want to tell us a little bit about unpopular preferred, if you can? You seem to be pretty innovative in kind of your approach to AngelList and your approach to also being working with other investors and people. I think it’s a bit atypical, in a good way. Would love to hear a little bit about it.

Peter: The unpopular preferred structure is a little bit deeper. Actually I don’t know if would be that valuable to a lot of listeners to talk about it today. It’s kind of something more that’s better for people that have gotten to know me over a long period of time, seen investments I do, and really want to make a bigger commitment with me over a long period time. So I guess if anyone wants to learn about it, I’m happy to talk about it. But probably the right first step is to come into syndicate and just see how I work. But I guess one of the things that I think is worth talking about in this vein of being kind of innovative around the syndicate model is one thing that I personally am really fascinated by is incentives.

And I kind of touched on it a moment ago about how most help happens when there’s a mutual exchange of value. I think there are really interesting things that can be done in the syndicate model where you can play with incentives in new ways. So in a conventional venture fund, the first step is that the principals, the GPs go out and they raise the money. They raise a certain amount of money. And then they know this is the amount of money we’re gonna deploy over a certain amount of time. And then they find companies to put the money into. And then hopefully those companies perform well. And they produce a good return on the money that they raised.

Now, once they have the money, there is a very little incentive to give away any of their performance fees or pay anything out to anybody else, because, hey, they’re getting fund management fees every year. And they also own all the carry. And the incentive that they have is to kind of hoard all the court of economics in the fund that they raised. We see that manifesting, and most venture firms are led by a small quantity of people that have all the theory, had the whole GP. And if it’s three people in a partnership, they very, very rarely add a fourth because they’d have to give away a third of their economics. Now, what’s different about a syndicate is that you actually start with the deal. You don’t start with the money, you start with the company you want to invest in.

So AngelList is huge. There are hundreds or thousands of backers on there and they want to put money to work but they want to put it into the best use. And what I’ve observed is that if you bring really good companies and really good investment opportunities, so a great company and the deal is right at this time, and you bring it on to AngelList and put in front of backers, you can get a ton of money into that one deal. As I said, we just had this one where we run a 1.3 million and about four or five days. And in this system, the amount of money you get is driven by how good the deals are. And so the incentive is actually reverse where I as the lead have a huge incentive to make sure I bring in the very best deals.

And in fact, if I give away part of my economics to other people that helped me get the best deals, I’m actually gonna make more money in terms of my economics than I would have if I didn’t give any way. So as an example, if my average syndicate would be 100K or 200K, and I keep all the economics on that, it’s 15 points of carrier or basically share the profit off that. But in this case, someone introduced me to a company that was so compelling and so interesting. And because we’re able to bring in so much, even though I gave him two-thirds of my economics, my one-third that I had left, because we brought in so much money, it’s actually worth more than the economics that I would retain if I just founded an ordinary deal done myself.

So basically, the point I’m making is that the syndicate model where rather than starting with the money in a fund and then going out finding the deals, instead, you start with a deal. And the amount of money you get for that deal is driven by how good the deals are, I think it leads to the cycle where you end up getting much better deals because you won’t get the same amount of money otherwise. And so, in this model that I’ve kind of been innovating on where I share, carry on almost all the deals I do, I think it’s like 90% of the deals I do now I actually share my economics with other people who help me find it and help me add value and really help me do the deal. I think that I’m bringing in more and far higher quality deals than most conventional VCs.

Meb: What is the amount, and this could be zero, I don’t know, do you allow for inbounds unsolicited? Or do you allow for other people just to shoot you an email and say, “Here’s my hot company,” or, “I’d like to introduce you to this killer startup”?

Peter: So it’s very tricky. So one of the things that’s especially hard about angel investing, David Rose talks about this in his book about angel investing is that most angels meet with somewhere around 40 to 100 companies to find one to invest it. That’s really time consuming and really hard. And that’s basically how I did it as a solo angel before. I would meet a ton of companies and try to pick out the one out of 40 or more that I thought was most compelling. Now, that doesn’t scale that well. Now with the syndicate model because I basically share economics with people that are able to help me find really good deals, basically, it’s allowed me to kind of identify more promising companies more quickly.

I do still take the occasional cold inbound, but it’s very rare. I think I get somewhere in the range of five really quality referrals per week, but I get another as probably in the range of like… It’s sometimes as high as like 40 deals a week that are cold inbound. And it’s really hard to sift through all those. And also, most entrepreneurs are not very good at kind of concisely communicating opportunity. Occasionally, I actually just did one where the entrepreneur reached with a very impressive one paragraph email, told the story, said why it was compelling. And it was compelling enough that I took the meeting. And then it ended up being a great deal and I did it. But I don’t do that many.

I guess what I do most of the time instead is that the people that send me the most deals, one, they kind of know what to look for. But, two, I actually ask a lot of people my network to do a little bit of work. I usually ask them to summarize the opportunity in three to five bullet points. And actually, a lot of the syndicate backers, to be honest, often send me a deal and they’re like, “What do you think about this one?” And in that case, you know, if they’re asked me what I think, you know, I need to read it very carefully. And sometimes when you talk to entrepreneur, and that requires the same amount of work as before, where I manually look through 40 to 100 companies for everyone I did.

What I found is that because I’m now offering a big part of economics to do the deal together, I can ask for a little bit of help. And oftentimes, when someone sends me a company and I can’t really tell it first, if I like it or not, I ask them, “Can you summarize the most salient points about this in three to five bullets?” And what I found is that if the person is not able to concisely communicate something that’s really compelling in that amount of space, I usually can’t find anything to like in the deal myself. But in contrast, if someone is able to give me three to five really good bullet points of like, “Here’s who the team is and here’s what they did. Here’s the attraction. Here’s the market. Here are the other people around them.”

If they can do that in three to five bullet points, and it’s compelling, and they send it to me, I actually end up doing those deals, probably almost half the time. And so I found that’s a really good way to scale where I kind of use my network, I compensate them for their help if they bring an opportunity that we do, but I do ask them to do a little bit of work in filtering and helping me find the best opportunities.

Meb: It’s funny because it seems like it’s also a signaling filter. Like if you’re a founder emailing a VC and you can’t figure out a way to get a warm intro, like that’s like you haven’t done enough work, right? Like you can figure out a way to get a warm intro other than just cold inbound, but most are just too lazy or don’t care.

Peter: It’s true and especially given that I basically pay the people who make the referrals, and they should care. So a lot of people want to first off.

Meb: As we look to the horizon, what do you think if we look out 1, 3, 5, 10 years, I would love to hear about your kind of vision for where Unpopular goes. You know, it’s a bit interesting or ironic or whatever you want to call it, that the amount that you’re actually deploying now is probably quite a bit larger than had you actually raised a fund.

Peter: That’s right.

Meb: There’s little serendipity in there. But what’s the sort of vision as you look out the next handful years? Is this something you need to…because it’s a lot of work. Do you need to start to build a team? Do you think you’ll still be doing this solo gig? Do you think you’ll continue to scale the syndicate? What’s the future like?

Peter: You’re hitting on kind of the last part of the story of me trying to raise my fund, and funny thing is it’s like when I try to raise the fund I was not successful. And my plan was, “Okay, I’ll do the AngelList thing for a year.” It’s more that track record with other people’s money and then go raise the fund. And the funny thing is I’m actually moving more money now through the syndicate than it would have been with the $20 million dollar fund I tried to raise. So we did $5 million last year. We’ve already done our very first deal this year running $1.3 million and we’re going to end up doing five deals this month. So it’s funny, I’m moving more money with a syndicate model than a conventional venture fund.

Two, as I kind of touched on, I think I get better deals…I’m doing better deals than most conventional VCs. And it’s also getting better over time. As the syndicate grows, we kind of have a bit of a network effects built into the model. I didn’t actually show this in the annual LP letter. I thought it might sound a little bit too crazy, but I’ll share it now. I think that the next Sequoia or Benchmark, the premier venture funds or venture operation in 10, maybe it’ll take 20 years, but I think it might happen in 10 is actually gonna be a syndicate model. You know, I’ve talked about how the incentives work and how I’m doing the best deals because I’m starting with the best deals, and I’m sharing with my 750 LPs and our 24 portfolio studios and any other friends I have who want to send me great deals, I’m sharing with this wide network a much bigger incentive than most of the conventional venture funds share for deal flow.

Because of this alternative structure in syndicates, I think that this is going to keep growing. And I think that the syndicates are going to eventually become bigger than conventional venture funds and they’re also gonna produce better returns. And I think that’s a little crazy. So AngelList is actually a lot bigger than most people realize in terms of dollars deployed. They’ve told me that that they don’t want to share to publicly how much is moving or quantity deals that are coming through, but it’s a lot bigger than anybody knows. They’re very secretive about it. And they deliberately not done any marketing, but AngelList is a really big deal already. But at the same time, the number of actual active investors on there, it’s pretty small.

In my own syndicate, 24 deals, last year done…last year moved about 5 million, that was only from about 300 and change people. I had 750 backers in the syndicate, but not all of them have participate in a deal yet. So only about 300 were active in my syndicate. And I think obviously there’s some people that participate in other syndicates, but not mine. But I would estimate that their total number of people on there that are actually doing deals is probably under 1000 and definitely under 2000. And that is really tiny compared to all the people with wealth in the country or in the world that would probably like to invest in this asset class. Both with the current regulatory framework, but then maybe even more so if the rules around accredited investing are losing.

So I could easily see that over the next 5 or 10 years, the number of people that are active on a platform like AngelList going from 1000 to 10,000, or 100,000. I mean, how many millionaires are there in the U.S.? You probably know better than I do. But it’s a much higher number than any these numbers that I’ve laid out. And by a lot of measures, early stage angel investing is the best performing asset class if you can get access to the best deals and you can’t through something like AngelList. So I think we have a lot of growth ahead in terms of both the number of people that are involved and the dollars under management. And then also because of the new incentive structures, I think that the syndicate models might outperform and kind of become the premier venture operations 10 to 20 years ago.

Meb: Yeah, I think it’s a fascinating implication. It’ll be curious to see if it ends up being more moving downstream at all towards bigger raises on the series A, B, C. It’s be curious if there eventually becomes some pressure on the AngelList carry, where people just move off platform and run their own syndicates. It’ll be fascinating to watch. I’m a fascinated observer. It’ll be interesting to see. And also, to be completely honest, we’ve also existed during a pretty bullish time for startups. They haven’t quite been through the full cycle yet that we’ve been through, financial crisis and the internet winner of the early 2000s. That’ll happen again one day, maybe.

Peter: Very true.

Meb: So from someone who’s been on both sides of the table as an angel investor as well as a syndicate lead, what are some either resources or general advice that you would give people who are listening that are either, you know, interested in joining some syndicates or ones that have been doing it for a while but maybe want to get more involved? Any general takeaways? Are there any conferences do you recommend going to? Any books, ideas, people to follow on Twitter? Anything. What’s some just general thoughts that you think would be helpful?

Peter: There’s really a lot out there. I think it hasn’t really been well aggregated yet, but there is a lot of great content out there for people that want to learn about angel investing startups. For me some of the more formative things that I followed or some of the top venture and startup bloggers have really helped me a lot. So both Fred Wilson, he blogs every day. It’s very good. Sam Altman is less frequent, but his posts are always amazing. Paul Graham, Bill Gurley occasionally does blog posts, and they’re fantastic. There are a few others, but those are some of the ones that come to mind. And there are also some great books on angel investing. Mr. David Rose’s book was kind of a big one when I was first getting going, and that really helped me a lot. Obviously, there’s lots of podcasts, and Jason Calacanis for one, I feel, he also has his own book that I’ve heard is great.

Meb: Do you actually attend any of the accelerator or demo days or anything or find any of those worthwhile to pop your head in?

Peter: I have some. I found it very hard to kind of spend that time and attention that I need to really get to know a company in the most effective way. I personally have had a hard time using accelerators as a way to identify the deals I want.

Meb: Okay, that’s an answer.

Peter: There are good companies there but it’s hard to kind of get the access.

Meb: I have an inkling, what’s been your most memorable investment?

Peter: The crypto stuff was very exciting through the boom and bust cycle there.

Meb: I would love to hear you talk through, and I think this applies to both venture investments as well as public market investments. You alluded to earlier how very few percent of private market investments and VC firms that do really well are dominated by just a handful of companies. That’s actually true within the public markets as well. I think it’s like 4% of companies actually deliver all the return, you know, the McDonald’s of the world, the Amazon’s, etc., Apples. And you can walk through this in kind of real time or how you think about it. But when you have an investment that goes 10, 100X, if you didn’t have an Uber or something else to go 6,000, 10,000X, etc., how do you think of that in terms of a portfolio context of position sizing? Because there’s two ways to look at it, you know, where it becomes no longer just a portfolio determinant but the portfolio determinant?

Peter: One, I thought Jason Calacanis had a great answer on your podcast with him. For me as well, I think it’s always a balance. I think that, yes, it makes sense to de risk over time. But you also don’t want to miss out on future upside. And for me, that usually means selling anywhere between 20% and 50% of the asset if it’s really gone crazy. I personally don’t like to sell more than 50% of anything. I’d like to try to think of myself as Warren Buffett in a way, the types of investments I do are different, but I still want to try to buy things that I can hold forever. And yeah, my hope is that I’m buying Amazon in 1997 and just holding it all the way through. And sure, if it goes up 100X, yeah, sell some of it. Make sure to de risk, get some capital out to put elsewhere. But at the same time, you should let most of it ride because the biggest winners happen over a very long period of time.

Meb: That’s easier to do in the private space because in many cases you can’t sell. Do you want to sell pound sand? Unless you get one of the secondary market liquidity is on equities and or shares post or something else. But the problem with the crypto was that you have the same problem as the U.S. markets, it’s daily liquidity. So it’s a little bit harder for the public investors out there. And I imagine on the flip side, the most memorable omission has got to be Bourbon, right?

Peter: Oh man, my anti-portfolio is terrible. I missed Instagram, Newbank, which is last valued at $10 billion, is a good friend of mine. The DoorDash founders are good friends of mine in business school. They were last valued at $12 billion. I don’t know how I missed so many of these really good ones. I feel lucky I’m still in a lot of good investments and the returns are great, but, man, I’ve missed a lot of big ones.

Meb: DoorDash shout out. We use that in the office, and the new Chase credit card reward people gives you a free DoorDash subscription. So interesting. It was the only one for a long time that would allow for group orders, which is kind of crazy. Anyway, Peter, this has been a lot of fun. Where can people find you? What’s the best places to go follow along with what you’re up to?

Peter: Yeah, well, I have a very bad website up. I haven’t spent a lot of time on it, but it is unpopular.vc. And that contains a link to the AngelList page. And really AngelList is kind of where I write and publish everything and publish multiple deals a month and updates on a lot of the others and kind of write and communicate a lot with all my backers. So it’s a really AngelList and backing my syndicate on AngelList is the best way to kind of find me and communicate.

Meb: Peter, thanks so much. It’s been a blast. Thanks for joining us today.

Peter: Meb, thank you so much for having me. It’s been great.

Meb: Listeners, we’ll add show notes links as well as contact info for Peter and lots of everything we talked about today at mebfaber.com/podcast. Subscribe to the show, leave a review on iTunes. We’d love to hear from you. Shoot us an email, feedback@themebfabershow.com. Thanks for listening, friends, and good investing.