So You Want To Be A Venture Capitalist…

Yesterday I talked about edges.

Today, Airware, a drone company that raised $118 million from venture capitalists including A16z, Kleiner Perkins and Google Ventures shut their doors.

When I think about venture capital investing and edges a few great brands come to mind…Andreesen’s A16z, Google Venture and Kleiner Perkins are three of them.

If you could dollar cost average capital with them over time you will make outsized returns.

If you can invest in a fund/group of companies in which all three were on the cap table, you would and you should.

If you want to cherry pick company by company …YOU actually better be the one with an edge, because even with all their edges they still get a lot wrong.

Stay woke and have a good weekend.

PS – I turn 53 on Monday so please remember to enjoy your youth.

What’s Your Edge?

If you don’t have an edge you are someone else’s edge!

I come back to this riff as I make stupid investing and trading mistakes.

I write about investing almost every day here and share ideas about stocks and startups as I have them, but I wanted to take a step backward today and talk about ‘edges’. Particularly, in today’s post, the edge I believe we have built at our firm/fund at Social Leverage.

I get this question a lot because I seem to always be raising money.

I also get the question because a lot of people that follow along here want to do what I do. I am thrilled that my blog and my tweets inspire people and make my job seem exciting and doable but I find myself talking people out of what I do for a living, because it’s not for everyone. Your job needs to be fulfilling, not just exciting and about the money. Investing through difficult markets and explaining losses is a big part of the job.

I thought it would be a good exercise to update our ‘edges’ (at least as we see and explain them when asked) on my blog here today. Feel free to email me if you have questions or think we are missing something.

We have raised three funds at Social Leverage and while we cover what we believe to be our edge in our deck, we can’t fully fit all our years of knowledge and view points on one or two slides. We love what we do. My partners Tom, Gary feel we are just hitting our stride and as we get great joy from getting to do what we love we hope we can help others as they move down the investing path.

Why Social Leverage ?

My partners and I have been working together for over two decades. Like I mentioned above, we have raised three funds together and invested in over 100 startups.

Our strong track record is an edge. People like winners and it helps to have a good track record with high net IRR and cash on cash returns. Do not underestimate cash on cash returns. A good track record shows thats you have a history of spotting and riding trends and finding great founders.

A Unique network – Networks are not built overnight. Our competitors (those funds raising money from the same people) have great networks too so it helps to have a unique network. Our 100 plus founders, Gary’s enterprise experience selling to and working for Salesforce and my fintech and financial markets experience bring us a unique network.

Domain Experience – It is too hard to be a generalist long term (at least in my opinion) and that ties to our unique network. A bull market will bail out generalists, but recessions, bear markets and illiquidity happen. Having the domain experience to help founders and their teams survive and thrive through a bear market is an edge. If we don’t need this edge…wonderful.

Size – We are purposely not too small that we can’t lead all our investments, but not too big we can’t just co-invest and help a lead investor finish a round.

Unique and Abundant flow – Having started Wallstrip and Stocktwits and invested at the seed stage in Robinhood and Etoro, I have a point of view of course, but I also have flow. Fintech founders track me down. I obviously put that vibe out there on my blog, but being easy to find all day on Stocktwits and Twitter and daily on this blog I make it easy to find me and share what we are looking for. Knowing what we are looking for is part of that edge that helps me write everyday and live just enough in the future to make a difference. My partner Gary has built four enterprise businesses, one which went public and his latest acquired by Salesforce where he worked for four years. Gary knows modern enterprise software and how to grow teams and position products.

We have seen the endzone (founding, building, being acquired, selling, going public, unicorn status). We have laughed, we have cried and we have been to the bank and cashed a few checks. It is hard to explain what the feeling of a large exit is like until you experience it. I have talked to so many investors and founders that have experienced it and it is different for everyone but I am glad I know how it feels. Unicorns are mythical creatures, but to have invested in seed stage teams that have less than four people or just an idea and no code or sales and see billion dollar exits is an edge (even if it is just psychological).

Our LP network is very diversified so we can tap experts as we need them to help our companies grow faster.

We are the right amount of paranoid. We know who not to work with. You can only really know this by working with bad people. Mistakes like this lead to losses, but when we talk to new investors those mistakes are pitched as our edge. At least that’s how we sell it :) !

No’s motivate me. I am in the business of no’s – telling entrepreneurs no, and hearing no from potential investors. I have lived a NO life.

Process – from term sheets, to cap table management to helping our companies raise additional capital, while everybody should fake it until they make it, this knowledge of the process first hand is an edge. Our partner Tom is a superhuman when it comes to process.

Our eyes and ears and feet – spotting and chasing down talent. We are on a plane a lot. Face to face matters. Without a point of view and domain experience you can’t possibly chase down talent and in the seed stage investment business where power laws rule, you have to chase down the best teams, especially when they fit into your view of the world.

We are curious and we love what we do. Believe me the money can be great, but do not do it for the money.

We are optimistic. If you think Amazon is overvalued, you may be right, but angel investing is likely not for you.

Do What You Can’t

I love this old YouTube video from Casey Neistat titled ‘Do What You Can’t‘:

Casey is an incredibly popular and talented YouTube creator. I don’t consider myself cool, but I do think it’s cool that he follows me on Twitter.

I was once a YouTube creator way back in 2006.

In 2006, I totally did what I could’nt creating Wallstrip and posting the show on YouTube (and the bazillion other video sharing sites of the era). In 2007, CBS acquired my company/the show (Here is the very first episode in 2006…on Apple of course).

In 2007 and 2008, I parlayed my do what you can’t windfall angel investing in software startups and now we are three funds in at Social Leverage with 100 plus angel investments in our portfolio.

We are paying it forward in the do what you can’t world which is powered by global, mobile and social networks.

YouTube truly ushered in the modern era of do what you can’t and today with Uber, AirBnB, Venmo, Square, AngelList, Robinhood, WeChat, Whatsapp, Instagram, Shopify, Twitter, Etsy and Twilio it has never been a better time to do what you can’t.

I am ridiculously bullish/optimistic on the next generation of creators AND investors because they have these incredible tools, networks and mentors to start and scale their ideas and businesses.

I focus almost all my work time on the onboarding, education and tools for the next generation of investors.

One of my favorite angel investments in our portfolio is AngelList. I remember calling Naval back in 2010 asking him to let my partner Tom and I invest in his company. He said no. We persisted and just sent a check. Naval accepted and AngelList is one of the great investing platforms of the post 2008 crisis investing era.

Robinhood, Etoro and Coinbase are just the tip of the iceberg of additional tools that will empower the next generation.

Today, Naval launched Spearhead (founders backing founders), which is a genius way of empowering and leveraging the next generation of investors. These founders/investors would never be able to raise institutional capital because they have another ‘job’.

The old systems and hierarchies for capital allocation are slowly being torn apart (unless of course you live in Turkey) and it can’t happen soon enough.

In the future I live in, I see a pure investing class. What were once lawyers, CPA’s, bankers and other ‘professionals’ will be more productive and fulfilled as investors.

I wish this on my kids for sure.

PS – I love this post from my pal Barry Ritholtz title ‘Crimes Were Committed‘. I will never not be infuriated at the banks, Obama and his administration for the lack of perp walks and witch hunts. We must teach our kids the language of money, markets and investing to stop these knuckleheads from controlling our money and lives.

Crypto Crush

I can’t say I’ve never seen anything like it because I invested through 1999 and 2008 but the the unraveling of all things Crypto is intense.

I have written here that I treat Bitcoin, Ethereum, Indian stocks and Chinese stocks as venture capital meaning I give them much wider room to fall than a typical stock. Zero’s happen.

It’s dead quiet in crypto land and that’s a good thing. Talent is still moving into the sector and that’s a good thing. Smart money is still bullish and that’s a good thing. Confusion is very high amongst retail investors and that’s a good thing.

Next is despair and than we will see what’s next.

I have no opinion on crypto just losses. I am so glad I was a big seller into the end of year mania but any exposure is bad exposure right now.

I am sitting tight and talking to the people that got me interested in crypto in the first place and when they give up I will give up.

I liked this tweet from my friend Farbood who is a crypto optimist and realist :

The crypto world will need more participants to resume any uptrend and stop the carnage. Plain and simple.

I enjoyed this interview with a Chris Dixon who continues to invest in the crypto world. Have a read.

Momentum Monday – I Wish I was a Stockbroker

The markets work in mysterious ways.

This wall of worry the market has climbed in 2018 is legendary. It might be the greatest and biggest wall of worry ever seen. The hilarity is, Fat Nixon is trying to build a real wall, but his greatest accomplishment is the wall of worry he has handed investors that have tuned out the noise.

Everybody is in passive investments because you know Wall Street can’t be trusted.

On this ten year anniversary of the death of Lehman, nobody really cares about stocks and that’s a good thing for people that like to own stocks.

Nobody has a stockbroker. Your stockbroker if he/she still has a job, changed their title to ‘wealth manager’ and sells insurance at the moment so they can make a living.

The thing is, the game may be rigged, but people still want to play the game.

With all that in mind…it remains nirvana for individual stocks.

In today’s episode, I pitch Ivanhoff a few new ideas and we tour the sectors (with lot’s of individual names) that are working best.

In order of discussion:

Biotech
Weed
Guns and drones
Enterprise Software
China Internet and Bitcoin – the only two areas that are not working
Transportation and Logistics

Hope you enjoy the episode – (click here to watch):

As a reminder, Marketsmith (by Investor’s Business Daily) is now a sponsor of the weekly show. All the charts you have been seeing in the videos and will continue to see are from Marketsmith. They are offering my readers a three week trial for $19.95. Click this link if you would like to try it out.

Happy New Year

It’s nice to be home with the whole family together for Jewish New Year.

I got texts from friends and family and WhatsApp’s from friends in Israel and we had a big dinner with Ellen’s side of the family and all the nephews in from University of Arizona.

I love to say it often because it’s true that I’m grateful for how lucky I have been.

PS…Rachel and I went to see Operation Finale which is the story of the Nazi Adolf Eichmann capture by Israelis (team leader Peter Malkin) in 1960 in Argentina. I think it is important that we all take young people to a movie like this and so I am passing it on.

Have a great week.

Is Long Form Research Dead?

The long answer is no, but you can do very well in the markets without it.

I love to share on Stocktwits, Twitter, my blog, podcasts, and Momentum Monday…

I share what I am thinking and doing and not what you/others should do.

Because I share what I am doing, it keeps me accountable and improves my own investing. The extra benefit is the community that has developed.

I think that is also what makes the stock market so popular …like your favorite sports teams, is you can never get enough. Once you find your teams, you hunker down and argue and often build community.

I ignore long form analysis, Wall Street research, news and commentary, but I can’t get enough of the markets because I have set up a system that allows me to endlessly get satisfaction and profits from reading prices and ideas in my streams.

The reason Twitter resonated with me as a medium (and inspired me to start Stocktwits) was the complete flipping of the idea generation and research format. If you could share an idea quickly and clearly you got addicted to the format.

Give me an idea and a chart. Give them to me consistently and I will likely trust you. Four eyes are better than two and forty eyes are better than four especially if I have the power to curate.

Over time I have also created a very unique sentiment analysis that others can of course do. How you read it is of course another long story or ten books.

Over time, your timeline tells all and if you are good, you get discovered. It’s not for everyone of course because it’s a game with no real time horizon. Some people get discovered quickly and other toil in the darkness forever. It is not fair. Alas, life is not fair.

So get to the point Howard!!!

This week, I sold the rest of my Twitter. The price drop took me out. I did not want to sell the rest of my Twitter. I now wish I had sold the rest of my Twitter the moment Facebook imploded. I could have sold for $45/share.

People that follow me are asking me to elaborate on why I sold the rest last week.

The more part is what does not matter. I don’t do much thinking with stocks when it’s time to buy or sell.

I found the more I dig into a company/stock for research, the more difficult it became for me to change my mind once I own the stock.

Maybe Twitter reverses Monday and goes straight to $50.

Twitter, the company is not 40 percent different today at $30 than it was with the stock at $45.

I have no idea what will happen next. Trust me on one thing…nobody knows.

When a pitcher throws at a batter, everyone can speculate, but only the pitcher knows what he was doing.

We are all hitters when it comes to the markets. We are getting pitches all day from every angle at every speed. The pitchers (Goldman, JP Morgan, now anyone with a social following) and the market itself as a whole, are trying to make you look as bad as possible when you do swing and because the game is fueled by transactions, the more you swing the better. Your money fuels the machine and the game.

So please be careful who you follow and what you ask for.

Build a system that works for you. In baseball they would say work on your swing, your balance and your timing (not sure strength really matters in the markets).

Let the pitches come!

The beautiful thing about investing is there is no three strike rule.

What Was Nike Thinking? What is Elon Thinking? What is Spotify (Daniel Ek) Thinking?

The President tweeted ‘What Was Nike Thinking?‘ this morning.

Professor Galloway has chimed in with his answer re Nike:

They were thinking about shareholder value.

He goes on to call it genius and the gangster marketing move of 2018.

Have a quick watch.

I agree 100 percent with Galloway on this one. The early results are good with Nike online sales up 31 percent just yesterday.

Nike did not politicize everything….The GOP and Trump did.

El Presidente might have been better off attacking Elon Musk because it is Tesla that seems on the ropes and the easy target.

Elon Musk did a very viral interview with comedian Joe Rogan in which they smoked a joint and had what I thought was a fun conversation. The problem is that Tesla has shed $21 billion the last few weeks.

And finally in today’s ‘What are They Thinking’ I enjoyed this interview with Spotify CEO Daniel Ek.

Have a great Saturday

Disclosure – Long Nike and Spotify

Informational Or Actionable and Goodbye Twitter

An update for my Peloton – I will be selling the rest of my Twitter.

Onward…

Tom Bruni has a great post up today ‘titled ‘The Bearish Case for US Stocks‘. Tom and JC have been extremely bullish for months, but they have a process that gathers information on a regular basis to check how, if, when, and where they will take action on a stock.

The key is a process that helps them move from informational to actionable.

One of the hardest things for investors to do is soak in a lot of information but NOT take action. Next hardest is to act on the processes you have set up based on the information that develops over time.

There are thousands of different styles and processes within this informational vs actionable framework.

Walking into an Apple store for the first time was what turned me into a long term shareholder. I was lucky to live across the street from one of their first stores. If I had relied on the analyst reports and opinions about Apple stores I never would have bought the stock because the rollout was ridiculed. Eating at Chipotles for the first time gave me the conviction to pay up on the day of the IPO back in 2006.

I love the smartphone era because it forced me to downsize my information life. I am still in a constant state of battling information overload and filter failure but the smartphone has freed me from my desk and unleashed my eyes and ears in a way that make me a better investor.

The smartphone era has unleashed a new generation of investors and entreprenuers that are not tied to limits of the past. That is why we are seeing valuations that seemed unimaginable in 2008.

We are most likely just getting started, but that does not mean markets won’t retreat as well. I remember how simple the Bitcoin bull case sounded in December.

Take in all the information you want but build and set a process that defines when you take action.

It is September – Please Dress Appropriately and The Four Comma Club (Amazon)

I love September. My birthday is in September.

But the stock market hates September. Keep that in mind.

I saw this picture of Sheryl Sandberg and Jack Dorsey at the Senate hearings and this is what immediately popped into my head:

While the Russians interfere with our elections, I must interfere with the style decisions of Jack. I asked for a proper photoshop to get the shirts back in line and these two work better:

I am about to throw in the towel on Twitter – the stock. It has been good to me the last year, but I don’t think they will get it together and grow the way they should. Technically the stock is holding on by a hair:

Snapchat does not have to be at the hearings which is the ultimate technology CEO snub in 2018. The stock continues to drip lower and today hit all-time lows.

I am not sure this heaviness in social media stocks, Google and Chinese stocks carries over to the rest of the market, but I have a feeling it will.

As for Amazon (I am long), it’s nice to see them join the four comma club and Stocktwits has a tshirt to memorialize the special milestone:

The stock is up $400 billion this year – the equivalent of the market caps of all of Walmart, Costco and Target. I liked this Josh and Michael video where they try and provide some context for the market cap and growth of Amazon.

I’m off to enjoy my last day in Amsterdam.

I am excited to get home for the jewish high holidays and hang with the family.