20VC Investing Lessons From Fred Wilson & Brad Feld and Why Fundraising Is An Art & Not Everyone Can Be An Artist with Howard Lindzon Founder @ Stocktwits & Managing Partner @ Social Leverage

In this episode of "The Twenty Minute VC," host Harry Stebbings interviews Howard Lindzon, managing partner at Social Leverage, founder of Stocktwits, author, and hedge fund manager. Lindzon shares insights on his successful investments in companies like Robinhood and Rent, which eBay acquired for $415 million. He discusses the importance of following smart people and trends, the necessity of strong convictions with the flexibility to adapt, and the value of understanding both private and public markets. Lindzon emphasizes the skill of fundraising, the art of recognizing patterns, and the benefit of learning from losses. Additionally, he highlights his recent investment in Civic.com, a blockchain-based identity protection service, and his approach to angel investing, which includes a long-term vision and consistent capital deployment despite market cycles.

• Howard Lindzon is the managing partner at Social Leverage.
• He has made successful investments in companies such as AngelList, TweetDeck, and Robinhood.
• Robinhood was acquired by eBay for $415 million.
• Howard is also the founder of Stocktwits, a social network for traders and investors.
• He is an author with multiple published titles.
• Continues to manage a hedge fund he started in 1998.

"So joining me today is Howard Lindzon, and let's start with his investing. He's the managing partner at Social Leverage, where he's made investments in the likes of AngelList, Day to Fox, TweetDeck, previous guest Robinhood, Rent, which was acquired by eBay for $415,000,000 and many more incredible companies."

This quote introduces Howard Lindzon as a seasoned investor and entrepreneur, highlighting his role at Social Leverage and his notable investments, including the successful exit of Robinhood.

• DesignCrowd is an online marketplace for design services.
• It is used by brands like HTC and Virgin Active for various design needs.
• The process involves launching a project, receiving design submissions, and selecting a favorite.
• The service is fast and cost-effective, suitable for small businesses and entrepreneurs.
• Angel Loop is a platform for communication and data sharing between companies and investors.
• Founders can track performance metrics and update investors about their business.
• Investors can offer real-time support to founders.
• Angel Loop is free for investors and costs $59 per month for founders, with a free trial available.

"Designers begin submitting quality designs for you to review. You quickly generate a large gallery of designs that fit your needs. Once you select your favorite design, you'll be sent all the files you require."

This quote explains how DesignCrowd operates, emphasizing the efficiency and simplicity of the design selection process for clients.

• Howard Lindzon is Canadian, 51 years old, and resides in San Diego.
• He has a daughter in college, a son who is a senior, two dogs, and one wife.
• He is passionate about the stock market, markets in general, and angel investing in startups.

"Canadian, born 51 years ago this week, live in San Diego, one daughter in college, one son at senior, two dogs, one wife. And I love the stock market. I love markets, and I love angel investing in startups."

This quote provides a personal background on Howard Lindzon, emphasizing his passion for the stock market and angel investing, which shapes his professional endeavors.

• Howard Lindzon has experience as a hedge fund manager.
• He believes hedge funds and mutual funds are breaking due to a focus on asset accumulation.
• Lindzon sees a parallel in VC with large funds like Andreessen Horowitz and General Catalyst.
• He notes the trend of money flowing into Vanguard's S&P 500 ETFs, which he believes stifles creativity and will lead to fallout.
• Lindzon transitioned to angel investing as public markets became less appealing for generating alpha.
• He advocates for clear communication with investors about the high risks of angel investing.
• The private and public markets are interconnected, and the movement of money between them is significant.

"I think four or five years ago when I started writing about how money is just being out called vandalized. Vanguard sp makes sense. The system's working. Money is flowing into these vanguard simple, mechanical fortune, five hundred s and p, five hundred etfs. And so it's destroying creativity."

This quote addresses Lindzon's view on the current state of investment funds and how the trend towards passive investing in large ETFs is impacting the financial ecosystem, including creativity and innovation.

• Howard Lindzon spends his time reading and staying informed, particularly in finance.
• He compares angel investing to playing the board game Risk, focusing on strategic starting positions.
• Lindzon follows smart people in the industry, like Brad Feld and Fred Wilson, to identify trends.
• He emphasizes the importance of domain experience and investing in great founders.
• Angel investing is not for the faint-hearted and requires a long-term commitment.

"So when I discovered Brad's blog, Brad Feld or Fred Wilson, when I discovered their blog roles back in 2005, 2006, and really could fast follow some of the smartest people sharing in real time or on their blogs, what kind of stuff interested them, I tried not to complicate it after that."

This quote reveals Lindzon's strategy of following industry thought leaders to guide his investment decisions, demonstrating the value he places on leveraging the insights of experienced investors.

• Angel investing is high risk, with the expectation that many early investments may not succeed.
• Naval Ravikant suggested to Harry Stebbings that one's first 30 angel investments will likely fail.
• Howard Lindzon agrees with the high-risk nature but shares a personal anecdote of success with a "great crop of entrepreneurs" during 2006-2008.
• The success in angel investing can be attributed to timing, market conditions, and the rise of influential tech companies like Twitter and Facebook.
• Howard emphasizes the importance of diversification in angel investing, advocating for a portfolio of 80 to 100 startups.
• AngelList, co-founded by Naval Ravikant, is seen as a platform that provides data and curation, potentially offering an edge to investors.

"Naval Ravikan once told me that your first 30 angel investments will go to zero. Do you agree with this kind of short buyer thesis and how did it play out for you in terms of your kind of investment decision making and pattern recognition as you developed as an angel?"

This quote is Harry Stebbings asking Howard Lindzon if he concurs with Naval Ravikant's statement about the likely failure of initial angel investments and how it influenced his investment approach.

"But when I really started investing after I sold wall strip, I caught a great crop of entrepreneurs in 20 06, 20 07, 20 08 and I would say 50% of the companies worked out fantastically."

Howard Lindzon shares his experience of having a higher success rate than what Naval Ravikant suggested, attributing it to good timing and the emergence of significant tech companies.

"Consistently putting the money to work in the economy is a great thing and great entrepreneurs. And if you can curate it down through the data that angel list is going to have, that's a bit of an edge."

Howard Lindzon explains that consistent investment and using the data from platforms like AngelList can provide an advantage in angel investing.

• Howard Lindzon concurs with Mark Andreessen and Sasha Patel that having strong opinions loosely held is vital for investors.
• He believes in the necessity of adaptability and willingness to pivot when circumstances change.
• Conviction is crucial for initial investments and support of entrepreneurs, but investors must also be ready to withdraw from failing ventures.
• Longevity in the investment business requires a balance of conviction and flexibility, with the goal of attracting institutional capital and supporting multiple generations of entrepreneurs.

"That's so much a characteristic, it's just a truth."

Howard Lindzon asserts that having strong opinions loosely held is not just a characteristic but a fundamental truth in the investment world.

"So you get these signals and you can go from strong opinion, but I think sometimes you just have to have loosely held and that plays out in do not average into your losers in our business, unfortunately, you have to cut loose to struggling companies on a portfolio basis and pile into your winners."

Howard Lindzon discusses the importance of not doubling down on failing investments and instead focusing on the successful ones, highlighting the need for flexibility in one's investment philosophy.

• Howard Lindzon reflects on the importance of long-term thinking for raising institutional money and being consistent in investment practices.
• He comments on the rise of seed funds by young and inexperienced managers, suggesting that worrying about others is counterproductive.
• Lindzon advocates for a focus on personal conviction and daily commitment to the investment process, regardless of market conditions or perceived bubbles.

"You can't worry about what everybody else is doing. This goes back to that, strong convictions loosely held."

Howard Lindzon emphasizes the importance of focusing on one's own investment strategy and maintaining conviction while not getting caught up in what others are doing in the market.

• Howard Lindzon believes it is possible to be both a trend follower and conviction-driven.
• He explains that trend following in public markets is different from private markets due to the inability to quickly exit positions.
• Lindzon prefers to follow smart people and have conviction in his knowledge in private markets, rather than just following trends.
• He points out the advantage he has from understanding both public and private markets and tries to educate others on these differences.

"Trend following, to me, just means you see certain patterns and, you know, historically, from seeing patterns hundreds and hundreds of times with the naked eye or with how teams set up or how a curve looks on growth, et cetera, et cetera, and you go, wait a minute, this is a pattern that's repeating."

Howard Lindzon defines trend following as recognizing and acting on patterns observed in the market, which is facilitated by experience and historical data.

"But in private markets you can't do that. That's again that connection to private and public markets."

This quote highlights the distinction between trend following in public markets, where quick exits are possible, and private markets, where investors must commit for longer periods.

• Howard Lindzon comments on the lack of public market awareness within the startup ecosystem.
• He believes that knowledge of public markets is not sufficiently valued or utilized by many in the startup community.

"In the startup ecosystem, there seems to be a complete lack of public market awareness."

This quote from the transcript points out a perceived gap in understanding or consideration of public market dynamics within the startup investment community.

• Howard Lindzon believes understanding the stock market provides an edge in venture capital.
• Real financial education comes from experiencing losses in the market.
• The stock market is an accessible way to learn about market dynamics and personal behavioral responses to gains and losses.
• Howard criticizes the trend of investing in vanilla S&P funds as a step backward in financial education.
• He advises young investors to open brokerage accounts and actively buy stocks to learn from the experience.

"I think it's an edge. Is it necessary? I mean, in 99, 2000, I'm sure Fred Wilson and Bradfeld and a lot of the VCs wish they understood the stock markets because they would have sold, because they could have sold."

This quote emphasizes that having knowledge of the stock market could have benefitted venture capitalists during the dot-com bubble, suggesting it's an advantage but not strictly necessary.

"People need to lose money to really understand how the markets work."

Howard is indicating that the experience of losing money is crucial for a deep understanding of market mechanics and investor behavior.

"The stock market is the easiest way. The media would make you think it's taboo and the hardest way, but oh my God, the stock market is basically free with an app like Robinhood."

Here, Howard is pointing out the accessibility of the stock market for educational purposes, countering the perception that it's difficult to engage with.

"I'll take that edge all day long as we invest our LPs money."

Howard is expressing confidence in his edge due to his understanding of the stock market, implying it benefits his investment decisions on behalf of limited partners (LPs).

• Howard Lindzon shares his experience of turning down an investment opportunity in Zynga.
• He highlights the importance of not chasing investments due to fear of missing out, a lesson learned from stock market investing.
• Howard's decision to pass on Zynga was based on a discrepancy in valuation, despite the potential upside.
• The story illustrates the tension between principle-based investment decisions and the opportunity cost of missed gains.

"I never have fear of missing out. The stock markets taught me never to chase."

Howard credits his stock market experience with teaching him to avoid making investment decisions based on fear of missing out.

"I passed for the right reasons, but I shouldn't have passed."

This quote captures the conflict between sticking to one's investment principles and recognizing a missed opportunity in hindsight.

• Howard describes himself as culturally conservative in his investment approach, emphasizing money management and cautious investing.
• He discusses the lesson learned from Fred Wilson about when to "hold your nose and write the check" if all other factors align except for price.
• Howard acknowledges the importance of valuation but also recognizes situations where it may be less critical if the investment opportunity is strong enough.

"Culturally, I'm conservative. I'm Canadian. The way I think about money is pyramiding, so you have to have money to make money."

Howard is explaining his conservative approach to investing, influenced by his cultural background and views on money management.

"The lesson from Fred there was, hey, if you like the CEO and you like the opportunity and you like the market, and every single thing about this says yes, and the only reason you say no is the price... Well, you should probably hold your nose and write the check."

This quote summarizes the advice Howard received from Fred Wilson, which suggests that in certain cases, valuation should not be the sole deterrent to making an investment.

• Howard reflects on his angel investing journey, acknowledging that he would have invested in Zynga and Twitter had he not been strictly adhering to valuation rules.
• He expresses regret over missed opportunities and recognizes the importance of balancing investment principles with market realities.

"I mean it's easy. It would have been like, hey, that one tip from Fred is like if I could turn that clock I wouldn't have passed in 2007, 2008, was writing a lot of checks."

Howard is conveying a key lesson learned about not letting valuation alone dictate investment decisions, especially when other factors are favorable.

• Howard Lindzon comments on the strength of Facebook's network effects and its increasing value due to user-generated digital assets.
• Despite acknowledging Facebook's success, he admits to not owning the stock and being wrong about it.

"Facebook can stop Facebook. Listen for those long congrats. They've been right. They will continue to be right because Facebook, unlike Kodak, every day gets stronger the network effects."

Howard is acknowledging the power of Facebook's network effects, comparing its growth favorably to the decline of companies like Kodak.

• Howard's favorite stock market book is "Reminiscences of a Stock Operator," which he recommends to everyone on Stocktwits.
• The book is appreciated for its timeless insights into the trading journey and the stock market.

"My favorite stock market book is reminiscences of a stock operator."

This quote identifies Howard's favorite book, highlighting its importance to understanding the stock market and trading psychology.

• Howard lists his daily must-reads, including Abnormal Returns for a pulse of the markets and Josh Brown's blog for its humorous take on finance.
• He also continues to read Fred Wilson's blog for insights into the venture capital industry.

"My must reads every day are a few so abnormal returns. I read just for he says great link fest on what's happening on the financial web for a pulse of the markets."

Howard is sharing his go-to sources for financial news and market trends, emphasizing the value of curated content.

"My favorite I think blogs that I go back to because he summarizes it the way I think is Josh Brown who is reform broker who is funny and just mean but does it in a funny, you know has this weird look on the financial world and elsewhere."

This quote reveals Howard's preference for blogs that align with his perspective and provide a unique take on financial topics.

• Harry Stebbings discusses his daily habits, including using tech meme and nuzzle for information.
• These tools help in staying updated with the latest trends and news in the tech and media investment landscape.

"I like tech meme still as a daily habit and I've been using nuzzle." "Love nuzzle. Absolutely."

The quote highlights the use of tech meme and nuzzle as daily tools for staying informed in the tech and media sectors, which is crucial for investors and enthusiasts in these fields.

• Howard Lindzon shares his journey into the venture capital (VC) industry, starting from a position of being relatively unknown.
• He utilized the knowledge and content shared by prominent VCs like Fred Wilson and Brad Feld to learn about term sheets.
• Lindzon emphasizes the importance of being polite and socially adept in networking within the VC community.
• His approach led to successful pitches and investments from notable figures in the industry.

"I think you'd say, yeah, it was 2005. I searched term sheet... And through that I got a meeting with Fred to pitch my idea, wall strip. And Fred and Brad, Mark Pinkus, as I said, invested and the rest is history."

The quote describes Lindzon's initial foray into venture capital, highlighting the role of online resources and networking in gaining access to influential investors and securing funding for his ideas.

• Howard Lindzon discusses the complexities of fundraising, describing it as an art rather than just a skill.
• He outlines two approaches to fundraising: presenting a blank slate or leveraging domain experience and a strong network.
• Lindzon stresses the importance of confidence, vision, adaptability, and perseverance in successful fundraising.
• He advises that passion and expertise in a domain can facilitate the fundraising process, though it's not a guarantee of success.

"Well, there's two ways to fundraise. There's to lie... The skill comes in knowing how to pitch to the investors that you're in front of... The good ones know they're going to be bobbing and weaving and you're trying to find entrepreneurs that aren't going to quit."

The quote explains that fundraising involves strategic pitching and the ability to adapt to changes, emphasizing the search for resilient entrepreneurs who can navigate the challenges of building a business.

• Howard Lindzon shares insights on his most recent investment in Civic.com.
• He compares Civic.com to Lifelock, noting its innovative approach to identity theft protection using blockchain technology.
• Lindzon highlights the importance of the founder's track record, the business model, and market potential in making investment decisions.
• The investment in Civic.com was driven by conviction in the entrepreneur, the idea, and the market opportunity.

"Civic.com is probably our last big investment in our fund... Civic is basically a reimagined with a different business model, Lifelock called 2.0... So things lined up and we have conviction around the idea."

The quote provides a rationale for investing in Civic.com, emphasizing the innovative business model and the team's confidence in the company's potential for success in the identity protection market.

• Harry Stebbings thanks Howard Lindzon for sharing his experiences and insights on the show.
• The host, Harry Stebbings, promotes additional resources such as the 20 Minute VC newsletter and the design crowd service.
• Stebbings also mentions Angel Loop, a post-funding management platform for investors and startups, offering a trial promo code for listeners.

"And I'd like to give a huge hand to Howard for giving up his time today to appear on the show... Likewise, we so appreciate all the support."

The quote concludes the podcast episode, expressing gratitude to Howard Lindzon for his participation and offering listeners further resources to engage with the venture capital community.