20VC Rick Marini on Lessons Leant From Naval Ravikant, Why You Need To Make 30 Investments Before You Know What You Are Doing & Why You Have To Earn The Right To Good Dealflow

In this episode of the 20 minutes VC, host Harry Stebbings interviews Rick Marini, a seasoned entrepreneur and angel investor with a track record of successful startups and over 45 early-stage investments, including Snapchat and Angel List. Rick shares his journey from founding Tickle, BranchOut, and TalkCo, to becoming a prolific angel investor and LP in several funds. He emphasizes the importance of due diligence, pattern recognition, and discipline in angel investing, advising entrepreneurs to focus on product-market fit before seeking funding. Rick also discusses the nuances of valuation, the impact of dilution on angel investments, and the need for entrepreneurs to value early investors when negotiating with VCs. The conversation also touches on the importance of mental well-being and efficient home Wi-Fi solutions, with mentions of Headspace and Luma.

• Rick Marini is a serial entrepreneur and prolific angel investor.
• He has made over 45 investments in early-stage startups, including Snapchat, AngelList, Lux, and Nuzzle.
• Rick founded and was the CEO of BranchOut, which raised $49 million and was acquired by One Page in 2014.
• He also founded and was the CEO of Talk Co., which was acquired by Hearst Corporation.
• Rick co-founded Tickle, which was acquired by Monster Worldwide for $100 million.

"Now, Rick is a serial entrepreneur and angel investor with over 45 investments in early-stage startups."

This quote introduces Rick Marini as a successful entrepreneur and an active angel investor with a significant number of investments.

"And prior to his prolific angel investing career, Rick was the founder and CEO of Branch out, who raised $49 million in funding from some of the world's best investors, including the likes of Excel, Redpoint, Mayfield, and many more."

This quote provides background on Rick's entrepreneurial success with BranchOut, highlighting the substantial funding raised and notable investors involved.

"And previously Rick was also the founder and CEO of Talk Co. Now Talk was acquired in 2014 by Hearst Corporation, and prior to branch out and Talk co, Rick was the co-founder of Tickle."

This quote outlines Rick's entrepreneurial journey, including his experience with Talk Co. and Tickle, both of which achieved successful exits.

• Mental health issues such as fear, anger, stress, anxiety, and sleeplessness often begin in the mind and can disrupt one's life.
• Meditation is presented as a helpful tool to address these issues.
• Headspace is promoted as a simple and accessible way to practice meditation, with a variety of guided meditations available.
• The app is suggested to improve various aspects of life, including stress management and creativity.

"Most problems start in the mind. Fear, anger, stress, anxiety, sleeplessness. They begin in your head, but they can really wreck your life. And meditation can help."

This quote emphasizes the origin of many personal problems in the mind and suggests meditation as a beneficial practice to mitigate them.

"There's a mountain of science showing the positive effects of meditation and mindfulness, and the headspace app provides guided meditations you can use whenever you want, wherever you want on your phone, computer or tablet."

This quote highlights the scientific support for meditation's benefits and introduces Headspace as a flexible tool for practicing meditation.

• Luma is described as the world's first surround WiFi system that enhances speed, security, and control over home networks.
• It is designed to be user-friendly, with a simple setup and the ability to create a mesh network for consistent connectivity.
• The Luma app allows users to monitor and manage their network, including device usage and content access.
• The product is recommended for its ability to support various online activities simultaneously, such as streaming, gaming, and conducting Skype interviews.

"Luma is the world's first ever surround wifi system that brings speed, security, and control to your home network."

This quote introduces Luma as an innovative WiFi solution that offers improved network performance and control for users.

"Luma's app lets you easily see and control which devices, users and content are on your network."

This quote explains one of the key features of the Luma system, which is the ability to manage network access and usage through its app.

• Rick Marini applies his 17 years of entrepreneurial experience to support the next generation of founders.
• He has founded three companies, with Tickle being his first venture, which became the largest personality testing site and was sold to Monster.
• Rick's other ventures, BranchOut and Talk Co., also achieved successful exits.
• He began angel investing in 2008, with Lumosity being his first investment.
• Rick focuses on consumer startups, marketplaces, network effect businesses, social content, and media.
• He is also a Limited Partner (LP) in several venture funds.

"Sure. Well, really, it's taking my 17 years of experience as an entrepreneur and being able to apply that back into the ecosystem and be able to help earlier stage companies."

This quote explains Rick's motivation to become an angel investor, utilizing his extensive entrepreneurial experience to assist emerging companies.

"Started investing as angel back in 2008. The first was a company called Lumosity, which a lot of people know from their tv ads."

This quote marks the beginning of Rick's angel investing career, with Lumosity being his inaugural investment.

"I've been investor and advisor there since 2008, so long time on that one, and got involved there with a very good friend of mine named Tim Chang, who's now a partner at Mayfield."

This quote provides insight into Rick's long-term involvement with Lumosity and his connection with Tim Chang, further establishing his credentials in the investment community.

• There is a debate on whether potential investors should provide value to startups before or after securing an investment deal.
• Rick believes in demonstrating value upfront to earn trust and secure a place in a deal.
• He contrasts the open culture of Silicon Valley with the more secretive nature of other regions, like Boston.
• Rick's approach is to contribute to the ecosystem and showcase his expertise to entrepreneurs.

"I would rather prove out my expertise to an entrepreneur. I would rather contribute to the ecosystem and hope that they see that value."

This quote reflects Rick's strategy of providing value upfront, suggesting that this approach is more likely to be rewarded in the Silicon Valley ecosystem.

• Naval Ravikant, a successful angel investor and founder of AngelList, advised Rick that the first 30 investments may not go as planned.
• Rick discusses the importance of sharing ideas and contributing to the Silicon Valley ecosystem.

"Naval ravikant, the founder of Angelist and one of the best angel investors in the world. He's a good friend of mine, and Naval has been a mentor as well as I've become angel investor."

This quote highlights the relationship between Rick and Naval Ravikant, indicating the mentorship and advice Rick has received from an experienced investor.

"And he had said to me several years ago, if y"

This incomplete quote suggests that Naval provided Rick with guidance on the expectations of angel investing, although the full advice is not provided in the transcript.

• Angel investing requires a significant number of investments to gain expertise, often compared to the 10,000-hour rule for mastering a skill.
• A new angel investor should expect to make around 30 investments to truly understand the process.
• This level of investment can be financially demanding, potentially costing between half a million to a million dollars.
• The high cost is due to the fact that angel investing typically involves personal funds.
• It's important to pace investments and not act too hastily out of excitement for new companies.
• Angel investors should have a low investment acceptance rate, around 5-10%, meaning they should review 300 to 600 companies to find 30 to invest in.
• Time commitment is substantial for meeting and evaluating hundreds of companies.
• A disciplined approach to investing involves a high rate of rejection, at least 90% of the time.
• The majority of startups fail, so saying 'yes' too frequently can lead to financial ruin.
• Building pattern recognition, understanding founder qualities, and developing a personal investment thesis are key parts of the learning process.
• Success in angel investing requires discipline, time, and the ability to say 'no' to most opportunities.

"You're serious about becoming angel investor, you're going to need to do probably 30 investments before you really know what you're doing."

This quote emphasizes the steep learning curve and the number of investments needed to gain proficiency in angel investing.

"And to me, that's the equivalent of an expert having to put in 10,000 hours to become an expert."

Here, the speaker draws a parallel between the time commitment required for angel investing and the widely accepted rule of practice needed to master any skill.

"But the reality is 85% of startups fail and you can't say yes every time or you'll go bankrupt."

This quote highlights the high risk involved in angel investing and the importance of being selective to avoid financial losses.

• Excitement for new ventures needs to be tempered with thorough due diligence.
• It's crucial to research not just one company but the entire sector to understand the competitive landscape.
• Angel investors should look for companies with unique advantages to outperform competitors.
• The leading company in a market often captures the majority of the value, making it imperative to identify and invest in market leaders.
• Understanding the total addressable market (TAM) is essential when considering investment potential.
• Realistic expectations and a disciplined approach to due diligence can improve investment outcomes.

"So you get excited about a sector, you do your due diligence, and not only on that one company you meet, but it's really important to look at the next four companies that are in the space."

This quote stresses the importance of comprehensive sector analysis rather than focusing on a single company when making investment decisions.

"So it's super important to pick the number one, and it's hard."

The speaker underscores the challenge and importance of identifying the market leader to invest in, given the disproportionate value they tend to accrue.

• Angels and VCs have different perspectives on exit strategies and potential returns.
• Angels can be satisfied with smaller exits that still provide significant multiples on their investments.
• VCs, due to larger fund sizes and fewer investments, require much larger exits to meet their return objectives.
• A company's potential for a modest exit might be appealing to an angel but unattractive to a VC.
• The discrepancy in exit expectations can lead to funding challenges for startups and may result in less favorable outcomes for angel investors.
• Understanding the dynamics of VC funding and exit strategies is crucial for angels.

"Well, I'll tell you, it's one of my biggest learnings over the last five years of really being an active angel, is the difference between an angel and a VC when it comes to exit."

This quote introduces the speaker's realization of the fundamental differences in exit strategies between angel investors and venture capitalists.

"Often the vcs are just not interested."

The speaker explains that venture capitalists may not be interested in investing in companies with moderate exit potentials, which can pose challenges for angels who have already invested.

• Dilution is a significant concern for angel investors as subsequent funding rounds can reduce their ownership percentage.
• Initial investments at low valuations may be attractive, but subsequent VC investments can substantially dilute the angel's stake.
• Angels need to be aware of how dilution affects total return on investment.
• Understanding the mechanics of investment rounds and cap tables is important for angels to protect their interests.

"You know what, that's a great question and actually one that I wanted to cover today, because I don't think a lot of angels understand that it's really important."

The speaker acknowledges the importance of understanding dilution and its impact on returns, which is often overlooked by angel investors.

"Dilution for angels is actually a big thing."

This quote succinctly highlights the significance of dilution for angel investors, emphasizing that it can have a major impact on their investment returns.

• Convertible notes are a form of short-term debt that converts into equity, typically associated with a valuation cap.
• The valuation cap is a maximum valuation at which the note will convert into equity.
• Investors may believe they have doubled their money when a company's valuation increases, but dilution can significantly reduce actual gains.
• Dilution occurs when new shares are issued, reducing the percentage ownership of existing shareholders.
• The creation of an employee option pool can further dilute angel investors' shares.
• Angel investors might not get the returns they expect due to dilution from subsequent funding rounds.

I had an $8 million convertible note, $8 million cap, and I doubled my money. No, you didn't.

This quote emphasizes the misconception that an increased valuation automatically means that an investor has doubled their investment, ignoring the effects of dilution.

• During a Series A round, venture capitalists often require a 10-15% option pool for employees.
• Angel investors typically experience dilution in Series A and subsequent rounds.
• Prorata rights, which allow investors to maintain their ownership percentage, may not be available to angels who don't invest significant amounts.
• Angels should expect significant dilution from the Series A onward, affecting their return on investment.

You just took on 25% dilution, right, with a VC coming in.

This quote highlights the immediate impact of dilution on an angel investor's ownership stake when a venture capitalist invests in the company.

• Founders are seen as responsible for advocating for angel investors in later funding rounds.
• Founders should fight for angels who wish to continue investing, even at higher valuations.
• Angels who add significant value are more likely to be supported by founders during negotiations with VCs.
• Building a reputation for adding value can lead to better deal flow for angel investors.

I think it really comes from the entrepreneur.

Rick Marini believes that it is the entrepreneur's responsibility to protect the interests of early angel investors during negotiations with Series A and later stage investors.

• Valuation in seed rounds is influenced by market conditions and can be difficult to assess.
• High valuations in frothy markets can be driven by an influx of capital and leverage for entrepreneurs.
• Staying disciplined in valuation assessments is crucial due to the high failure rate of startups.
• Convertible notes and SAFE notes are commonly used in seed rounds for their simplicity.
• Entrepreneurs should focus on bringing valuable investors to the table rather than overnegotiating valuations.

It's really hard in the seed round and that's where I play in the seed round.

Rick Marini describes the complexity of assessing valuations at the seed stage, where he primarily invests.

• Overnegotiating seed round valuations can lead to difficulties in meeting expectations in subsequent rounds.
• Unrealistic seed valuations can result in a challenging Series A, potentially damaging the company's prospects.
• Aligning incentives and building a company collaboratively is preferred over aggressive valuation strategies.

I always also find if you overnegotiate on the seed round, it's highly likely that you won't live up to those valuations on the next round and then you're essentially fucked for the series A.

This quote warns of the dangers of overnegotiating seed round valuations, which can set unattainable expectations for the future and jeopardize the next round of funding.

• Consumer businesses are often hit-driven, which can be unpredictable and risky.
• Sustainable, scalable hits with high retention and value are more desirable investments.
• Data on customer acquisition cost (CAC) and lifetime value (LTV) is critical for evaluating consumer businesses.
• Virality can significantly reduce CAC, especially in mobile and social content-driven businesses.

Well, consumer is often hard because it's hits driven, right?

Rick Marini acknowledges the difficulty in investing in consumer businesses due to their reliance on producing "hits" and the importance of sustainability and scalability in these investments.

• Understanding metrics like retention, CAC (Customer Acquisition Cost), and LTV (Lifetime Value) is crucial.
• These metrics become exciting when they all come together.
• Entrepreneurs should focus on achieving product-market fit before raising rounds for better valuation.

"But when you can really start to understand all of those metrics, retention, CAC, LTV and so on, when all those come together, that's when I get excited."

This quote emphasizes the importance of key business metrics and their combined effect on the excitement and confidence of an investor.

• Rick Marini's favorite book is "Hero with a Thousand Faces" by Joseph Campbell.
• He relates to the concept of the hero's journey, which may have influenced his decision to become an entrepreneur.
• The storytelling aspect of the hero's journey resonates with his passion for Star Wars.

"Favorite book is Hero with a thousand faces by Joseph Campbell. And I'm a Star wars fan. I have been for probably 30 years. I love the idea of the hero's journey and maybe that's why I became an entrepreneur, is that I love that storytelling."

Rick Marini connects his favorite book and the hero's journey concept to his love for storytelling and his entrepreneurial path.

• Not listening to feedback is a significant red flag for Rick Marini.
• Entrepreneurs should always be in learning mode and open to advice from experienced individuals.
• Being deaf to feedback from angels and VCs, who often share insights with each other, is concerning.

"A big red flag is when an entrepreneur doesn't listen."

This quote highlights the importance of entrepreneurs being receptive to feedback as a key factor in investment decisions.

• James Courier, a Harvard Business School classmate, is Rick Marini's biggest mentor and friend.
• They founded Tickle together and have maintained a close professional and personal relationship.
• Stan Chudnovsky is another mentor and best friend, from whom Rick has learned a lot.

"Well, my biggest mentor is one of my best friends, and that's James Courier."

The quote signifies the value of having a mentor who is also a close friend, highlighting the strength of their relationship and its impact on Rick's growth.

• Rick Marini follows several blogs and newsletters for insights.
• He recommends Mark Suster's "Both Sides of the Table," Fred Wilson's writings, and Sam Altman from YC.
• TechCrunch and Mattermark are daily reads, and Tim Ferriss's weekly newsletter is a must-read.

"So I've got several. I love Mark Schuster from upfront Ventures. Both sides of the table I think is excellent for both entrepreneurs and investors."

This quote provides specific recommendations for reading material that Rick finds valuable for entrepreneurs and investors.

• Rick Marini's recent investment in True Facet, a marketplace for used jewelry, was driven by the clear pain point it addresses.
• He believes in the potential of marketplaces and has experience investing in similar platforms like Poshmark.
• The involvement of trusted investors and a knowledgeable CEO were also factors in his decision.

"So my most recent investment was about a month ago in this company called True Facet."

The quote explains the reasoning behind his latest investment, highlighting the factors that made the company an attractive opportunity.

• Rick Marini expresses appreciation for the conversation and opportunity to be on the show.
• Harry Stebbings thanks Rick for sharing his insights and acknowledges Eric Tornberg for the introduction.

"Harry, thank you. This was a fun conversation. I appreciate you having me on."

The quote reflects Rick Marini's gratitude for the engaging discussion and the platform to share his experiences.

• Rick Marini values discipline and fitness, mentioning Tim Ferriss and Tim Chang as inspirations.
• Despite the challenges, he strives to maintain a healthy lifestyle.

"Tim, my two buddies, Tim, Tim Ferriss and Tim Chang are two of the fittest guys in Silicon Valley."

The quote reveals personal lifestyle choices and the influence of his peers on his fitness goals.

• Headspace is recommended for its guided meditations and mindfulness sessions.
• The app is designed to help with various aspects of life, including stress, anxiety, and creativity.

"And meditation can really help. And headspace is meditation made simple."

This quote endorses the benefits of meditation and mindfulness, suggesting Headspace as a user-friendly solution.

• Luma is praised for its surround Wifi system that enhances home network speed, security, and control.
• The setup process is straightforward, and the system allows for simultaneous high-demand activities without bandwidth issues.

"Get Luma Luma is the world's first ever surround Wifi system that brings speed, security and control to your home network."

The quote promotes Luma as an innovative solution for improving home Wifi networks.