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Julie Ruvolo: You’re the definition of an operator-angel. Over the last 18 years, you founded and sold three consumer tech companies, and invested in another fifty companies. How do these pieces fit together for you?

Rick Marini: There are huge advantages to being a former entrepreneur when you’re helping early-stage companies. I focus my investments in consumer tech, which gives me two advantages: I can assess the companies better, because I worked in that space for a number of years; and I can be helpful to the founders, because I’ve been in their shoes.

As an angel investor, my individual dollar contribution is not going to be a significant percentage of the total round, but my help as a former entrepreneur can add a lot of value, and that has helped me get into several over-subscribed deals.

In that context, what is your approach is to helping founders?

What I often tell founders as they’re bringing a round together is to get a lead anchor to take at least half the round. It will save you a ton of time herding cats with $25k checks.

Then, bring in some great value-add investors as angels. Try to bring in people with different skill sets, such as a growth expert, a product person, someone who is great at marketing or design or sales. Bring together angels who have complimentary areas of expertise that can be tapped by the company.

One of my important value-ads as an angel is guidance in fundraising. For example, I invested in Rinse’s Series A out of my first Angel Fund. When they were ready to raise their Series B, I helped them connect with the right partners, at the right firms for them, and provided warm introductions.

You’ve launched and sold three startups. How soon should a founder start thinking about paths to exit?

A founder should not start a company because they’re looking for a big exit. That’s important to understand. They should start a company to fundamentally improve a situation that affects many people.

As an investor, I have to determine if the company’s solution actually addresses a big need in the market, and if this is the right team to execute. And if “yes” to both of those, then I expect that the upside in the investment will likely be there.

But if I pick the wrong team, the ROI on my investment could be super low. When you’re coming in as a disruptor, often 80–90% of the total value created by this disruption accrues to the #1 player. The next 10–15% goes to #2, and the long tail shares the last 5% or so.

So even if I pick the right sector, if I pick the #3 team, it’s pretty much a worthless investment. Even if I pick #2, and they get 10–15% of the market, it may not be a great investment unless we’re talking about a big TAM.

Take Uber and Lyft as an example. Uber is worth roughly $65B, and Lyft is worth basically 1/10th of that, around $6–7B. If you’re an early investor in Lyft, you’re still really happy, but this is also one of the biggest disruptions that we’ve seen in the last 20 years, so it’s kind of the best case scenario for a #2 player. The ROI on an early investment Uber is much better on paper.

Did you invest in Uber or Lyft?

No, but I will tell you a quick story about Uber. I was at a dinner party right before Uber launched, and Travis was pitching his idea. The original vision was focused on black cars on-demand, which I thought it was way too niche, so I didn’t pursue it.

It turns out that Lyft may have had the bigger idea of normal cars for normal people. And then Uber quickly followed suit with UberX, and that became the big revenue driver for Uber, not the black cars.

I may have been right on my assessment of the original business model, but I was wrong on the entrepreneur. I had known Travis for years, and I should’ve just said, “This guy is a badass, he’s gonna figure it out.”

That situation with Travis taught me how important it is to back great people over interesting ideas. Great people plus innovative ideas can create huge outcomes. If you invest in the right team, they can pivot into something that is a winner. But you cannot back a sub-par team, because they will lose. Either they pick the wrong market and lose quickly, or they pick the right market and have a false positive of good early results, until a better team comes in and takes the market.

So you’re thinking about the team and market opportunity more than the exit horizon when you invest.

I do think about the exit. But I’m not necessarily thinking about the probability that the company becomes a unicorn or public company, and I’ll tell you why.

One of the things that I have to consider as a seed investor is, what happens when a Series A investor looks at this company? Let’s say I’m investing in a company that is raising a $2M seed round at an $8M-pre, so a $10M-post. And let’s say this company can absolutely see a path to selling to Facebook or Microsoft or Google for $100M. Boom, I 10X’d my money… right?

Well, here’s the reality: The typical Series A partner at a firm will see more than 500 companies per year but will only invest in about two. When they view a company as an $100M exit, they simply can’t make the investment when there are 500 other investments with potentially higher exits.

So what I thought would be a $100M exit now won’t get a Series A investment. They might have proven something in the market, but they are running out of cash. If they try to do an acqui-hire, the acquiring company does not care about the investors; they only care about setting money aside to retain the team they’re acquiring. So in the best case, I get my money back, but more likely, I get pennies on the dollar. An investment that I thought was going to be 10X is now worth 10% of my original investment. Ouch.

Did you ever consider working at a traditional VC firm? You’re an LP in a few funds — Accel Partners, Binary Capital, Velos Partners, GovTech Fund and Maven Ventures — but you’ve invested independently to date.

I’ve been an entrepreneur for the past 18 years, and I really enjoy being an operator. But I also love supporting other entrepreneurs, and applying that experience to help them. Angel investing allows me to do both of these things.

I’ve spent most of the past ten years as an independent angel, but in 2013, when Naval Ravikant told me about AngelList, I knew I wanted to be part of it as both an investor in AngelList, and an investor using their platform.

So I invested in AngelList, and then, in November 2013, I did my first syndicated deal on AngelList, for a seed investment in Luxe Valet. This was the first time that I had outside capital as part of my investment.

When Luxe was ready for the Series A, I introduced them to Redpoint, which was one of my investors in BranchOut, and when they were ready for their Series B, I introduced them to a friend of mine at Venrock. Since then, Luxe has gone on to raise $75M from Redpoint and Venrock, and Hertz. I continued to invest in every subsequent round with my AngelList syndicate.

Do you do all your deals on AngelList? How is AngelList is situated in your broader investment activity?

From 2013 to 2016, I was doing direct investments personally, plus some investments through my AngelList syndicate. Then, in 2016, CSC set up a dedicated fund to invest alongside AngelList investors. Naval Ravikant and I launched the first two closed funds, which are now called Angel Funds.

When you run an Angel Fund, all personal angel investments go through the fund to avoid cherry-picking the next big winner outside of the fund. I’ve invested my own money into the fund, so for every deal I do, it includes my own cash plus my carry.

Who invested in your Angel Fund?

Fund 1 was about $800K, and Fund 2 is a similar size. CSC backed about half of Fund 1, and the other $400K came from members of my AngelList syndicate. But this is not a syndicate. This is a closed fund, which means that instead of investing with me deal-by-deal, these people had to commit money upfront, with the expectation I’m going to continue to stay in my sandbox in consumer tech, investing in early-stage companies started by great entrepreneurs and backed by excellent co-investors.

With access to a committed pool of capital instead of raising deal-by-deal, what changes for you as an investor, if anything?

One advantage is that I know the money’s already there, and I have totally clarity around how much I’m going to invest. Whereas with my syndicate, I don’t know how much I am actually going to invest. I can ask the entrepreneur for a $200K allocation, but my syndicate may only raise $150K, or it may be oversubscribed for $300K. That’s been the hardest part of syndicates.

The upside of a syndicate is that you have the SPV structure, which means that as soon as there’s an exit, you get paid. With my Angel Fund, it’s very much like a venture fund, which means I need to return all of the LPs’ capital before the carry kicks in. And the bigger the fund, the longer it could take to return the original capital.

So for me, if I look at the two options, I like the closed fund better because the clarity and confidence I have in knowing exactly how much I can commit is worth a lot to me, despite the longer timeline for distributions.

You’ve been basically doing Angel Funds before the Angel Funds were officially announced. Very cool.

Now I’m on Fund 2. Each fund is about $800K, and has a 1-year time horizon, so I’m doing a deal about every six weeks or so, and I’m writing bigger checks — $100K instead of $25K.

And that larger amount of $100K may get me pro rata rights, which is a really important advantage. I mentioned Rinse. That larger check size through my first Angel Fund allowed me to get pro rata rights to do the Series B, which I did through Fund 2.

Can you take more risks with a dedicated fund than going to your investors each time you have a deal you want to do?

It’s been a wonderful transition from doing 100% personal investments to investing through a fund. I still treat it like it’s my money. My investing strategy is the same.

When I first started angel investing eight years ago, I talked to Naval about this, and he said, “It’s going to take you probably 30–40 investments before you really know what you’re doing.” And he was right. It took me that long before I could gain the pattern recognition. Over the past 8 years, I made around 50 angel investments at roughly $25K each, resulting in a very expensive, self-paid education. That’s a lot of capital at risk, in an illiquid asset class with a long time horizon. I’m excited about my portfolio, but aspiring angels should understand what the financial commitment looks like.

What’s it’s been like working with the AngelList team on your deals?

Having the closed fund works well for me because of people like Jake Zeller and his team at AngelList. They handle all the back-end administration that an operating partner at a venture fund would do. For that work and use of the platform, AngelList take 5 points of the 20 points of carry. So 25% of the carry goes to AngelList, and they handle all of the fund administration, wire transfers, legal docs, tax reporting, etc. That frees me up to do the two things I like to do: To be an operator, and to find great companies and invest in them. And to me, that is worth it.

Looking ahead, as the investment tools at your disposal are evolving, where do you see yourself headed?

More of the same. Keep finding great entrepreneurs that are changing the world!

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