Ask an Angel with Zach Coelius: is moving to SF still worth it, bubble/recession potential, post-COVID funding & more | E1172

Episode Summary

Executive Summary: In this episode of Ask an Angel Live, Jason Calacanis interviews angel investor Zach Coelius about his investing strategies, market conditions, and advice for founders. Zach discusses his $45M fund, rolling fund, and 2,500-person syndicate. They analyze moving to San Francisco, the importance of growth versus monetization, and the sustainability of high valuations. The conversation covers founder qualities, take rates, and post-COVID opportunities, including Airbnb, Uber, and Disney.

Main Topics: Angel Investing Strategies and Vehicles (Priority: 5/5): Zach describes his barbell strategy: $200K-$1M early-stage checks and $2M-$5M later-stage checks. He uses a $45M fund, a rolling fund for flexible LP commitments, and a 2,500-person AngelList syndicate that provides deal flow and diligence support. San Francisco vs. Other Hubs for Founders (Priority: 4/5): Debate on whether young entrepreneurs should move to SF. Zach argues yes due to unmatched density of tech talent; Jason counters that remote investing and lower-cost hubs like Austin/Miami offer 80-90% of the benefit with much lower costs. SF rents have dropped ~40% but crime is rising. Free Apps vs. Paid Subscriptions for Angels (Priority: 4/5): Free apps need >30% monthly growth and a clear monetization path. Paid subscriptions with slower growth (10% MoM) are often preferred because they prove value. Consumer subscription apps (e.g., Calm, Fitbod) are particularly attractive. Market Bubbles and Recession Risks (Priority: 4/5): Long-term tech trend is strongly upward, but short-term volatility is inevitable. High valuations (e.g., 200x revenue for startups) signal froth, but stimulus and reopening may delay a major downturn until 2023. Founders should take money from great investors but avoid excessive burn. Founder Qualities vs. Ideas (Priority: 5/5): Great founders always beat great ideas. Execution, self-awareness, and ability to learn are critical. A founder must recognize their weaknesses and recruit to fill gaps. The ideal founder is resilient, persuasive, and able to attract top talent. Post-COVID Opportunities in Disrupted Industries (Priority: 3/5): Airbnb, Uber, and Disney are accelerating trends. Examples: Disney integrating theme parks into Disney+, Uber expanding into delivery, Airbnb becoming leaner. These companies compressed 5-year plans into 1 year, creating new revenue models.

Key Arguments: San Francisco's density of tech talent is 10x any other city outside Shanghai, making it still the best place for founders despite high costs and crime. Investors should focus on growth rate: free apps need 20-30% monthly growth; paid apps need ~10% monthly growth to be attractive. High valuations (e.g., 200x ARR) are common in private markets due to excess capital, but long-term winners will emerge after inevitable corrections. Great founders can overcome any obstacle; a mediocre founder will fail even with a great idea. Self-awareness and the ability to build a team are paramount. Take rate depends on market dynamics: high take rates fund operations if you're dominant; low take rates can disrupt incumbents (e.g., Pinduoduo vs. Alibaba).

Data Points: Zach's investments: ~50 companies since 2015 - Angel investing career span Current check sizes: $200K - $5M - Early-stage $200K-$1M; later-stage $2M-$5M Syndicate size: 2,500 people - AngelList syndicate that provides deal flow and diligence Average deal participants: 150 people per syndicate investment - At syndicate.com San Francisco one-bedroom rent drop: From $3,400 to $2,650 (down ~22%) - Year-over-year decrease; with incentives, ~40% effective drop Crazy valuation example: 300K ARR company priced at 73 pre (240x ARR) - Example of frothy private market Free app growth expectation: 5% week-over-week (~30% MoM) - Minimum for investor interest if no revenue Paid app growth expectation: 10% month-over-month - Would double every ~7 months

Pivotal Quotes: "If you can't cold call a customer who you've never talked to before at nine o'clock at night on their cell phone while they're putting their kid to bed and tell them what you do in one sentence, and instead of having them say 'Fuck you,' instead they say 'Oh, I want to talk to you tomorrow,' your startup idea is not a good one." — Zach Coelius: Advice on customer acquisition and product-market fit for a founder in Bulgaria trying to enter the US market. "If I had to choose between a great idea and a great founder, I'd always invest in a great founder because great founders always end up coming up with great ideas, whereas great ideas with, if you don't know the founder, you can fuck up a great idea really easily." — Zach Coelius: Direct answer to question about prioritizing founder vs. idea. "It's bonkers out here on the streets." — Zach Coelius: Describing the private market's extreme valuations and rapid markups compared to public markets.

Implications: Founders should focus on building a self-aware, resilient team and achieving clear product-market fit before seeking VC. Investors must navigate frothy valuations by betting on exceptional founders and sustainable growth. The post-COVID era offers massive opportunities but requires disciplined capital allocation.