Radio Show - Meb’s Thoughts on Angel Investing After Making 250+ Investments | #390

Episode Summary

Executive Summary: The episode centers on Meb Faber’s decade-long journey into startup investing: how he sources deals, builds a diversified portfolio, evaluates valuation and stage, and thinks about exits. He argues that angel/VC investing is a power-law game requiring many small bets, patience, and tolerance for failures, while also offering major learning benefits and exposure to global innovation.

Main Topics: Why Meb Entered Startup Investing (Priority: 5/5): Meb explains that he wanted to learn the mechanics of private investing by doing it directly with real money, starting small, making many bets, and treating losses as tuition while seeking a full multi-year cycle. Deal Flow and Sourcing on Platforms (Priority: 5/5): He describes how AngelList and similar platforms transformed access to private deals, creating syndicates, broadening transparency, and generating a large pipeline of opportunities to review. Portfolio Construction and Bet Sizing (Priority: 5/5): The discussion emphasizes setting a fixed annual budget, using unit sizes, spreading investments over time, and resisting the urge to overcommit early. The goal is to build toward 50-100+ positions. Power Laws and Return Concentration (Priority: 5/5): Meb stresses that venture returns are driven by a few huge winners, not many small wins, and compares this dynamic to trend following and market-cap weighted public indices. Due Diligence, Bad Behavior, and Learning (Priority: 4/5): He notes that reviewing thousands of decks reveals useful pattern recognition, exposes both good and bad founder behavior, and can generate practical business ideas even from deals he doesn’t fund. Exit Strategy and Liquidity Decisions (Priority: 4/5): The conversation covers what to do when a startup IPOs, gets acquired, or becomes a major winner: ideally let winners run, but consider scaling out to manage psychological and portfolio concentration risk. Global and Sector Diversification (Priority: 4/5): Meb says he is increasingly finding compelling opportunities outside the U.S., especially in Africa, Latin America, Asia, Canada, and Mexico, and sees this as an important source of future winners.

Key Arguments: Startup investing is best learned by immersion: writing about it, reviewing deals, and committing real capital. A thoughtful angel strategy should start small, spread bets across many companies, and commit to a multi-year horizon. Most startups will fail, so portfolio success depends on capturing a small number of massive outliers. The learning value of reviewing thousands of private deals is itself a major return, even before investment gains. Public and private investing both follow power laws: a few winners drive most outcomes, so diversification matters. Deal sourcing platforms like AngelList democratized access to startup investing and improved transparency. Investors should be wary of flattering narratives, selective disclosures, and other forms of soft due diligence risk. Later-stage or consumer-product companies that are already proven may fit a different “Peter Lynch” style than pure pre-seed bets. Venture and trend following are philosophically similar: both accept many small losses in exchange for rare, outsized gains. Exits should be approached emotionally carefully; winners can become portfolio-dominant, so scaling out can reduce regret. International startup markets may produce some of the best future opportunities, especially outside Silicon Valley.

Data Points: Startup investments made: Over 300 companies - Meb’s cumulative startup/angel investment portfolio Deal memos reviewed: About 5,000 deals - He estimates the amount of private deal flow reviewed over the past decade Monthly deal flow on AngelList: 200-300 deals per month - Typical flow he sees through syndicate platforms Target portfolio size: 50-100 investments - He argues this is the range needed to improve odds of catching a big winner Suggested annual pace: ~12 investments per year - Example framework for building a portfolio over five years Possible portfolio after five years: Around 50 startups - If investing about a dozen per year for five years Initial minimum bet size: $1,000 - Common minimum on many platforms; he suggests as a floor Example unit size: $5,000 - His illustrative “unit” for sizing angel bets First-tranche example: $2,500 + $2,500 - Suggested staged investing if initial conviction is lower Estimated IRR: North of 40% - He says the portfolio is likely doing exceptionally well on paper, though in a favorable venture environment Glucose monitor example: French fries cause a massive spike - A personal example from using a CGM product to learn food/metabolism effects Per-signup savings example: $70,000 per signup - Savings attributed to a company (MainStreet) he passed along to users/companies Valuation metric mentioned: Chiller CAPE hit 40% - He uses this as evidence that public markets are expensive Current private-market activity: A dozen investments in January - He notes he had already made about 12 startup investments early in the year Women’s VC funding share: 2% - He cites a statistic illustrating persistent inequity in VC funding Example acquisition value: Inkbox sold for $65 million - He cites this as a good outcome, though one he believes could have been much larger Potential alternative value: $600 million company - His view of what Inkbox might have become Crowdfund example: $5 million - Referenced as a scale for public crowdfunding rounds Liquidity concentration example: $5,000 to $1,000,000 - Illustrative life-changing return path if a small investment moons Public market concentration: 5-10% of stocks generate all returns - Referenced as an important power-law dynamic in public equities

Pivotal Quotes: "The point of all this is to think through it because what the allure is, people with CD will be like, oh my God, this looks amazing. And they put, let's say, their budget is $50,000 for year one. They want to put it all in on the first investment." — Meb Faber: On avoiding overconcentration and planning bet size in angel investing "This is probably the most important topic of the entire podcast: which is you have to have these big winners." — Meb Faber: On why venture portfolios depend on power-law outcomes "I think you probably really need 100 investments to try to increase your odds and can't say guarantee, but really hope that you'll get the big hundred bagger, thousand bagger type of return." — Meb Faber: On portfolio size and the need for many small bets

Implications: For listeners, the takeaway is to treat startup investing as a long-horizon, high-dispersion strategy: diversify widely, size carefully, expect losses, and focus on rare outliers. For the industry, transparency and global deal flow continue expanding the opportunity set beyond Silicon Valley.