Zach Coelius, Coelius Capital - I Like To Play Where It’s Still Qualitative | #348

Episode Summary

Executive Summary: This podcast episode features an in-depth conversation with Zach Coleus, managing partner of Coleus Capital and top AngelList syndicate lead, about the angel investing landscape. Zach shares his journey from entrepreneur to investor, detailing how his company was crushed by Facebook, his subsequent pivot to investing, and the philosophy and network-driven approach behind his success. He discusses specific portfolio companies like Cruise Automation, Mud/Wtr, CareRev, and others, offering insights on pre-seed and seed-stage investing, the importance of founder relationships, and the evolving venture capital ecosystem.

Main Topics: From Entrepreneur to Angel Investor (Priority: 5/5): Zach's transition from being a founder whose company was effectively destroyed by Facebook to becoming a successful angel investor, highlighting the role of luck, timing, and network. Angel Investing Philosophy and Stage Agnosticism (Priority: 5/5): Zach's investment approach: focusing on early-stage B2B software, investing before metrics are available, and being 'stage agnostic' by continuing to support companies through later rounds. Case Studies of Successful Investments (Priority: 4/5): Detailed analysis of specific investments including Cruise Automation, Mud/Wtr, CareRev, Lume AI, and Sinai Technologies, including theses, outcomes, and lessons learned. The Power of Syndicates and Network (Priority: 4/5): How Zach leverages his AngelList syndicate (3,200+ members) for deal sourcing, due diligence, and adding value, including a real example of halting a deal due to syndicate member input. Advice for Aspiring Angel Investors (Priority: 3/5): Encouraging public market investors to use platforms like AngelList with small checks to gain insider knowledge and exposure to high-growth private companies. The Changing Venture Capital Landscape (Priority: 3/5): Discussion on how late-stage investors like Tiger Global are compressing the VC industry, while new solo GPs are disrupting traditional firms by offering speed and network access. Personal Resilience and Navigating Failure (Priority: 4/5): Zach's 'bad year' (2015) involving his company's collapse, divorce, mother's death, and house fire, and how he used that experience to build his investing career.

Key Arguments: Angel investing success often starts with luck and being in the right place at the right time, but maintaining it requires consistent value addition and network building. Early-stage investing is qualitative and relationship-driven; later-stage investing becomes quantitative as metrics emerge. Being an insider in a company (by staying involved and helping) provides information asymmetry that is a legitimate edge for follow-on investments. The venture capital industry is undergoing compression: top-down pressure from large funds chasing returns, and bottom-up disruption from solo GPs with nimble, network-focused models. Platforms like AngelList allow public market investors to gain unique, non-public insights into emerging sectors by writing small checks and becoming insiders. The most important skill for an early-stage investor is identifying which founders are truthful and which are exaggerating or lying, especially when speed is required. Investing in transformative markets (like carbon pricing/software) at the very beginning can lead to massive long-term opportunities even if the market is currently small. The emotional reward of angel investing—cheering for founders and helping them succeed—is a significant positive aspect often overlooked in public market investing.

Data Points: Number of syndicate members: 3,200+ - Zach's AngelList syndicate has over 3,200 backers who co-invest with him. Total capital deployed: $55 million - Over 5.5 years, Zach has deployed approximately $55 million across about 50 companies. Fund size: $45 million - Zach raised a dedicated fund of $45 million, announced last summer, backed by Industry Ventures. Portfolio IRR: 40-50%+ - Zach states his portfolio is running at a 40-50%+ IRR, though he acknowledges this is unusually high and likely unsustainable. Typical early-stage check size: $500k - $1.5 million - For early-stage investments, Zach writes checks in this range. Later-stage check size: $2 - $5 million - For Series A and later rounds, checks can be larger. Revenue growth of Mud/Wtr: From $5k to $40k monthly in months - Mud/Wtr's revenue grew from $5,000 in month one to $40,000 in month four before Zach invested. Cruise Automation exit: $1 billion - Cruise Automation was acquired by GM for approximately $1 billion about a year after Zach invested. Mud/Wtr valuation at investment: $5 million cap - Zach invested via a $400K note at a $5 million cap when the company was early but growing fast. CareRev valuation at first investment: $15 million - Zach's first investment in CareRev was at a $15 million valuation. Number of deals reviewed: 4,000+ - The host mentions reviewing over 4,000 deals on AngelList alone, not counting direct submissions. Typical minimum for rolling fund: $10,000 per quarter - Zach's AngelList rolling fund has a minimum commitment of $10,000 per quarter, which is highly flexible. Number of total private investments by host: 250+ - The host (Meb Faber) mentions having over 250 private investments.

Pivotal Quotes: "I like to say that being an entrepreneur is sort of like being a gladiator... you eventually run into the limits of your own competence... But now I'm literally one of the douchebags in the stands, drinking a cold beer, betting on which entrepreneur is going to live or die." — Zach Coleus: Explaining the difference between being an entrepreneur (a gladiator in the arena) and an investor (a spectator who can occasionally help). "I invested in people. This is a no-brainer for me. And so we wrote a 400K note at a five cap, and some other investors joined us. But it was very much when I wrote the memo to the syndicate members. I was like, guys, I don't know anything about mushroom tea. I'm not an expert in CVG. But here's what we're looking at. This is the deal." — Zach Coleus: Describing his investment in Mud/Wtr, emphasizing that he invested based on the founders' capabilities and early traction, not his category expertise. "The important part of my job is sussing those things out and identifying what is truth and what is bullshit and trying to figure out how to be with the people who are like, what they're doing is working so well, they don't need to lie to you. And get rid of the people who like will lie to you." — Zach Coleus: On the critical skill of distinguishing truthful founders from those who exaggerate or lie, especially in early-stage investing where speed is essential.

Implications: The venture capital industry is becoming more accessible and competitive, compressing traditional VC firms from both ends. For individual investors, platforms like AngelList offer unprecedented access to early-stage deals and insider knowledge, with small minimums. The key to success is network-based deal flow, investing in exceptional founders, and being stage-agnostic to compound returns over time.