#81 Jason Calacanis: Intelligent Risk
Angel investor and tech entrepreneur Jason Calacanis discusses high-stakes poker and angel investing, emphasizing the mindset required to withstand losses for outlier gains. He shares strategies for evaluating founders, managing risk, and leveraging online resources for skill development, while also advocating for greater inclusion and economic fairness.
Deep Dive Analysis
16 Topic Outline
Poker as a Metaphor for Risk and Angel Investing
Understanding Feedback and Tilt Control in High-Stakes Games
The Psychology of Gamblers and Risk-Taking Behavior
Angel Investing: A Game of Outlier Returns and Brain Chemistry
Evaluating Investment Quality Beyond Outcomes: Survivorship Bias
Key Lessons for Neophyte Angel Investors
Betting on Founders: Resilience, Execution, and Market Creation
Assessing a Founder's Singular Focus and Commitment
The Debate Around Work-Life Balance in Startups
Personal Motivation and Overcoming Childhood Adversity
The Abundance of Free Online Skills and Education
Addressing Underrepresentation and Fostering Inclusion in Silicon Valley
Evolution of Angel Investing: 2009 vs. Today
The Impact of the No-Code Revolution on Entrepreneurship
Democratization of Private Company Investing
Systemic Issues, Wealth Distribution, and Over-Optimization
7 Key Concepts
Survivorship Bias
This cognitive bias causes people to focus only on successful outcomes, like winning poker hands or successful investments, while overlooking the numerous failures. It can lead individuals to mistakenly believe they are great 'pickers' when success might be more attributable to factors like timing or geography.
Tilt Control
In high-stakes situations like poker, tilt control refers to the ability to manage one's emotional responses to bad outcomes, especially when a perfectly played hand still results in a loss. It's crucial for maintaining rational decision-making and preventing emotional reactions from derailing future play.
Implied Odds in Angel Investing
This concept describes how early-stage investments offer the potential for returns far beyond what is risked, such as 200x or 4000x, unlike poker where winnings are capped by the table's chips. This unique dynamic allows angel investors to absorb many losses if just one outlier investment succeeds significantly.
Investment as Experiment
Jason Calacanis views early-stage startup investments (companies with 2-5 people, product in market for weeks/months) as 'experiments' rather than traditional investments. This reframing helps investors detach emotionally from failures, understanding they are part of a process to find a successful thesis, and encourages supporting founders through multiple attempts.
Founder's Singular Focus
A key indicator for investors, singular focus means a founder is entirely dedicated to their primary project, often to the exclusion of other significant commitments like multiple side projects or non-profits. This unwavering commitment is seen as crucial for navigating the extreme difficulties and long hours required for startup success.
No-Code Revolution
This technological shift involves building software applications and websites using visual interfaces and pre-built components without writing traditional programming code. It significantly lowers the barrier to entry for creating minimum viable products (MVPs), allowing more people to test business ideas and accelerate the pace of experimentation.
Democratization of Capital
This refers to the trend of making private company investing accessible to a much broader segment of the population, including individuals who traditionally wouldn't meet 'accredited investor' benchmarks. The goal is to allow poor and middle-class individuals to participate in early-stage investments with high-growth potential, fostering upward economic mobility.
9 Questions Answered
Both involve reading people, taking intelligent risks, and understanding that a small edge can accumulate over many iterations. Angel investing, however, offers outlier returns (e.g., 200x, 4000x) that poker does not, allowing many losses to be offset by one huge win.
It's crucial to practice 'tilt control' by understanding when you've played well versus poorly, irrespective of the outcome. Recording and replaying decisions to critically assess mistakes, rather than focusing solely on wins, is vital for improvement.
New angel investors often commit too much capital to a single company too early, especially before the product is in the market and validated by actual customers. A better approach is to bet small initially, learn from many experiments, and then allocate more capital to the top-performing ventures.
The founder's ability to not quit is the number one killer of startups. Investors look for founders with singular focus, extreme resilience, and deep commitment, as these qualities are essential for navigating the immense challenges and long hours required.
Yes, approximately 95% or more of desired skills are accessible online through free courses from top universities like MIT, Harvard, and Stanford, or platforms like Khan Academy. The primary barriers are often motivation, discipline, and the willingness to dedicate time to learning, rather than a lack of access to information.
Silicon Valley has made significant progress in recent years by explicitly creating welcoming spaces and programs, such as Founder.University events specifically for women or underrepresented founders. This proactive approach has led to increased engagement and investment in diverse founders, improving the industry's inclusivity.
The no-code revolution allows a much broader range of individuals to build minimum viable products (MVPs) and test business ideas without needing to write traditional code. This dramatically increases the pace and number of experiments that can be conducted, fostering greater innovation and accessibility to entrepreneurship.
It is important because it allows individuals who are poor or middle class to access investment opportunities with outlier returns (e.g., 200x) that have historically been reserved for the wealthy. This shift could enable significant upward economic mobility and fundamentally change capitalism by spreading wealth more broadly.
The capital gains system, while intended to encourage long-term investment, is largely inaccessible to the poor. Additionally, the 'over-optimization' by wealthy individuals and large companies (e.g., tax avoidance, excessively low wages) and the optics of such behavior can create a profound sense of unfairness, leading to societal unrest and calls for more state intervention.
22 Actionable Insights
1. Continuously Add New Skills
Continuously acquire new skills using the vast, free resources available online (e.g., MIT/Harvard/Stanford courses, Khan Academy) to improve your outcomes and career opportunities, as there’s no excuse not to learn today.
2. Work Hard on Passions
If you love what you’re doing, work hard, because there is a direct correlation between increased effort, skill development, and better outcomes, similar to how Olympians or Navy SEALs dedicate themselves to their craft.
3. Critically Review Past Decisions
Record your decisions (e.g., poker hands) and critically review them, replaying scenarios to understand mistakes and avoid survivorship bias, which helps distinguish good play from lucky outcomes and fosters continuous improvement.
4. Bet on Founder Resilience
When investing in startups, prioritize the founder’s ability to not quit, as giving up is the number one killer of startups, even more so than running out of money.
5. Assess Founder’s Singular Focus
Evaluate a founder’s singular focus by asking what else they are working on; a lack of other significant commitments (e.g., multiple side projects, nonprofits, conferences) indicates a higher likelihood of success in their primary venture.
6. Recognize Past Founder Resilience
When evaluating founders, view past failures where they worked on a company for years before shutting it down as a sign of resilience, hard work, and dedication, rather than a mark of being a ’loser'.
7. Adopt Outlier-Win Mindset
Reconfigure your brain chemistry to withstand numerous losses (e.g., 50-100) in angel investing, as a single outlier success can make up for all previous failures by paying off 200 to 1 or more.
8. View Early Investments as Experiments
Treat early-stage angel investments (companies with 2-5 people, product in market for weeks/months) as experiments, which helps manage the emotional impact of failures and encourages continued investment in new ventures.
9. Bet Small, Scale on Performance
When learning angel investing, bet small initially (e.g., $2,000 bets from a $500k bankroll) to gain information, then allocate larger amounts ($25k-$100k) to the top-performing companies based on their early traction.
10. Invest Post-Product-Market Fit
For new angel investors, wait until a product is in the market and talk to actual customers (not friends/family) to reduce investment risk by 90%, ensuring there’s at least one person who likes the product.
11. Consistently Take Intelligent Risks
Consistently take intelligent risks in poker and angel investing, understanding that a small edge over many iterations adds up over time, even if individual outcomes are not always favorable.
12. Play Below Your Means
Play well below your financial means in high-stakes games to prevent the amount of money at stake from influencing your decision-making and causing your game to collapse.
13. Identify and Leverage Your Edge
Be self-aware of how others perceive your playing style and leverage that perception to your advantage, for example, by bluffing more effectively if you’re seen as a conservative player.
14. Strategically Select Opponents
In poker, identify players better than you and avoid hands with them, while actively seeking to play hands against those who are not as skilled to maximize your edge.
15. Leverage No-Code for Experimentation
Utilize no-code tools (e.g., Webflow, Bubble, Squarespace, Zapier) to rapidly build Minimum Viable Products (MVPs) and conduct experiments, significantly increasing the pace of innovation and product testing.
16. Never Underestimate Founders
Never underestimate anyone, as great founders, like great chefs, can emerge from any background or location, bringing unique insights and business opportunities.
17. Cultivate Inclusive Industry Spaces
Actively create inclusive spaces and events for underrepresented groups to apply and participate, explicitly signaling that their entrepreneurial spirit and contributions are desired and valued in the industry.
18. Democratize Private Investing
Advocate for and participate in the democratization of private company investing, enabling individuals from all economic backgrounds to access high-growth opportunities and potentially move up socio-economic ladders.
19. Advocate for Systemic Fairness
Support initiatives that provide universal baseline healthcare and expanded public education, including trade schools, as these are fundamental to a fair society and prevent people from turning to less effective systems like socialism.
20. Treat People with Dignity
Treat all people, especially those in lower-paying jobs or just starting, with dignity and respect, recognizing that over-optimization of labor costs can be unnecessary and detrimental to societal fairness.
21. Avoid Over-Optimization
For those with wealth and power, avoid over-optimizing systems (e.g., tax avoidance, excessive demands for HQ locations) as it creates optics of unfairness and can lead to societal resentment.
22. Recognize Game Limits
Understand that even with a seemingly winning system like doubling bets in roulette, casinos impose limits to prevent players from weathering storms and guaranteeing wins, highlighting the importance of recognizing inherent game limitations.
8 Key Quotes
Really, what angel investing is about is you're playing at a game where the implied odds are beyond what exists in the normal world.
Jason Calacanis
Digging themselves out of a hole is a better feeling, more rewarding to their dopamine receptors than being up $100,000 from zero.
Jason Calacanis
The number one killer of startups, is people quitting.
Jason Calacanis
The best products induce a market to manifest itself.
Jason Calacanis
If you love what you're doing, work hard.
Jason Calacanis
People would value you more if you hacked the system and didn't pay them and did it on your own than if you actually went to the school.
Jason Calacanis
A great founder can come from anywhere, just like Rat Tattoo in the Pixar movie.
Jason Calacanis
The people who need to take risk and make bets that could have 200x outcomes are people who are poor and not rich people.
Jason Calacanis
2 Protocols
Neophyte Angel Investing Strategy
Jason Calacanis- Wait until the product is in the market.
- Talk to actual customers (not the founder's relatives) to validate if they love the product.
- Bet small while learning, analogous to playing at low-stakes poker tables.
- For a $500,000 bankroll, make 25 bets of $2,000 each, putting $50,000 to work.
- Out of those 25 initial investments, identify the top five performers based on their progress.
- Allocate larger amounts (e.g., $25,000 to $100,000) into those top five companies based on their validated performance.
Fostering Inclusion for Underrepresented Founders (Founder.University Model)
Jason Calacanis- Host events specifically for underrepresented groups, such as women or transgender people.
- Actively email existing attendees from underrepresented groups and ask them to refer other founders.
- Offer free tickets to events to encourage participation from these groups.
- Create a space where these individuals explicitly feel welcome and wanted in the industry, going beyond just offering access.