Entrepreneur-Turned-Angel Travis Kalanick to Founders: Get Some Fangs

Thirty-three-year-old Travis Kalanick is part of a growing band in Silicon Valley: the entrepreneur-turned-angel investor. The serial entrepreneur last cofounded the file -sharing service Red Swoosh, which sold to Akamai in 2007 for $18.7 million plus an additional $5 million in incentives.

The company had raised $1.5 million from August Capital, Crosslink Capital, Mark Cuban and Ron Conway, but most of that money came four years into the company — four years that Kalanick didn’t take a salary. “It was tough. It was blood, sweat, and ramen,” he says.

Little wonder that Kalanick, who plans to start another company in the next couple of years, is right now “taking a bit of a breather.” His version of one, anyone. Over the last year, Kalanick has put a million dollars of his own to work in 10 startups, including Blippy, the social network that invites users to share their credit card transactions; FormSpring, a fast-growing social question-and-answer site; and Expensify, a startup bent on simplifying the expense reporting process.

I caught up with Kalanick yesterday to ask a few questions about his working vacation.

I hear that you’re considering investing in the controversial people review site Unvarnished. True? Not true?

I’m in the vetting process. I  really think there would be a lot of value in an accurate reputation service, and I think these guys are doing something really interesting, but I haven’t decided yet. An angel has to find the right team and the right deal as well as to believe that a product will get traction. I’m putting my own money on the table, so I’d like to know the founders. I don’t get involved in these shotgun deals per se.

I do think we’re moving into a world where you’re going to get an accurate picture of someone, and if you don’t like something about your reputation but it’s kind of true, you’re kind of out of luck.

At what point do you typically get involved with a startup?

At the creation phase. I partner with the founders to get their company off the ground; I’m an advisor but also someone who can get all hands on deck and do the nitty gritty stuff. When a company is an intense period I might spend anywhere from five up to 20 hours a week with them.

A lot of smart people out there doing what you’re doing are looking for institutional money or else starting to pool their capital. Are you thinking about either of those paths?

Pooling my capital with that of other people? Yes, I‘d do that. There’s definitely a specific opportunity for a certain size fund right now. Then you say: how much money do I have to put on the table, and does it need to be supplemented?

And what percent of your net worth are you willing to put to work in startups?

I’m not sure I’ll give that number up. But every smart investor should figure out how much of their own wealth they want to put in. I’ve put in a million bucks over the last 12 months. That’s the rate that I’m going at.

Is your focus mainly on the consumer Web?

Some are consumer Web deals. Another, CrowdFlower, is an enterprise software and services company that lets businesses tap into an ephemeral labor pool to do a variety of things, like data clean-up. I’ve also backed a healthcare IT startup called Kareo that’s helping physicians get paid by insurance companies.

I don’t go by space, I want to work with founders who I would co-found a company with.

Speaking of, what did you learn as a venture-funded entrepreneur that you’re sensitive to as an investor?
I learned that control matters to the entrepreneur. If you can take less money, give up less of your company. I learned that bringing on a board member is as important as bringing on your best employee. You should look at it as a hiring decision.

What if the entrepreneur doesn’t have a lot of options in terms of funding sourcing?

It happens, but today’s crop of entrepreneurs is a hell of a lot smarter than I was because of blogs and social media. Now everyone is connected and talking all the time.

But I’ve got to be honest, because there are so many more angel deals getting done and so many companies getting funding at a smaller level, I’m finding that entrepreneurs aren’t as fierce generally. The way they can do a better job at board composition and getting the right deal with the right investors is to hustle more. Get fierce. Get some claws and fangs. Make some shit happen.

Interesting that you say that. I’ve been hearing some other complaints about entrepreneurs’ sense of entitlement lately. Are you seeing crappy deals getting done?

No, I still think it’s quality deals that are getting done, though I will tell you that in the last four to six weeks, valuations have been going up dramatically.

Wow, that’s a pretty specific time frame. Why are valuations soaring right now?

I’m not sure. It could be that there’s a lot of money that needs to be put to work. More angels are getting into this angel market. Every one of these $50M deals that gets done by Yahoo or Google is creating more investors. It could also be that more people are vesting out of Google and elsewhere. Finally, I think a couple of these really high profile deals, like Quora [which just raised an A round at a reported $86 million valuation] is really emboldening entrepreneurs to ask for more. At the same time, [such deals] are emboldening angels that the pot at the end of the rainbow is even bigger.

Can you give me some numbers to put things in perspective?

A year ago, $2 million to $3 million pre-money was a standard angel deal. Now, it’s easily $3 million and going up. I’ve seen one starting at $5 million, and that’s pre-launch. These are first-time entrepreneurs here, too.

How do you keep from getting swept up in what’s happening?

There’s a difference between a VC deal and an angel deal. Angel deals require lots of people, and they usually take four to six weeks to close from the moment an entrepreneur says they want money to the moment that money hits their bank account. You can get a term sheet in a few days, but it still takes time to get the deal done.

Four to six weeks still seems incredibly fast.

I’ve seen ones that go longer if the company needs to get further long, but a deal that fits from the get-go, that’s four to six weeks, and that’s for angels who are involved from the earliest part of the cycle. Some angels might come in late and in a week, they’re wiring money.

Do you see some situations where it’s best to finish out a round with dumb money? Is there sort of a good recipe in creating a syndicate?

It depends on an entrepreneur’s needs and management style. If you want to just get to work and have a tight interface with an investors’ group, then you go with bigger dollars from fewer people. But if you need lots of help or want lots of input or want folks getting you lots of customers, then maybe you spread it out.  Either way, the smarter the money the better, always.