Transcript: Brian Bell - From Product Manager to Full Time Investor

Host: Brian, welcome to the show.

Guest: raj, thanks for having me. Uh, it's great to catch up.

Host: Yeah, so we know each other from uh your previous career, I should say now, uh in Microsoft as a product manager, and now you've done full-time investing.

Uh so I thought it would be cool to, you know, sort of touch base, uh talk a little bit about, you know, your transitioning into fund management or, you know, um just investing uh in general.

Um and you know, talk everything about startups and investing.

Guest: Yeah, it's been a long journey.

You know, I uh, you know, I've written about this and I've talked about it in other podcasts, but uh growing up poor with a chip on my shoulder, working full-time in college, trying to figure out my path in the world and um having all kinds of traumatic issues as as a kid and a teenager.

Uh, you know, getting to Wall Street, figuring out like, hey, I don't really like this. Uh worked really hard to get here.

Host: What kind of traumatic issues did you have? I I didn't know this side of you.

Guest: Well, my dad abandoned me when I was a child and my mom died of drugs when I was a teenager, so.

Host: Oh wow.

Guest: So to start.

Um along with a lot of other things that I'm not going to probably delve into on a podcast, but you know, so like needless to say, I kind of grew up with this chip on my shoulder wanting to succeed and worked really hard to get to Wall Street and and quickly became disillusioned, wasn't having fun.

Um and I looked around the people that were there 20 years, 30 years uh a longer than I was uh because I just got there. And they didn't seem happy at all.

And when I talked to them they're like, they seemed pretty miserable actually, so I kind of washed out in my mid-20s and I wandered around jobs and careers trying to figure out what I do with my life and um, you know, it wasn't until I started investing in startups I was like, okay, this is this is what I would do even if I had $100 million in the bank.

And that's exactly the question I asked myself when I washed out of Wall Street. It's like you know, if I had 10 or 20 million in the bank, what what would I really do?

And it's a really insidious question to ask yourself in your 20s because um in your 20s and 30s, you're so career oriented. I got to, you know, get that next promotion.

I got to get that next thing and and um really realize that what you really need to do is figure out like what uh you would do if you're retired. What would you create for the world?

And I think that's even more important now with AI and and all the things that are coming about um where it's going to take a lot of that administrative uh work uh that people have been climbing the career ladder on for for decades if not over a century now.

And uh yeah, so I found my way into tech. I did marketing demand gen for a few startups. Uh realized I'd have to change the product if I was going to actually change the revenue for the company.

I moved to product management, built a bunch of AI powered Martech adtech sales tech tools, culminating and uh leading the AI category at AWS uh launching Sagemaker marketplace.

And then heading over to Microsoft where I I ran category management, which means I had this uh rather large team that would scale startups for Microsoft.

And I realized slowly in in scaling hundreds and hundreds of SAS companies in the Azure marketplace that I was having more fun uh helping founders.

Um so Angel invested for a couple of years and that turned into team ignite the syndicate, uh which I'm now full-time on uh pooling investor capital, investing out of our Y Combinator fund. Uh we have 125 portfolio companies now.

And yeah, it was uh it was like staring into the abyss moment uh a year ago. I got so busy with uh with team ignite. I realized I couldn't hold down a job at Microsoft anymore. So I took a huge pay cut.

Uh and took the the measly little management fees that I get from my fund and and some of the exits we've gotten and and uh just off to the races, so uh never look back. Uh I can't imagine myself doing it doing anything else now and I love what I do.

Host: Amazing. So what was the first angel investment and how did that happen?

Guest: Oh that's a great question. What was my very first angel investment? Um I I was probably a co-investment uh with my grad school buddy. Um it's hard to say which one was first. I'd have to go back and actually look at all my notes.

Uh I guess I should remember my first one, but one of the first memorable ones was Spendmo, uh you know, which we had a syndicate on and uh know that was bill.com in Southeast Asia.

It was pretty obvious this thing was growing super fast, growing 100% month over month coming out of YC. This is back in 2020. And um you know, I put a bunch of my own money in this one and it you know, eight months later.

This is 2020 2021 kind of crazy time raised another round then then another round. So that one's been marked up quite a bit, which is which is pretty fun.

That's that was a wild ride, but I've gotten lots of other ones along the way now that are, you know, three, four, five, 10 X markups, but that was kind of the most memorable one that kind of probably ruined me for anything else.

Host: So you first started writing individual checks and then expanded into an Angeli Angeli syndicate?

Guest: Yeah, it was um it was a couple years of a couple dozen uh syndicate investments. And then uh a bunch of venture funds where I sat on investment committees. I helped a grad school friend of mine raise a fund.

Um and you know, honestly, I tried to get a job at venture for a few months and then I slowly I slowly realized that that wasn't going to be forthcoming.

Uh even with an MBA from Berkeley and um and a bunch of uh experience, you know, there's not a lot of 40-year-old VP level, partner level positions in venture funds unless you're like this amazing exited founder or um you know, you uh you're like an exact at some Fortune 500 tech company like Amazon or something like that.

And so and I'm also just impatient, right? Uh so after two or three months of meeting GPs around the industry and getting introduced it became clear. I was like, I'm not going to get like the proper job here.

Um I'm probably too late in my career and or I don't have the right experience. So but I think I I'd be good at this because I've done just about every job that you can do, right? Sales, marketing, product, BD. You name it, I've probably done it.

The only thing I probably haven't done is uh is be a software engineer, but I was pretty close to being a data scientist at one point, training machine learning models, knew my way around a Jupiter notebook, so I was never like a full stack coder or anything like that, but I've done just about every job, so it makes me a great investor, I think.

But yeah, long story short. That's why I started team ignite and our our mission was to ignite startups as a team and now we have thousands and thousands of LPs and we can help startups in any way they can imagine.

Um we have partners, resources, mentors, advisors, investors um to the tune of thousands of people that can help, which is pretty exciting and it helps us win, help helps us get on cap tables and and that just snowballs over time.

Host: Talk to me a little bit about scaling the Angeli syndicate. You know, I have had some of the biggest syndicates on the podcast and yeah, I mean, we've had like Sad on here and who else?

Host: Yeah, I've said Ali from First check. Yeah.

Host: Um and they all have sort of like a different path of scaling a syndicate.

So I'm curious like I know, uh I saw you like I mean grow actively because I was, you know, part of your syndicate and because of, you know, you were at Microsoft and we were interacting. But talk to him about like, how did you grow the syndicate?

Uh I think this is one of the toughest challenges growing a syndicate uh in the US.

Guest: Yeah. Yeah, and I started it on Angel list, which I've recently broken up with because they cross-market to my LPs I bring to the platform, which I don't like and they hypocritically say I can't market to their LPs.

Um and then they take a piece of carry share, which which is ridiculous. Um it was a good place to get started when you, when you're not sure what to do, they kind of turn key everything for you.

All you got to do is bring deals and and uh you know, those in some cases they'll co-invest or open up their network to you. Um but I think if I could do it all over again, I would have just done it off of Angeli.

Um I think a syndicate's a a great way to get started. Uh you know, if you're an individual angel, uh do what I did and then co-invest with with some other, you know, syndicate leads for a while.

You, you know, if you read like Jason Calica's book, Angel, you you want to get enough diversification in this early stage um because it has a high mortality rate. But back to your question on scaling a syndicate, it's just a whole network, right?

I was fortunate to have lived in the Bay in Silicon Valley and went to grad school there and I was there for more than a a decade, so I just knew a lot of people and invited them into the syndicate and then had them invite people into the syndicate.

And so it just becomes like a knock-on effect of of of a network. Angeli certainly helped with that. I remember at some point half of my LPs came from Angeli, right?

People just randomly finding my syndicate on Angel list, but to be clear, Angeli, the GP is not uh Angeli's customer. The customer of Angeli is are are the angels themselves.

Um the GPs are like uh kind of a necessary mechanism for creating deal flow for the angels. But it's not as if Angeli lives to serve GPs. Um and I and I think that's a problem if you're uh a GP with a great network and great deal flow.

You probably don't want to go on Angeli. You probably want to run it on Carta or decile where I run some of my stuff or um or sidecar. You know, kind of look off Angeli.

Host: Interesting. So you're you're saying Angel list is actually not serving GPs.

Guest: No, we're not the primary customer. The primary customer is the angel investor. That's why it's Angeli.

Host: Interesting.

Guest: Yeah. Interesting. I'm sure they'd love to get rid of GPs and just have all the deal flow. Uh in fact, they they have their own funds that they market to your LPs. So if you're if you're a GP and you bring LPs to the Angel list platform, they will market to those LPs. Uh that's not okay, you know.

Host: Interesting.

Guest: You're marketing uh competitive funds. Like I had a Y Combinator fund, still do. We raise it every year. It's a public fund I can talk about it. And they also have a demo day fund that they run.

So they directly compete with me as a GP on the platform. Um and cross market to my LPs. My LPs are like, wait, is your Angeli? I just got an email from Angel list uh about their their demo day fund? Is that your fund?

No, no, that's that's another fund that competes with ours.

Host: Interesting. Yeah. But isn't like Angel list who started the fund first? Like the YC fund?

Guest: Oh, I don't know who had the first YC fund. I think maybe Rebel or Pioneer. Um probably had the first YC fund. It certainly wasn't like my idea.

Uh but I I noticed that, you know, there's a couple moving parts when I was running YC syndicates years ago and I still do some from time to time. It's harder and harder to syndicate deals nowadays, I think.

Um but back then, uh because there's just not as much LP demand as there was back in 21 and 2020. Yeah. Um the market's still pretty soft for that, I think. Um but back in 20 21, you know, the best deals wouldn't want to syndicate.

So you got, you know, back then it was 400 companies in a batch and most of them would say no, rounds full, I don't want to syndicate. And it just happened enough where or or in some cases I'd raise 100 or 200K out of a $15 million valuation.

I'd go back and we're ready to wire. We have the syndicate, you know. And raising a syndicate's hard. It's a lot of work. And they'd be like, no, it's $25 million now. I'm like, well, we had an agreement at 15.

I went and raised from, you know, dozens of LPs and all kinds of shenanigans like this would happen.

I just got tired of it and that's why I started the YC fund in the first place is so I'd have dry powder and build to move on the the you know, the fastest moving deals as quick as possible.

Host: Yeah. I was just talking to someone uh yesterday who said, you know, they want to do syndicates and I did syndicates, right? And the problem is you might as well do a fund. Like it's it's it's probably lesser work than actually.

Guest: Actually, probably harder than running a fund, yeah.

Host: Yeah, I mean, if you put the same amount, probably you could raise a committed capital structure rather than doing a syndicate, right?

The amount of time it requires to close deals with the Better off just raising a small fund uh and and a very small niche and also, right?

And sometimes because you're promising the founder, if the LPs don't believe in what you are saying in that company, then it's your reputation on the line, right? Yeah.

Um even though like you have no intention to sort of, you know, go back on your word, you're sort of like in this weird scenario where you have to sort of, right? Um yeah.

Guest: Yeah, I think you're best off figuring out what's your unique value add, your unique unique network, your niche and going very, very very specific on what you're good at and then doing a syndicate in that area. Uh or I'm sorry, a fund in that area rather than trying to do a bunch of syndicated investments.

Host: How and you mentioned this slightly just now that, you know, closing a syndicate is now much harder. I mean, it was always harder in the sense, right? Especially for someone who's doing new.

Guest: Yeah.

Host: Like how is it today? Because I stopped doing syndicates for a while. Uh but uh I I see some of your emails here and there. Are you still Yeah, we get some out there.

Host: Um Um I guess it's wishful thinking. Um there's still a very high failure rate. I think that even back in 21, like maybe one in two would close. Yeah.

Guest: Um maybe two and three, you know, so, you know, more than half, call it. And it got down to where now, I I'd say we're like one in four, one in five will actually raise enough money to close.

And then Angeli has actually increased their fees recently. They which has increased their minimum. Which means now to even close a syndicate on Angeli, you got to raise 100K.

Um which doesn't sound like a lot of money, but when everybody's wiring two, you know, one, two or 3K checks, maybe 5K checks.

Host: Yeah.

Guest: There's a lot of people have to commit. Um to get to that minimum bar and which is why we started running a lot of our deals on sidecar because it's a lower fee. It's only 4,500 uh for 10 years of the syndicate life.

It's a master series LLC just like Angeli, but they use a lot more software. And their customer is the GP, it's me. And then so what that means is now as a GP, if I could only raise 30k, yeah I can go like, you know what? I'm going to close this.

It's a, you know, five we're 4,500 fees. We raised 30. I'll wire 25k to the to the founder. It's a smaller check than I would have liked, but at least we can close the deal.

Host: So sidegar offers 30k to you uh like it will allow you. I I know like Angeli used to have like 80k and now you're saying it's 100k.

Guest: It's 100k now.

Host: Got it.

Guest: Yeah. Because their fees are 10k now.

Host: Mm yeah.

Guest: So what Angeli tries to do is like you'll raise 70k or 80k and they're like, well, can you make up the other two or 3K with your own money? I'm like, no.

Host: Yeah.

Guest: I already have to I already have to put up 1% per Angel list rules and 2% if you're raising raising from Canadian LPs.

Host: Yeah.

Guest: So starts to be like.

Host: Just talking about it gives me anxiety of closing the deals.

Guest: Yeah, and now I don't I don't face that anymore, you know, and I I I went through this like marketing phase where I was like, you know, and you'll see this with some of the Angel list syndicate leads.

They'll like be like, all right, last call, okay. Okay, last last call and okay, you got to come in by Friday and like, oh, we got a crazy announcement. Somebody joined the round and it's.

Host: Last call.

Guest: It's just like turns into this like beating of the drum to try to close syndicates.

Host: Yeah.

Guest: And like in the meantime, like I'm I'm trying to take a page out of Jason Canis's book, which is you announce this to deal and that's it. It's like deal number 297.

You know, and like you never hear another email about it and that's what I've been trying to live by running my own syndicate syndicate syndicated investments off of Angel list is I'm not going to like pound my LPs over the head with like last call and blah blah.

I just it it gets to be kind of annoying and LPs will unsubscribe and not take me seriously.

Host: So what what's been successful on Angel list these days? Because I I've stopped like doing syndicates actively and focused on outside Angel list. So, I mean, what is your experiences? Like because what's the main business right now on Angel list? Is the are the funds the main business?

Guest: Well, I I'm taking my YC fund off Angel list actually. So it was a rolling fund. Um you know, and it turns out I was doing running the numbers on this and a rolling fund seems like a really great concept to get started.

But if you actually run the numbers on the fees, it's a very, very high fee structure uh if you think about like a traditional 10-year fund where you raise for a year, deploy over three or four years and then there's like this there's this admin fee of running the fund.

Well, if you if you go with somebody like sidecar, that fee is about half uh or even less than half, maybe 60, 70% less to run your equivalent fund over there. They have a fund plus product that I've been looking at.

I haven't um closed the new fund yet on on sidecar, but so far um so far it's been going really well. Um and so we're looking forward to that.

Host: Nice. So let's talk a little bit about YC, you know, companies and investing in YC. Like I think you started around investing in 2020. I if I'm not wrong or earlier than that. Um and in thinking in the middle there I think my very first YC investment was like 2019 2020. Yeah.

Host: 2019. Yeah, so right about the same time I think I also invested in YC companies. But there was this sudden bump, right? Like I used to see, I think it's maybe 2021 post-money valuations of $60 million on just fast.

Guest: Large revenue, three guys from Google, yeah.

Host: three. At least so many where it could be. Yeah. But but it was sort of ridiculous. After a while I was like not taking calls from YC.

Guest: Yeah, some some some VCs I really respect won't touch YC. Um the the don't go to demo day. They don't talk to any YC founders near demo day. Uh they're just like, call me in a year.

Um because if you think about if you look at the YC deals objectively, I'm going to get some sharp elbows for this probably from Gary Tan or somebody. But if you but if you look at the YC deals objectively, it's like, oh, we pivoted five weeks ago.

Uh we got four paid pilots and we're raising it a 20 cap. You're like, well, that sounds like a friends and family round to me. You know, I should be investing at a three 3 million maybe $5 million valuation, but you're raising at a 20 million.

Yeah, you're an amazing team. You came from insert your favorite Ivy League, Stanford, Harvard, whatever MIT.

But you know, like I can go to like Tech a Techstar demo day, get an equivalent team that also went to MIT and probably invest at a 10 cap and they have a way more traction.

Like uh I just invested in a company uh, you know, 500,000 of revenue, 13 cap, MIT using AI, you know, to to disrupt an industry. That same company would be 2530 cap at YC.

Host: I feel like there are two categories of investors um in you know, in the game that you and I are in. Like there are investors who are very, very sensitive to valuation and there are investors who are not so sensitive to valuation and sort of, you know, run towards the fire type of investors. Which type of investor do you think you are?

Guest: I'm somewhere in the middle, honestly. Um I've never let valuation get in the way of making an an investment. I've really overpaid for some companies in the past because I was just really in love with the product, the problem, the market, the team, the traction, all that stuff. It just checked all the boxes and it's a 30 cap, you're like, okay.

Host: What is the like like when everything is good but only the valuation like makes me feel that I'll never get a return. Like what is a pushing factor for you in that in that sort of deal?

Guest: What is the what factor?

Host: Like what what is the pushing factor that's making you say, okay, I'll still do it?

Guest: Well, if it checks all the boxes, right? There's 10 or 15,000 precede and seed fundings every year, right? There's something like 150, 200 unicorns over the long-term average created every year.

Uh so if you do the math, it's, you know, something like one or 2% of companies become unicorns. You just don't know which one or 2%. You just honestly don't.

Um historically, YC's had 10% unicorns or 6% unicorns depending on the data set you look at and then and the years and I think that that data is a little strange because that's back when they had batch sizes of 20 or 30.

Host: Mm.

Guest: You know, so it's a little different. I think now when you have batch sizes of, you know, 250, but I think I think back to your question, if it checks all your the boxes, it really depends on your strategy as an investor, right?

If you're the kind of fund manager that's going to make um 15, 20, maybe 30 high conviction bets in your fund, maybe uh and you're very niche focused. Like you only do AI, you only do Fintech. So you know that space really, really well.

You know all six teams working on this problem and you're a big check so you can throw your weight around. Um maybe you can negotiate a better price.

Maybe you know of another team um that's working on the same problem that you can get in for uh, you know, half the cost.

But I think I think it was it might have been Don Valentine, you know, it's like, you don't ever let valuation get in the way of making the right investment.

And so if it's the right investment, it's not that valuation doesn't matter because you don't want to invest like a hundred cap with like no revenue or something like that. Um that would be ridiculous.

I got a deck where a guy was raising billion he was raising at a $2 billion cap. He was raising like 400 million on $2 billion cap. Uh it was a bunch of BS like there's no way that it made sense, but yeah.

I mean, if for me it's still hard to reconcile that fact that you never, you know, um never make valuation come in the way because that's sort of what the logic which led to that 2021 2022 peak.

Everyone was giving the same exact line that, you know, never get never let valuation get in the way of a good company because everyone thinks that the company they're investing is a good company.

Guest: Yeah, I mean, part of the part part of your strategy, it kind of depends on, you know, there's, you know, every fund and every, you know, money manager, GP, startup is like a snowflake and it's just always on a case by case. You just.

Host: Yeah.

Guest: You have to you have to imagine like imagine okay, you can invest in one company that's a 30 cap. Um and you let's say you target 10% ownership, right? Okay, great. So I got to put 3 million up to to get my 10% ownership.

Um or, I can invest in six companies at a five cap and get the same amount of ownership. Would you rather have six shots on goal if you're in the if you're a precede or seed investor or just one shot on goal?

Um I I I I veer towards, you know, multiple shots on goal. I think.

Host: Yeah.

Guest: And I think if you think about probability theory, portfolio theory kind of um the statistical likelihood of of certain outcomes, you kind of want to have more shots on goal.

And I think this is, you know, and I I've been telling my my LPs this is I think, you know, part of part of team ignite's vision is to be the world's leading precede and seed investor someday, which would require I'm in the top, you know, five or 10% of deals every year, which would mean I would need to invest in 500 or 10 a week roughly.

Mm.

Guest: Um so that's the vision for team.

Host: Wow.

Guest: Yeah. Yeah, so that's the vision for team ignite. It's someday we're doing 500 deals um per year, uh 1500 per fund of of of the best precede and seed companies out there. And yeah, we're going to get it wrong a lot, but guess what?

You know, if we if we go, if we're right even one once in that fund, which we have a pretty high probability of doing from like 1500 shots on goal. pretty high probability of getting at least one that goes 10,000 X or 1000 X and returns, you know, most if not the entire fund or or even five and 10 X is a fund.

So that's that's the statistical realities I think of early stage investing right now. That's one strategy. That's not the right strategy. I just think that's the strategy I'm going to follow.

There's another strategy that says, yeah, I'm going to do seed and lead and I'm going to be I'm going to have really, really high conviction and I'm going to write really big checks and uh into a very small number of companies and I'm going to like take a board seat and I'm going to sit with them and and it's a different kind of strategy.

Um they're both a lot of work. Um and there's no right strategy. Everybody has a different way of uh getting the cat or whatever whatever the phrase is.

Host: How many uh I mean you're seeing so many pitches, you know, evaluating startups. Um what are the big red flags in a pitch for you?

Guest: Um chasing valuations, I think would be the biggest one. Um you know, this is going to we're going to have a billion dollar outcome. Google's going to want to going to want to buy us for $10 billion dollars.

Host: Interesting.

Guest: You know, we're going to IPO in four years. You know, uh yeah, I think I think it's clear. You know, what I'm looking for and I'll actually ask founders this sometimes is I'm looking for a chip on their shoulder.

I have a chip on my shoulder which I shared at the beginning of the podcast. So I'll usually say, hey, what put that chip on your shoulder? And by the way, for me, it's, you know, uh what I said earlier.

Um and it kind of diffuses the the tension a little bit and you'll kind of you can to kind of tell when people have chips on their shoulders. Like they have to like succeed. They have to go make a dent in the universe.

Steve Jobs had a big chip on his shoulder. Elon Musk has a big chip on his shoulder.

Host: Josh Wolfs from Lux Capital. Yeah. He's he'll say they had chips on their shoulder.

Guest: I I should have called it chip capital. Chip capital. That's what I should have called Team Ignite because that's what we're looking for. You know, the vision for team ignite was to ignite startups as a team, but really what we're looking for are scrappy entrepreneurs with chips on the shoulder.

Host: How do you recognize that someone has a chip on the on their shoulder and like is?

Guest: You don't know until you meet them. Yeah. You ask the, you know, the why in your screening form or whatever. You know, we have one of those screening forms. You know, why are you building this business?

But you really actually can't tell until you meet them. And you're kind of looking for a strong force, right?

When you meet with somebody and they're like, I'm like, wow, this person is strong like mule piss is uh one one one of my sales leaders used to say. Pretty funny phrase, strong like mule piss.

You're looking for like a strong person that's like, they're going to succeed no matter what. Whether or not like I sit on their board, write them a big check in the seed and lead or I just write them little 25, 100K check from my syndicate.

They're going to be successful. And I'm just trying to find those people and write on their coat tails, right? And and hopefully help them, right?

Introduce them to the right people, help them fund raise, find the right person at team ignite to help them hire VP avenge. Whatever it is. But really you're just looking for people that are going to be successful irregardless of anything I do.

Host: Yeah. Let's talk a little bit about you know trends. Like I mean, you're actively investing precede. You know, what what are you seeing in terms of trends? Obviously, AM must be high, but I just want to understand what specifically you are seeing even in AI.

Guest: Yeah, I mean, AI, I mean, I've been in around AI since the early 2010s, built a lot of AI stuff, led the AI category for AWS. It's been a lot of cycle, right?

You know, we kind of seem to have like cycled down and then cycle right back up with chat GPT obviously. So what I'm seeing now is like kind of um the the the beginnings of a new platform paradigm of this platform shift, right?

You're seeing all the X4 LLMs kind of stuff, right? Oh, it's security, it's verbility. It's um how do you, you know, host these models at scale? How do you create a platform to fine tune these?

How do you uh create orchestration around all these different agents? How do you create workflows? um and so you know, and and then, you know, I think you're seeing companies raise at very high valuations.

Um you know, luckily we don't really play in the foundation model layer. I think that's a really tough place to play.

I think you're seeing a lot of um open source models start to catch up and and sometimes sometimes with fine tuning surpass the state of the art closed models.

Uh and I think, you know, generally I I've been saying this for years is AI is eating software, right?

And so it's generating more software, developers are more uh uh efficient than they've ever been and I think you're just going to see a proliferation of a thousand SAS flowers blooming of software everywhere.

---