Mutual Startup Selection

Shaan Puri shares insights about the unique dynamics of startup investing, emphasizing how it differs from other asset classes and why building a strong reputation is crucial for access to good deals.

• Startup Investing's Unique Selection Dynamic:

  • Unlike real estate or stocks where you can simply buy what you want
  • Startups are the only asset class where "the security selects you"
  • Even if you want to invest, you can't just get in - mutual selection is required

• Keys to Success in Startup Investing:

  • Build your brand and reputation to get access to deals
  • Best deals are highly competitive
  • Want founders to reach out early in their ideation process
  • Long-term orientation is a competitive advantage
    • Being patient for 5-10 years vs needing results in 1 year
    • Allows for lower-priced bets with bigger payoffs
    • Similar to Amazon's strategy of prioritizing long-term over quarterly results

• Deal Flow Generation:

  • Podcast presence helps drive inbound opportunities
  • Network effects compound over time
    • Sharing deals leads to receiving more deals
    • Success with previous investments attracts new founders
    • Reputation compounds faster than in other asset classes

• Investment Returns:

  • Floor expectation around 3.5x return
  • Small funds can potentially achieve 15-20x returns
  • Some crypto funds have achieved 100x returns
  • Ownership structure means individual returns are smaller slices
    • Example: $100k investment might be 0.8% ownership
    • Carry gets split among partners

• Comparison to Operating Business:

  • Operating business likely more profitable due to majority ownership
  • Startup investing is "a joy" - less operational work
  • Meet founders, evaluate ideas, write checks while others do hard work