Lambda School 10% Carry Deal

A story about how Shaan Puri structured his first angel investment deal without having personal capital to invest.

"When I knew I wanted to invest in Lambda School, I realized I needed about $750,000 to build a proper angel investing portfolio. I didn't have that money, so I talked to a friend who invested and said, 'Hey, I have this company that I think is really great.'

We structured a deal where I would be like a venture partner - I got 10% carry meaning I don't put any capital in, take zero financial risk, and get 10% of the upside after he's paid back his investment. This wasn't huge returns - Sequoia gives their scouts 45-50%, but they didn't even know who I was, so I took what I could get.

We invested in Lambda School, though by the time I organized this, the valuation had gone up about 3x from when I first saw the deal. But it's gone up about 10 times in value since then, though it's still illiquid.

The math made sense to me - each student was worth about $25,000, so with 4,000 students they could generate $100 million in revenue. At the time they only had 81 graduates, but 4,000 seemed achievable. They were different from other coding bootcamps - they were online instead of in-person, 9 months instead of 3 months, and had 80-90% completion rates when others had 95% dropout rates.

After this first deal, I made a goal to invest in about 5 companies per year, which I thought was the right sweet spot unless I had free time to do more."