Introduction to startup investing – a reading list

Originally published in my blog

I was late to the startup game. Ever since I graduated in 2008, my world revolved around investing in public equities and I spent most of my time learning how to be a better stock market investor.

A few years back when the startup movement just started in Bangladesh, I got exposed to the concept for the first time. Yet it was just a vague understanding and in hindsight, I can claim that I didn’t really know much back then.

Things changed after I quit my previous job and started EDGE Asset Management and EDGE Research & Consulting Limited with my partners. Naturally, I had to leave behind the hat of an employee and think from a business owners’ perspective. Although both businesses are rather traditional in nature the new role gave me a better perspective on how startups can create value. I decided that I need to do a deeper dive and learn more about investing in startups. 

For me learning anything is a two-step process. The first step involves doing some intensive reading on a subject matter using books, blogs etc while the second step involves placing real money in startups. In this post, I will only talk about the learning material and possibly in a future post delve into my experiences as an investor.

Books

Angel: How to invest in technology startups by Jason Calacanis

This was the first book I read on angel investing. And for all others getting started in angel investing I think this should be the first book.

Jason is a pretty well-known angel investor. He had invested in a number of successful companies like Robinhood, Wealthfront, Uber, Thumbtack, Superhuman, and Trello. He also has a wide following on his podcast ‘This week in startups’.

What I particularly loved about this book is the witty tone and the practical tips he gave on becoming an angel investor. The book does not delve too much into the technicalities but has just enough substance to be the introductory book on the subject.

I read Jason’s book twice. There aren’t too many books I have read twice in my life and that speaks to how much I liked it.

Secrets of Sand Hill Road by Scott Kupor

This is a more recent book that got published in mid-2019. There are a lot of reasons to read this book.

Firstly, it's written by the current Managing Partner of Andreessen Horowitz which is one of the most prominent Venture Capital firms in the world. Scott actually worked with Marc Andreessen and Ben Horowitz at Opsware before its acquisition by HP.

Secondly, Scott wrote the book with the perspective of the startup founder in mind instead of an investor. However, a budding investor can benefit greatly from the wisdom imparted.

Unlike Jason’s book, Scott does focus on the slightly more complex issues like legal structures, employee stock option pools, and important term sheet items like liquidation preference and anti-dilution. For me, the best part of the book was definitely his explanation of how VC’s evaluate a startup from the perspectives of Product, Market, and Team.

In my opinion, reading this after Jason’s book is the perfect sequence. In terms of material difficulty, this is definitely a level higher but not too much higher that a person gets lost.

Angel Investing by David S. Rose

David Semel Rose is the founder of New York Angels and the CEO of Gust which is a platform for founding, operating, and investing in scalable, high-growth companies according to the company website.

I came across David first in Quora where he is very active in answering questions on anything related to startups. As Quora evolved and introduced spaces he quickly started ‘The Founder Journey’ where a lot of content on startups is posted regularly.

Broadly David also covers a lot of similar materials as Scott but it is always good to get multiple perspectives on a subject. And it’s clear from the start that David wrote keeping the investor’s perspective in mind.

He covers a lot of ground starting with the % of startups that get funded, assessing team, market, and product, etc. A very valuable segment is the due diligence segment where he elaborates on the checks an investor needs to conduct before deploying money. Some of these items would include corporate records, employee contracts, lease, and rental contracts, etc. Another important part is the valuation part where he introduces the most popular valuation methods in startup financing including scorecard method, VC method, Dave Berkus method, etc.

Venture Deals by Brad Feld & Jason Mendelson

Brad Feld and Jason Mendelson are co-founders of The Foundry Group a tech-focused venture capital firm that started in 2007. Brad is also a co-founder of Techstars.

This is the book to read in order to understand term sheets. They really go in-depth into the subject and break out the basic structure, control terms, and economic terms in separate chapters.

My only complaint with this book is that it felt a bit dry to me. Therefore I treated the book more like reference material.

Blogs

Paul Graham

Paul Graham is the founder of Y-Combinator which may be the world's most popular startup accelerator. Someone once recommended to me to read everything written by Paul. That was definitely very valuable advice and I actually did read all his posts (excluding the technical stuff he wrote for engineers). Both investors and founders will benefit from his writings.

Other notable blogs

There are many other high-quality blogs that can be followed. Sam Altman the former president of Y Combinator has a good blog. So does Andrew Chen, a general partner at Andreessen Horowitz. You can also read Brad Feld’s blog.

These days almost all VC firms and their employees write. This is actually a key way to attract high-quality startups. So the challenge rather becomes deciding what to read and what not to.

Conclusion

This is enough reading material to last a few months (or at least a month for the voracious readers). As mentioned earlier, knowledge attained through reading needs to be applied practically in order to be really useful. In future posts, I might delve a bit more into my limited experience as an angel investor myself in the context of Bangladesh.