0:00:00 - (Andrew Kazlow): Welcome to the Diligent observer, where we help angel investors see what most miss. I'm your host, Andrew, and every week we explore what works, what doesn't, and why through conversations with experienced startup investors and operators.

0:00:11 - (Peter Walker): Startups are bubbly and frenzied and weird and hyped machines. That does not mean they're good investments. I don't think angels in particular or small funds spend enough time thinking about how does this company exit? If you never do safes, you're inevitably going to miss a great business because you did.

0:00:27 - (Andrew Kazlow): My guest today is Peter Walker, head of insights at Carta, where he leads the team that turns Data from over 60,000 venture backed startups into some of the most widely cited research and private capital markets. In this episode, which was recorded immediately following his keynote at the Angel Capital association annual summit in 2026, Peter shares why angels and small funds need to think harder about their exit strategies, the mechanics of how early stage companies actually get acquired today, and why building personal distribution is becoming one of the most durable competitive advantages in the venture ecosystem.

0:01:01 - (Andrew Kazlow): I hope you enjoy learning from Peter as much as I did.

0:01:12 - (Andrew Kazlow): Peter, thank you for being with me today.

0:01:14 - (Peter Walker): Andrew, good to see you, man. How are you doing? Great.

0:01:17 - (Andrew Kazlow): I am reeling a little bit because you present on stage the exact same way that you present on LinkedIn and in every webinar, which is just like fire hose of insights takeaways. I mean.

0:01:29 - (Peter Walker): All right, well, give me the constructive feedback. What can I do better on stage?

0:01:32 - (Andrew Kazlow): The constructive feedback is I want to know who Peter is, who the man behind the data is. And that's what we're going to talk about today. So I want to start not with what's the hot takes because we're going to get to those, but I want to start with like, how did you get to this seat? I think everybody in the venture ecosystem knows your face, knows your name, you're representing one of the most influential brands in the space and we all see your charts every week.

0:01:57 - (Peter Walker): Totally.

0:01:58 - (Andrew Kazlow): How did like give me the flyby on your journey from, I think poli sci.

0:02:02 - (Peter Walker): Yeah.

0:02:03 - (Andrew Kazlow): To this, like.

0:02:04 - (Peter Walker): No, you went way back. Yeah, yeah, man, it's. I mean serendipity is the word for it really. I went to school, did poly science history, was my dad is an entrepreneur, so I was always kind of interested in startups. I actually started a company in college as a founder with some friends, so that was very interesting. But early employee at this company, straight out of school that was doing effectively. The product was charts and graphs for PR People So as media and communications analytics for the Fortune 500 and if you've been around a lot of PR people, they're amazing, but they're not super data focused.

0:02:40 - (Peter Walker): So like my role at the beginning was trying to make this as immediately engaging for people who don't really love data as possible. And then you jump from the data analyst role. I ran a team there and then I go into the marketing side of the business and do. I ended up as like basically the cmo. And there's that mix of like, how do you present data effectively and then how to use it for brand was kind of always in the mix.

0:03:04 - (Peter Walker): 2020 hits. I go and start working as a second job with the Atlantic magazine's Covid tracking project. And that's where the idea for what I do at Carta really came from, which was if you have an asset of data that is obscure enough or interesting enough that people would want it explained every day you have this effectively infinite amount of content. You can mine from that. That is what I pitched to Carta when I came into the business was like, you're sitting on a gold mine. Let's just make sense of it publicly as often as we can.

0:03:33 - (Andrew Kazlow): So you entered. Did you literally go to Carta and say, hey, I want to come do this for you? Because I think there's a huge opportunity. I've always wondered, was it. So I always thought in my head that some, you know, somebody behind the scenes was like, ah, we need a face, let's find one. But it was the opposite.

0:03:48 - (Peter Walker): So here's the thing. When they brought me in, there was no intention of me becoming a face. It was like, build a research team here and we'll produce these reports and it'll be great and all this stuff. But the idea that I would be sort of the Persona behind it really wasn't there until about six months in when it was like, we're building this stuff, it's good. Why doesn't anybody care? And the distribution aspect was kind of me putting it on my personal social at a whim for a while. And then that started to pick up and that started to pick up more.

0:04:18 - (Peter Walker): And the flywheels just started turning. And then, you know, one you wake up one day and you're like, I'm very publicly associated with this brand now, even though of course I'm not the founder of Card, right?

0:04:26 - (Andrew Kazlow): I mean, you have a tremendous amount of power now in this organization.

0:04:29 - (Peter Walker): I disagree. I am merely, I am merely a face. But I get to build off of Henry and everybody else's fantastic work to build that data set. And I came in after it had been effectively close to built, and then I just kind of poured gasoline on top of it. Although I do think that there are way more startups that should have insights teams. I think it's a beautifully aligned motion with your customers, so we can talk about that if you want, but it's, it's a whole thing, so double click.

0:04:53 - (Andrew Kazlow): For me though, like, given that that wasn't the plan and it sort of naturally evolved, like, how did that feel? Kind of recognizing that in slow motion over the, whatever, 6 12.

0:05:03 - (Peter Walker): Dude, it was weird.

0:05:04 - (Andrew Kazlow): Four months.

0:05:05 - (Peter Walker): I mean, it's weird to go from a position where nobody cares at all what you're posting or, like, what you're doing, really. I mean, every, you know, Cardo appreciated the work and it was all good and all that stuff, but it wasn't like nobody knew who I was to a situation in which you're like, you're, you're very publicly associated with this company and are an ambassador, an evangelist, and that's, it's been really cool. I, I, I'm not joking when I say I get up a lot of credit to Henry and then my current CMO Nicole and my old CMO Jane, who all like, get it, you know, I'm not, for instance, I'm not sitting there going, how many leads did I bring in this?

0:05:46 - (Peter Walker): That's not the point of my work. My work is to make Carta ubiquitous across startups. And so if ubiquity is your goal and you want to just maximize awareness, it's, and you want to be on social especially, you have to have people. You cannot do this from a brand account. So, like, the question is, who? And in this case, it made sense for, for me to do it.

0:06:05 - (Andrew Kazlow): Okay, so one other question for you before we get to the, the hot takes and the data. What's your process for being so ridiculously responsive on LinkedIn? Because I can't even imagine. I struggle to keep up with my LinkedIn.

0:06:20 - (Peter Walker): Yeah, maybe mine is quieter than you assume. You know, I doubt it. It's not, it's not. Look, I think.

0:06:28 - (Andrew Kazlow): Do you sleep?

0:06:29 - (Peter Walker): I do sleep less than I should. I, I think that this is really one of the things that you have to decide if you're going to be a creator or like a content person is like, what do I do? Do I respond to people or don't. Am I involved in the comments or am I not? Is this I, am I giving and then just leaving or is this like you want to build individual touch points in community? And look, man, when you have 2,000 followers, it's a lot easier to respond to your DMs, so you're in the habit of doing it. And now at scale, I have to like, be judicious sometimes. There are some days where I'm like, wow, I'm behind. But most of the time my goal is to be like, if I'm responsive to this, people are going to appreciate.

0:07:10 - (Peter Walker): And people notice that you're like. And that's part of the reason why this thing works for data content is because data content can be dry and boring, even when it's interesting and controversial occasionally. But the person behind it shouldn't be. It should be a real person who you build real relationships with. And then the hidden part of insights happens, which is get invited to do the talks. You go on the podcast, you're at the, hey, there are four GPs in town who are having this really private dinner. Let's bring Peter in. It's not a dinner you could ever sponsor, but I'm invited in there because you're a real person.

0:07:42 - (Peter Walker): And that is the last, that's the last stage that I, I'm not taking credit for this. I had no idea that this was going to happen. But once it starts happening, you're like, oh, wow, that's where the good stuff is.

0:07:51 - (Andrew Kazlow): This is like a masterclass in everything.

0:07:55 - (Peter Walker): You've built your career also, like build your own distribution, you know, like, say more. Look at what AI is doing to startups. Your idea is going to be faster and faster. The, the utility, the unique edge of your idea will be erased. Faster and faster and faster. There is some moat, but less moat every day in product and technology, etc. What is your moat? If there are eight different people offering you cap tables, who are you going to trust?

0:08:21 - (Peter Walker): Building distribution, especially personal distribution. And this is an advice point for people early in their career. Like, it's very useful to have, when you join a company, bring along an audience with you. I think that we're going to see way more in house talent for B2B companies. And that's a wave that's already happened for B2C companies. It's B2B is now happening.

0:08:40 - (Andrew Kazlow): Fantastic. I have 30 more questions. I'm going to pin those for after this. Let's get into some of the takeaways from your keynote here at the Angel Capital Association Annual Summit in Westminster, Colorado. You just dropped like 25 posts worth of content in a 30 minute block. It was amazing. I wrote down about 47 things. Tell me what are like one or two of the takeaways or insights from your keynote that you would be really upset if we didn't talk about on the show.

0:09:13 - (Peter Walker): I think the biggest one is like everyone calm down a little bit. AI is definitely changing everything about startups and it feels as though only the biggest, most well capitalized, most highly attentive players get to win. That's just not true as long as you're playing the game you think you're playing. If your game is I need to get access to the best companies because I want only unicorns and I need massive decacorn exits, then you better have a lot of money.

0:09:43 - (Peter Walker): But if your game is, I'd like to find under appreciated founders before they become consensus, you can still play that game and you can play that game at all different levels of money. It has gotten harder, but it's not like it hasn't erased itself. And I feel like sometimes you get a real doom and gloom vibe from early investors who are like nothing matters anymore, all the best founders are going to Silicon Valley, et cetera. Like I just don't believe that.

0:10:07 - (Andrew Kazlow): And so this is connected to the, the you shared some data around the concentration of billion unicorns versus actual like returns, multiple returns. Articulate that for me to kind of support.

0:10:19 - (Peter Walker): So here's the thing. A lot of mega funds or a lot of emerging managers get mad at the mega funds because they go by simple math. Emerging managers should outperform the biggest funds because it is easier on a dollars basis to hit 3, 4, 5x your money if you're only investing 50 million than if you're investing 500 or 5 billion. And they're right about that. That's math. Like it definitely is true. What they miss is the megaphones are not doing this on the same level playing field that they are. And they're not promising their LPs the same thing.

0:10:50 - (Peter Walker): They're not saying we're going to 5x your money. They're saying you're going to be in the most generational, well talked about names before they go public and we're going to get you there. And you might 2x your money. And guess what? If you have $2 billion, 2x is pretty good. Capital preservation matters as much as capital accumulation at that stage. Now for the the advice that I would give emerging managers is if you can find the right companies at the very early stage, they can become 25, 50, 100 times more valuable and still not really make A blip on the mega fund radar.

0:11:22 - (Peter Walker): The real big question is, and that's awesome that that strategy's been around for a while. The big question is, how do they exit? Way too many. I don't think angels in particular or small funds spend enough time thinking about how does this company exit to whom? Because you are not IPOing at $1 billion. So if you would like an exit, you need an acquisition or you need to take secondary out along the way and like angels getting a lot smarter about who these companies exit to and can they be helpful and then if not, can you take secondary out along the way? I think there's massive tailwinds to angels and small funds over the next probably 10 years.

0:11:58 - (Andrew Kazlow): So give me, give me Peter's version of what's your exit strategy? Because that's a question that kind of easily gets thrown out. A lot of entrepreneurs kind of recoil again. They're like, okay, this, it sort of is a, it has baggage around it. How would you ask that? Or double click into that more thoughtfully given how important it is based on what you just shared?

0:12:21 - (Peter Walker): Great question. So if I'm interviewing a founder, the answer that I want to hear, and this is an angel investment, right? Like this is a very early founder, probably a first time founder. They're like, who knows what they found. So there's some grace to be given in these answers. But what I'm looking for is the following. Do you understand at minimum the structure of the industry you're entering? Who are the major players? How does the value chain work?

0:12:46 - (Peter Walker): Okay. Secondly, if I ask you, hey, in five years your business has done pretty well, but not great. Who are your potential acquirers? You should have three names off the back and you should have clear reasons why they would be acquired. And then the, then I make the investment, a couple of years pass, etc. As an angel, what am I going to do? Have you made relationships with those people? Companies do not get acquired when they have a six month sales process and they go and shake hands with people for the first time.

0:13:14 - (Peter Walker): If you're gonna get bought, the people who are gonna buy you should know you for years before they buy you. That is the vast majority of good acquisitions. They start like, put the, put your money where your mouth is. Like go and make the relationships. Some of them might be competitors, some of them are weird strategic coopetition people. Like, you know, I think for some industries it's very easy. Medical devices, it's very simple.

0:13:37 - (Peter Walker): There are very few independent medical device companies that don't end up getting purchased by major strategics, health care insurers, etc. And so like those people, the pathway is very clear for software. I think there's been this. It's almost like a willful ignorance of it because the goal is ipo and that's the only goal. I just think that it's in this world. It's kind of silly to assume that you're going to be there.

0:13:59 - (Peter Walker): Maybe assume it, but have some backup plans along the way. Yeah.

0:14:01 - (Andrew Kazlow): What's your actual plan for delivering on this thing? You told me when you pitched me to. Totally.

0:14:06 - (Peter Walker): Yeah. Yeah. Okay.

0:14:08 - (Andrew Kazlow): So, Peter, we have to talk about safes.

0:14:10 - (Peter Walker): Yeah, we do.

0:14:10 - (Andrew Kazlow): We have to. Okay, we have to. Tell me, tell me about angels and safes.

0:14:16 - (Peter Walker): All right. So whenever I talk to groups of angels, which I do less these days

0:14:21 - (Andrew Kazlow): than I used to, you're brave for being.

0:14:22 - (Peter Walker): They always, they always give me so much for the safe stuff. And it's like two things I want to make clear. One, I did not write the safe. I am not like saying that the safe is the best instrument in the world, nor am I saying that it is right for every investment. All I'm saying it is the default. If you are ignoring safes, you are by definition ignoring a segment of the market that uses them.

0:14:45 - (Andrew Kazlow): How much of the market?

0:14:46 - (Peter Walker): Like massive amounts of the market in every single state that we operate in, which is all 50 states in the country. The majority of capital that goes to pre seed companies goes through.

0:14:55 - (Andrew Kazlow): And you guys have how many of those?

0:14:57 - (Peter Walker): 60,000 startups. So like, you know, the good folks at ACA have a fantastic report about the angel funding report that aggregates, I think, data from 1300 companies. And there are many of them. I was talking with Rick about this the other day, or just now. Many, almost none of them have taken safes in some of those parts of the report. I'm just telling you that's not what's happening on the ground where angels are most plentiful, which is New York, California, Seattle, Dallas, San Francisco, et cetera, et cetera, et cetera.

0:15:27 - (Peter Walker): Safes are here to stay. Now, there are things you can do to make safes better. First one, which I heard in there today, add a side button. Definitely add a side button. You're looking for information rights, you're looking for most favored nation status on the safe. Maybe you're looking for pro rat or pro rata plus. Awesome. Great way to improve safes for you. Second, if you're an angel, your safe should have a conversion mechanism that is not Simply a qualified financing.

0:15:53 - (Peter Walker): I can't tell you the number of times that I know angels who said, I gave this company $20,000. They ended up becoming kind of a lifestyle business. They're not going to raise venture and so I don't. My safe doesn't convert, it just sits there. So like, those are two easy ways to make the safe a better instrument. I get why people are annoyed by it. It's a little bit like, get with the times. This is happening.

0:16:15 - (Andrew Kazlow): As you may have noticed, we are recording this conversation live from the Angel Capital association annual summit. Now, if you're not familiar with the aca, this, this is the world's largest professional organization specifically designed for angel investors. So if you're serious about this ecosystem or just generally interested in Learning more, the ACA's education, resources and community are definitely worth checking out. You can go to angelcapitalassociation.org

0:16:42 - (Andrew Kazlow): and I gotta say, this is our second year live recording in the room and I had an absolute blast. Cannot wait to come back for three future years and I hope to see you there.

0:16:53 - (Andrew Kazlow): So just in case, for those in our audience that maybe are less familiar, articulate, like, what's the main complaint you hear when talking to angels about the safe versus the alternative, which is typically convertible node or direct equity.

0:17:04 - (Peter Walker): So the reason why they dislike safes versus notes is because, because notes come with an interest rate, there's a maturity date on that interest. So it effectively forces a conversation where you have that talk about, okay, time to convert this in equity, what, what are the prices, etc. It's like the interest rate isn't actually paid, but it forces the conversation. So that's versus notes. I think that's silly. The real question is versus a price round.

0:17:28 - (Peter Walker): I love price rounds. I think there should be far more price rounds. I think many safe rounds should be priced. I don't think that passing on an entrepreneur who wants to raise on a safe and you really love their idea in order to like spite them because they didn't want to raise a price round. I think that's a little silly. If you find an amazing founder, invest in that founder, he or she might be right.

0:17:48 - (Peter Walker): And I get the idea that safes are like less, there's less protection for investors on safes. Guess what? Most of these businesses are going to fail anyways and you're going to make no money on them. Are you bought into that idea or aren't you? Is a little bit of my thesis. And maybe this is speaking a bit from the San Francisco perspective and I get that other ecosystems across the country might be shooting for more reasonable outcomes where the loss ratios matter a lot more.

0:18:14 - (Peter Walker): I get that. I'm just saying you're if you never do safes you're inevitably going to miss a great business because you did. Maybe that's good for you but I think most people are willing to Peter

0:18:24 - (Andrew Kazlow): one of the things I want to ask about and you mentioned this how the angel network world feels has its own reports and it's distinctive and totally it's sort of this this community that's evolved over the last 330 years ish and yet on the ground you're saying it it's a little different oftentimes articulate for me like just your thoughts on angel networks versus angel investors because it's super mess.

0:18:53 - (Peter Walker): Define an angel network an angel network

0:18:55 - (Andrew Kazlow): would be an aggregated broad very broad definition group of investors form a community with a purpose for investing in a specific type of thing.

0:19:03 - (Peter Walker): Yep.

0:19:03 - (Andrew Kazlow): Meet on a regular basis to do so some level of professionalism either from what Greg Timmons would call a supper club we get together and it's more just I like it I'm in down to very very professional almost like a bun and many of them do have a right so some blend from that spectrum versus in individual on their own doing deals kind of not really part of a community that is focused on

0:19:29 - (Peter Walker): I feel like angel networks kind of

0:19:30 - (Andrew Kazlow): get a bad rap I wouldn't say

0:19:32 - (Peter Walker): that they get a bad rap. I'd say that the advantage of the angel the core reason why the angel is useful to the entrepreneur is speed willingness to bet on something that has very very very little metrics but also like speed being first and then being able to potentially coach that entrepreneur towards you know avoiding pitfalls that perhaps second time founders or third time founders etc. Would naturally avoid.

0:20:00 - (Peter Walker): Whereas the angel can bring that experience. I think those that like encapsulates a lot of the value of an angel

0:20:04 - (Andrew Kazlow): sort of like the advisory function 100%

0:20:07 - (Peter Walker): now you know I don't want to step on toes on some of the things that they were saying around what is one way that you can make your investment 7 to 14 times more return the profile 17 to 14 times more beneficial to your fund. One of the ways they're saying is like a board seat for the angel that's not happening in Silicon Valley like I I less than 10% of the time would I see a company in the Valley that has a board seat an angel fill a board seat.

0:20:36 - (Peter Walker): Many funds don't get board seats. Like, I think that's, it's interesting that board governance is like this crux. I'd love to. I haven't read the data. Like I'm super excited to read it. Maybe I'm missing something, but I think that the idea of the individual angel making completely idiosyncratic investment decisions versus the committee, like you, you want the group to be exciting but move fast and not have committee structures.

0:20:58 - (Peter Walker): So like, you know, basically why aren't you a small fund? You know, and many of them maybe should be, you know, and it's like there's room for all sorts of things. There's also, and I don't want to say this too broadly, but like what is the adverse selection mechanism? Say more in a really mature ecosystem, what which founders are tapping angel groups and which aren't at a, at a much less developed ecosystem? I think the question is very broad and there's very, probably very little you could draw in an ecosystem like New York or Silicon Valley.

0:21:34 - (Peter Walker): There are certain founders who angel groups almost have no chance of touching. They just don't need them.

0:21:40 - (Andrew Kazlow): Right?

0:21:40 - (Andrew Kazlow): They're not going to go through the process.

0:21:41 - (Peter Walker): They're just not going to do it. They don't need to. And to be clear, they don't need accelerators either. It's not like they go to YC. They just don't need anything because they can raise 5 to 10 million dollars through their personal network whenever they want to. And that the question is, how valuable is that kind of founder? If you ask the mega funds, they're like, that's the only kind of founder I want to back. And if you ask everyone else, it's like maybe, but I hope for more diversity and founder outcomes.

0:22:04 - (Andrew Kazlow): It's funny because that logic, it almost just doesn't make sense to most people. If you're not in those circles. And I'm to be clear, I'm on this podcast, I'm not in those circles. Maybe someday I aspire to be the kind of person in that circle, but it just, it, the logic makes no sense to a lot of people. And even talking about like the caps and evaluations, I mean you were showing some great data, I mean there variation and it's all about like you said, who you are.

0:22:26 - (Peter Walker): It's crazy man. Like I don't want to. I think the, the pushback that I get from our data from angels, I usually in my heart of hearts agree with because it is a more rational and sober evaluation of what is going on. What I want to Impress upon them is that's not what start startups are bubbly and frenzied and weird and hype machines like that does not mean they're good investments. It's just like San Francisco right now is the most overhyped bull feeding city in the world.

0:22:59 - (Peter Walker): I love it, I live there all so many of the best companies will be there. But it's also so full of itself, it's crazy. Like, the idea that some of these Neo labs are getting funded out of the gate at a $500 million post money valuation is absurd. It is absurd. So in that sense, I get it. I would look at that if I lived somewhere else and be like, what the hell are they doing over there? Because they're right.

0:23:25 - (Peter Walker): But that also is, you know what percent of startups are in San Francisco? 20% of the whole national total. Like, people get mad at me because our data leads to California. It's like, go back and see how many startups are funded in each of these places as a percentage basis. Our data is pretty much on it. There's just far more startups in California. That's just true, you know, and it's. I don't know. So I take their criticism with healthy bit of respect.

0:23:50 - (Andrew Kazlow): But you said it in there too, that geography matters.

0:23:53 - (Peter Walker): Geography.

0:23:54 - (Andrew Kazlow): You've made a dozen posts, hundreds of posts on this.

0:23:57 - (Peter Walker): It's a well of content if you really want it to be.

0:23:59 - (Andrew Kazlow): If you're listening to this, look Peter up and he's got piles of stuff on videography. I do want to hear your thoughts though on this. So it's been a few years now and Covid was sort of a transition season for you.

0:24:11 - (Peter Walker): Yeah.

0:24:11 - (Andrew Kazlow): One of the things that I've talked about on this show before is this quote unquote, diaspora. The startup diaspora.

0:24:17 - (Peter Walker): Right.

0:24:17 - (Andrew Kazlow): That you can be anywhere now. And these angel groups in some way, I think Andrew's opinion serve to kind of pull in. Like if it's in a regional ecosystem and there's, hey, this guy's actually working on something interesting, they'll find him.

0:24:30 - (Peter Walker): Totally.

0:24:31 - (Andrew Kazlow): This is not a very well formed question. React to the concept of the startup diaspora.

0:24:34 - (Peter Walker): Two things that seem incompatible are always true at once. Which is on the first side, it's never been easier to raise a your first institutional venture round in more cities across the country than right now. It is. You can raise a seed round in Charlotte, in Dallas, in Boise, in Des Moines, in Kansas City, if you can do it in so many. That was not true 15 years ago. That was just not true. So like that is awesome, right? I think that is absolutely fantastic.

0:25:04 - (Peter Walker): And also San Francisco has never been more the home of startups than it is right now. There's never been more focus, more pull, more magnet for some super ambitious, candidly founders than there is in San Francisco right at this moment. Both of those things are true. On the Diaspora point, I think one of the biggest things, and you, you've probably seen this as well as I have, the move to Zoom and just being able to fund people on Zoom, which happened during COVID massive deals. You know, like talking to folks who run the Rockies Venture club and they're like, yeah, we used to invest in 95% Colorado founders and now it's maybe 70%.

0:25:39 - (Peter Walker): That's a big gap. It's a massive change that would not have happened if you couldn't do the diligence process and the pitching over Zoom. So like you can find capital that lives elsewhere that will invest in companies basically across the country. The tricky part is finding where can you raise a series B Route 7 cities. Maybe, you know, maybe occasionally you'll get one in non core cities. But like when you really talk about it, late stage investment lives in mature venture.

0:26:07 - (Peter Walker): So if you're not from there, I do suggest visiting like once a year and just like checking it out, seeing what's happening. Meet some investors, go to a blue bottle and you'll meet four investors. It's not a joke. Like it's, it's silly. It's pretty silly.

0:26:20 - (Andrew Kazlow): Recently under new management, I think I saw.

0:26:21 - (Peter Walker): Indeed. Yeah, congrats. I don't know how that exit went.

0:26:26 - (Andrew Kazlow): I don't either.

0:26:27 - (Peter Walker): Yeah, yeah.

0:26:28 - (Andrew Kazlow): Other thoughts that you like, you got a mic right to angel investors. What else do you feel like angels don't get pushed back on often that you'd like to articulate better, like, yeah, what have we not covered? That you feel like angels just really need to understand safes, look at safes, figure out how to get comfortable with safes.

0:26:48 - (Peter Walker): Just like, yeah, just like go to the therapy, get used to it. Like it's like immersion therapy. You gotta like just shallow end and then the deep end. Like you'll get there eventually.

0:26:57 - (Andrew Kazlow): Ask for the discount.

0:26:58 - (Peter Walker): Exactly. I think definitely ask for a discount. I think one thing that I think angel clubs and groups and the diaspora, as you put it, have been fantastic at is normalizing the idea that you can get started with a check of $2,000 or $3,000 and it doesn't have

0:27:14 - (Andrew Kazlow): to be as an investor.

0:27:16 - (Peter Walker): As an investor, it doesn't have to be 25, 50, $100,000 in order to make this work. I love that small checks can be as valuable to startups as big checks if the small check is willing to put in the work. Are you willing to network for this person? Are you willing to go out and try to help them find that lead investor? Are you willing to go out and have the hard conversation with them that their investors might not about?

0:27:39 - (Peter Walker): This co founder relationship is not working out like this person is holding your company back. You need to be the first port of call and the truth teller and you win the right to continue that business by telling truths. And I gotta be honest, a lot of founders hear bull from a lot of their investors. Or worse, they hear nothing at all. They just invest. It's not going very well. Don't really pick up the phone, you know, I know, shocker, VCs, bad behavior, et cetera.

0:28:10 - (Andrew Kazlow): Busy, lots of stuff.

0:28:10 - (Peter Walker): Sure, sure, sure. And I have a portfolio of 25 companies. You're not one of my winners. It is human nature to just spend less time with that person. And that is a place where angels, I think, can lean in and then be the first check into their second business and have that generational outcome that they want. So, like, the power of small checks, I think is very real if it comes with the tangible human part of it.

0:28:33 - (Andrew Kazlow): A quick note before we continue the conversation. Alongside the Diligent observer podcast and newsletter, I also run an outsourced operations service specifically built to serve angel networks. My team handles things like initial initial screening, social media, newsletter prep, platform management, and a whole lot more. The kinds of things that either aren't getting done or shouldn't be done by busy community leaders.

0:28:55 - (Andrew Kazlow): If that sounds interesting to you, send me a note.

0:28:57 - (Andrew Kazlow): Now back to it. I've developed this position after doing 60 of these. The best angels are the ones that the value of their investment is not the investment itself. It's the person, the network, the input. All of the other stuff in the check is just buy in.

0:29:13 - (Peter Walker): So that, and that's a great reason why angels serve this role in the community. Because you're not always going to have institutional VC capital being in touch with all of these things. Angels should be super connectors in their own communities of like, I'm going to all these pitches. I understand the waves. Oh, you know, Andrew is founding this business. I think it's really interesting. I have no idea what it's going to be worth, but I know who he should talk to.

0:29:36 - (Peter Walker): And like knowing that person, that introduction can be as valuable as anything else.

0:29:41 - (Andrew Kazlow): And I mean exponentially more now in the AI era when relationships and real like we're sitting here physically together and that's amazing.

0:29:50 - (Peter Walker): What is? If I can ask you a question. The angels that you talk to, what is the appetite around AI?

0:29:55 - (Andrew Kazlow): Depends if it's a. There's two categories of angels. There's like the tech active, you know, init angels, more professional angels that are like really startup savvy. And then there's the angels that are, they've got a day job. They, you know, they're semi retired, their

0:30:10 - (Peter Walker): money didn't come from tech and you

0:30:12 - (Andrew Kazlow): know, they're still trying to find how AI can apply in their world and they get excited when they can use it to write an email. And so my answer is different for each of those categories. I think the broad tone, I don't have data for that. The broad tone that I have seen is one that's migrating to an expectation that AI is from the tech forward, folks, that AI is integrated into basically everything.

0:30:37 - (Andrew Kazlow): Like it's not a category anymore. Like I've seen your charts. It's not a separate bubble in the average angel's mind in my opinion. It's just part of everything else. The other category may be less refined and more prone to get excited about the next AI.

0:30:57 - (Peter Walker): Yeah, it's, it's not coming. It's, it's here. Like, you know, I think it's, I think it's, you have to view it more, less as this like layer of sprinkles on top of a good business idea and much more like, hey, this is the beginning of the Internet invest in Internet businesses. Or this is the beginning of the railroads invest in the railroad, in businesses that are going to only be made possible by the, the fact that railroads exist.

0:31:26 - (Peter Walker): Like it is a, I think it's a foundational change and there's by definition, because it is a foundational change, there's going to be a ton of hype merchants and a lot of bull spewed and like we're in the middle of that, you know.

0:31:37 - (Andrew Kazlow): But I think there's another category too that it's terrified and is very just.

0:31:42 - (Peter Walker): I mean the labs are not helping with their messaging to like make people less terrified. It's. I don't truly understand their PR strategy in some ways on that. Like you don't have to go on CNBC and say this is going to take 50% of entry level jobs. You know, I guess I respect that you feel strongly enough to do that. But I'm not sure that's helpful.

0:31:59 - (Andrew Kazlow): Well, I think the terror is recollection of the dot com era. A lot of these angels lived through that. They were operating through that, they were investing through that. And so it's a. I'm going to wait till this and then I'll come.

0:32:11 - (Peter Walker): And to be clear, I would be very unsurprised if there is a little bit of a bubble pop and a recession, etc. I don't think that touches the underlying technology at all. I think the wave is the wave, but in terms of making money, it can have a serious impact. And being early is being wrong. Right. So like there's a lot of. I think there's a totally reasonable concerns. What I would suggest is if for the angels who would like to be advisors to entrepreneurs and those entrepreneurs are building software companies, use AI daily.

0:32:39 - (Peter Walker): Like don't use ChatGPT to write emails, use cloud code. Get in the actual guts of this. Use it to automate parts of your work. Have an open claw. You just don't. Unless you're like playing with it and it is play, then you don't really. It's going to be tougher and tougher to be like one of the questions that you probably get, your angels probably get from entrepreneurs all the time is how long should it take me to build this? What's a good expectation? Like, okay, cool, I have a CTO now the two of us are running at something like what does it mean? How, how far should we be, et cetera. If you don't understand what AI has done to product development, you can't answer that question in, in any sort of reasonable way.

0:33:16 - (Andrew Kazlow): Totally. Last question for you.

0:33:18 - (Peter Walker): Yep.

0:33:20 - (Andrew Kazlow): And then open mic. Anything you want to talk about after?

0:33:22 - (Peter Walker): Okay, great. Last question.

0:33:25 - (Andrew Kazlow): You mentioned on the stage, which I thought was fascinating that you've, you, you believe, you hypothesize that the vast majority of Series B companies will not exit.

0:33:37 - (Peter Walker): Yes. Explain not hypothesis that's happening. That's a. Take that to the bank. Series B is not some magical cutoff where, oh, we got Series B. So first off, about half of Series B companies will never fundraise again. They will not raise Series C. Are they gonna half? Give or take good years, 30%, bad years, 50%, 2. Even if you do raise Series C, how close are you to an ipo? When's the last time a company IPO that you know of after their series C?

0:34:10 - (Peter Walker): Not very close. Thirdly, the private equity path that seemed to be either implicitly or explicitly the backup plan for many of these entrepreneurs, private equity are not white knights coming to help. They might rip your eyeballs out and buy your company for nothing. Or more likely, they're not going to buy your company at all. Look at what is happening to public multiples in the SaaS market. Great companies.

0:34:36 - (Peter Walker): Asana Monday Datadog Great companies that have built really fantastic businesses are now valued at basically 2 to 3x their revenue and less every day. Figma is growing 60% a year with real free cash flow. They are. They're down 86% since their IPO. The market wants AI enabled AI native or something that trades the AI way. That is what the market wants right now. Private equity is not going to buy a SaaS company that is only making 10% free cash flow and growing 10% a year.

0:35:10 - (Peter Walker): It's not enough.

0:35:11 - (Andrew Kazlow): So this is fascinating because the so actually you Talked about the AFR, the Angel Funder report the 24 edition actually saw from. It's been a minute since I looked at it, but there was a compression in valuations at series B to where precede and C deals. It was like a $10 million step up for like the median valuation through angel groups in series B. So series B looks super cheap.

0:35:34 - (Peter Walker): Yeah.

0:35:34 - (Andrew Kazlow): Right now, totally on the outside.

0:35:35 - (Peter Walker): I mean if you can pick the right ones it is. Right. But that's like catching the falling knife is really hard there. And also the thing we don't talk about Series B companies today were born when pre AI like this came. This happened in late 2022 and not really until the middle of 2023. Like you were already probably your Series A at that point close to it, blah blah blah. Like these are a lot of these companies were born in the old regime under old assumptions.

0:36:02 - (Peter Walker): And so are you going to be the guys and gals at Notion who turn it around or linear or you know, a couple of the other ones? Or are you more likely to just be kind of writing out something? I it's. I feel for the entrepreneur right now who had a pretty good company, free AI. I think you're in a really tough spot.

0:36:22 - (Andrew Kazlow): What you said, I mean you explained this.

0:36:23 - (Peter Walker): The.

0:36:24 - (Andrew Kazlow): What's the quote? That three months to 2 million used to be impressive.

0:36:29 - (Peter Walker): Oh yeah, Brian. I mean yeah, those are fun and Dreeson just likes to stir this pot on those. But these, yeah, these, this idea that triple, triple, double, double, double is good revenue growth now, it's just not. It's just not anthropic. Is growing 10x a year for 4 years at at tens of Billions of dollars of scale. That is a crazy. That's a crazy thing that it's just, I think it's, it's wild that that's happening.

0:36:51 - (Andrew Kazlow): Top shelf just gets higher.

0:36:53 - (Peter Walker): Right? So if you're an angel, this is why it comes back to the exit question. Invest in an entrepreneur and have a reasonable case to get your money in or out in a way that makes sense to you and assume that is not going to be an ip, go in with that assumption and be pleasantly surprised when you're wrong. But like M and A secondaries, secondaries in particular, I don't think angel funds are as sophisticated on secondaries as many of their venture capital friends.

0:37:19 - (Peter Walker): I think they can do a lot more to uplevel because guess what? I think the founder is more usually more willing to let angels sell than anybody else.

0:37:26 - (Andrew Kazlow): So same over this. You mentioned secondaries in there and you feel like there's going to be massive expansion there potentially over the next few years. Like, is that because of this?

0:37:36 - (Peter Walker): Staying private? Staying private longer?

0:37:38 - (Andrew Kazlow): Yeah.

0:37:39 - (Peter Walker): When a company. How old was Apple when they IPO? Four and a half years old. How old was Google 6 and Facebook was 8. So like that's, you know, when people, when I talk to some older friends here have been in the community for a long time in tech, they go, well, this is what we. And you're like, this is not the world. You stripe is 17 years old, SpaceX is 22 years old.

0:38:04 - (Andrew Kazlow): God.

0:38:04 - (Peter Walker): These are companies that are staying private for a lot longer. And therefore there are. There's liquidity pressure applied to them from their investors on top and from their employees below.

0:38:13 - (Andrew Kazlow): We've been hearing this for years. Totally.

0:38:15 - (Peter Walker): But now it's actually coming to a head and more people. The stigma around secondaries has just dropped, which means it used to be a pretty red mark on a founder. If you wanted to take a secondary, funds would recoil in horror. And now the funds lean in and go, okay, let's work something out. I think the idea that you should be a ramen entrepreneur if you're running a $50 million ARR business is bull.

0:38:37 - (Peter Walker): Like you created something of value. What the terminal value is, nobody knows. But it's valuable now. Take a little bit of money off the top, buy yourself a house and shoot for a massive outcome. Great. Awesome. And guess what? Your angel can exit some of their position alongside you. That seems completely reasonable to me.

0:38:54 - (Andrew Kazlow): Peter, anything else on your mind before we wrap?

0:38:58 - (Peter Walker): I have a question. What is going to change about the role of an angel or what has changed about the role of an angel. I feel like. And this might be my own bias. Angels played this role in the ecosystem for many, many decades of. You found them first. Like no. Before they even incorporated. Sometimes of like you were working with them through an idea. Today there are many, many funds who are like fully dedicated with AI and other tools to finding every potential entrepreneur on the planet.

0:39:31 - (Peter Walker): Like the goal is no longer can you find them, it's can you access them? How does. Or maybe broadly like how do you see the role of an angel changing?

0:39:39 - (Andrew Kazlow): Yeah.

0:39:39 - (Peter Walker): So when.

0:39:40 - (Andrew Kazlow): When private markets look a whole lot like publics.

0:39:43 - (Peter Walker): Exactly.

0:39:44 - (Andrew Kazlow): And you have information symmetry, quote unquote.

0:39:48 - (Peter Walker): And we're not there yet.

0:39:49 - (Andrew Kazlow): We're not there yet.

0:39:50 - (Peter Walker): The world is the trend. Is the trend. Yeah.

0:39:52 - (Andrew Kazlow): Ten years from now, let's say maybe we're closer to that. What's the role of an angel? I think it looks a lot more like the advisory. The advisory. The belief. Like I have lunch every week. Once a week.

0:40:07 - (Peter Walker): You only eat lunch once a week?

0:40:09 - (Andrew Kazlow): Once a week. Once a week. The only lunch I need once a week with an advisor who has just been there with me from the beginning.

0:40:19 - (Peter Walker): And I.

0:40:20 - (Andrew Kazlow): It's like I think he will be.

0:40:22 - (Peter Walker): Yeah.

0:40:23 - (Andrew Kazlow): Regardless of whether we do well or not. And I think that personal connection, the. This is my. Literally this is my money putting directly into your thing. It's just the most intimate form of investing that I know of. Yep. And I think there's just something special about that. I think founders will want that kind of support totally beside them as they go pitch the VC and the other players in the ecosystem. And so I really do think it's all. It's going to come back to the relationship value the other stuff outside of the check. Because I can in this world push a button, get in front of 3,000 VCs that specialize in exactly my thing. And most of them are going to say no probably, but I'll get a couple and I'm funded.

0:41:08 - (Peter Walker): Yep.

0:41:08 - (Andrew Kazlow): So I don't need your money. I need your trust. I need your passion and I need your buy in that I can call you when things go bad to ask about how do I call my VC and tell them that things are going bad. Believe.

0:41:25 - (Peter Walker): Believe Capital for sure.

0:41:26 - (Andrew Kazlow): And Maybe the best VCs are able to do this too. But I really think the angel is just uniquely qualified because it's their check and they don't have an open the

0:41:37 - (Peter Walker): report to that is the thing is that they ride the winner on their personal bank account. They're not beholden to some sort of fun multiple on the LP side. But nor are they so easily like dissuaded from helping because this is their actual money. It's I'm going to lose my money. Whereas yes, of course GPs have stakes in their own funds and blah blah, blah, but it's someone else's money. And the goal. I'm a professional money manager. I just happen to work with early stage startups versus this is I earned this and now I'm believing in you with it. Like, I think there is a fundamental

0:42:10 - (Andrew Kazlow): difference and I think there's a communal component of this too. Like angel networks as a concept. We just recently did some primary analysis and we found that 30% of the value of membership in an angel network comes from the community and social elements.

0:42:27 - (Peter Walker): Yeah, I'm surprised it's not higher.

0:42:29 - (Andrew Kazlow): 20%. 20%. Well, there's like 25% yet unexplained. I gotta do, I gotta get a couple more data points in my.

0:42:37 - (Peter Walker): There you go.

0:42:38 - (Andrew Kazlow): Yeah, not up to 60,000 yet, but the number one value was the community component. And so I think angel investing, angel networks, all of it at the end of the day comes back to the quality and quantity of quality people you have in a room that can bring value to a founder. And if angel groups can get that right, all the process stuff will come.

0:43:03 - (Peter Walker): I'll maybe end on this point. You just, you made the clear point, which is the network. And by network I mean individual human beings that make up a group that are willing to go on a limb for one another and pay it forward, make the introduction, spend a little personal capital to help this founder, do X, Y and Z. That matters deeply. That is the reason why San Francisco is San Francisco. The money is the money. And whatever the fundamental reason is, because there is a greater concentration of people trying to do that in SF than there is anywhere else.

0:43:38 - (Peter Walker): And so when people say, oh, we want to build the next sf, don't worry about the universities, ignore the bull about, oh, we have to have massive VC funds, focus on density of people trying to help founders. Like increasing density is a fractal equation where you're. It is an exponential value add for each individual node of the network that you add into that dense portion. So like if I'm an angel, bring new people in, that should be like one of my goals is to bring new people, good people, great people, got

0:44:09 - (Andrew Kazlow): to be good people, bad people in. It blows up the whole thing.

0:44:11 - (Peter Walker): Don't bring people in. Didn't think you need to be said, but yes, that's a great point.

0:44:16 - (Andrew Kazlow): All right, Peter, this has been amazing. I look forward very much to your next LinkedIn post, and I will share it proudly.

0:44:22 - (Peter Walker): Cheers, man.

0:44:23 - (Andrew Kazlow): Pleasure. Thanks for listening to this episode of the Diligent Observer. I'm your host, Andrew, and if you're an angel investor looking for essential angel intel in five minutes every week, I think you'd enjoy my newsletter. I send my best stuff, interesting deals and more straight to your inbox so you never miss a thing. Subscribe today@thediligentobserver.com.