Del.icio.us’ Joshua Schachter – Not Your Average “Junior” Angel Investor

Delicious founder Joshua Schachter recently did an AMA (ask me anything) over at HackerNews. Only halfway down the discussions and you’ll realize that Schachter, a self-proclaimed “junior” angel who’s trying to figure out whether he wants to become a professional investor someday, vets deals much like those who’ve got decades of experience under their belt.

To date, Schachter has invested in “34’ish” startups. His deal flow includes some of the hottest startups like Foursquare, Square, and Bump Technologies – deals that definitely not your average “junior” angel can get into.

We scoured the forum and found that buried within the Q&As are tips and insights helpful to truly beginning angels. Let’s check out what motivates him to invest, how he got access to such awesome deal flow, and how he “filters the crap.”

Joshua Schachter and Delicious

Schachter says he “never really had the idea of building businesses, just interesting things.” One of the interesting things turned out to be Delicious (former Del.icio.us), a popular social bookmarking service every cool geek and tons of non-geeks are using.

Schachter was an analyst at Morgan Stanley when he started Delicious as a side project in 2003. The social bookmarking site took off quickly and had received acquisition offers in the US$250,000 to US$500,000 range.

Feeling that Delicious would worth more if he’d work on it full-time, Schachter declined all offers, quitted his job at the bank in March 2005, and raised under US$2 million venture capital. The round was led by Union Square Ventures.

In December 2005, Schachter sold Delicious to Yahoo! for a reported US$30 million, according to BusinessWeek.

From Entrepreneur to Angel Investor

Schachter left Yahoo! in 2008 and joined Google in 2009 to take on an engineer role. He says he still enjoys building something interesting every year. More interesting to us, though, is the portfolio he’s been building as a self-proclaimed “junior” angel investor.

The outspoken entrepreneur-turned-angel stresses that he’s a small investor who typically invests between US$10,000 to US$25,000 per company whose valuation is between US$2 million and US$5 million.

He makes it clear that he’s still learning so he doesn’t lead, negotiate terms, syndicate deals nor would he sit on boards. All these are left to the lead investor of each deal. “So that makes me subordinate to people who do these things; they are therefore my senior,” he insists.

What Motivates Him

Schachter believes that angel investing “pays vast dividends outside of dollars.” He can “get connections, notoriety, experience, exposure, and so on.” He says, “I know about a lot of what’s going on in the Valley right now, for example.”

Other usual suspects are to

• make decent returns;
• avoid getting bored; and
• stay near to interesting projects.

So far, he finds that saying “no” to so many entrepreneurs is the hardest part of being an angel.

Awesome Deal Flow

A quick research reveals that Schachter has got his hands in deals like Bump Technologies, DailyBooth, Foursquare, Heyzap, SimpleGeo, Square, and Twilio. Mind you, these are high-profile outfits that many “senior” angels would drool after.

How did he get into these deals? Well, the fact that he’s the founder of the widely popular Delicious makes it so much easier to meet other A teams and promising entrepreneurs.

Schachter says:

Foursquare: I knew Dennis from NYC.
Square: I knew Jack from twitter.
StackOverflow: I was on a panel with Joel once.
Canvas: I suggested Moot to TED and introduced myself at the conference.
Dailybooth: Asked for an introduction to me.

Other than that, his deal flow comes from all directions. “One of my best investments came from a chance meeting with the now CEO at a party,” he adds.

But Schachter isn’t fond of email pitches. Unless the entrepreneur in question has done something great (e.g. built a successful company that he’s heard of), like most experienced investors, he prefers to invest in people he knows or has met. “Cold emails rarely turn into anything,” Schachter comments.

Proximity Matters

Despite what entrepreneurs want to believe, proximity still matters to experienced investors (except when the investor has a trusted syndication partner across the border). After all, trust and face-to-face contacts are crucial in angel investing.

Schachter doesn’t invest in companies that are out of his networks (Bay Area and New York). “I don’t like doing deals sight unseen,” Schachter avows.

Filter the Crap

And rarely does he invests without seeing a working prototype first — preferably a first version that’s already online and attracting users, rather than a prototype with just a few basic concepts. Schachter says that this “keeps a LOT of crap out of the way.”

He concludes that bad entrepreneurs are those who

• don’t have a prototype;
• will only walk him through the prototype in person;
• won’t even tell him what the product does without a meeting;
• don’t know how to communicate (way too verbose); and/or
• don’t have a clear pitch to deliver.

Coming Up

Next, we’ll look at the kind of deals that get his attention, his observations on round size and deal structure, and some of the fun stuff we picked up along the way.