Marvin Liao

Date published

Interview w Marvin Liao

Raimonds: [00:00:00] This

Raimonds: Marvin, I'm so excited to finally have you here. So we've been doing this bad to better segment for bad ideas fund , newsletter . And we've already had a couple of interviews picking the brains of the most interesting angel investors startup investors, but you are special, you've had 20 plus years career in Silicon Valley, you've invested and worked with.

Raimonds: More than 400 pre seed and seed stage startups. Let that sink in, 400.

Marvin: Yeah, I'm at 462 now, actually. 462.

Raimonds: Damn. And you have been previously a partner at the most active global VC fund, 500 startups. And now you're investing in Diaspora founders through your fund, Diaspora VC among many other things that you are doing.

Raimonds: Glad to have you here. Let's pick

Marvin: your brain. Yeah, sure, sure. I'm glad, glad to be invited. [00:01:00] How did you start,

Raimonds: Startup investing?

Marvin: So I had, I had done pretty well from, from Yahoo. So I was executive at Yahoo for, for 10 and a half years. And that was sort of like just the thing that you did. I was pretty awful at it.

Marvin: So I kind of lost all my, you know, I did eight investments and all zeros. But I think you learn a lot from that. And then I was mentoring a lot of different startup accelerators and one of them happened to be 500. So they liked me. And when they started San Francisco office, they asked me to join as a partner and to run it.

Marvin: And so that's, that's what I did. I joined it. 2014 did that for about six years until we parted ways. They fired me nicely and bought out my stake but it was good, right? It was actually the right time to leave. And so now I basically invest through Diaspora, which is a rolling fund. And I also have an holding company that I, I run with my business partner for Saudi Arabia.

Marvin: And we do sort of like seed and some Series A, but mainly seed deals. And Diaspora is a pre seed fund. So we're still pretty active. So we do probably about from, from Diaspora, do about, two to [00:02:00] three deals per quarter and do the holding company. We do typically somewhere between any routine one to like six or seven deals per quarter.

Marvin: So it varies. So still try to keep very busy investing, right? Because it's fun. It's fun. How

Raimonds: has a startup investing changed over these decades? As you've seen quite a few recessions but also maybe how it hasn't changed and people think it's changing, but it's just rhyming.

Marvin: I think, I think, I mean, it's changed obviously, right?

Marvin: I think valuations have clearly sort of like gone up since, since when I first started, but I also think sort of like there's a lot more knowledge among founders. There's a lot more communities now. that founders are able to, when they grow, they grow very, very fast. I think markets are much more like there's just, you know, let's say in B2B, which is what you and I do a lot of like, like there's no company that says I don't need to buy software, right?

Marvin: Like most companies are usually pretty sort of like tech forward. So once the companies start getting good case studies and references, they're usually [00:03:00] able to grow. And so there's, there's a, there's a very big, there's a bigger body of knowledge of best practices that have existed. That's good. There's a lot more.

Marvin: Experienced founders out there now. So I think that when companies grow, they grow very, very fast, but it still takes a long time for companies to grow. So in general I think it's gotten much more challenging. It's just so crowded now. Every space is almost super crowded now, both on the investing side, there's lots of competition, right?

Marvin: For hot deals. And same thing with sort of like founders, just like, like whatever space you're in, there's probably like 30 or 40 other companies working in it. Right. So how do you differentiate? So it's just gotten tougher in some ways.

Raimonds: Okay. We'll touch on, on that, but you've been doing that angel investing and start up investing for quite some time

Marvin: now.

Marvin: So out of all the... Yeah, about 10 years. Yeah, about 10, 10 and a half years. Roughly about 10 years. Out of all the things

Raimonds: you could be doing, you are sticking to this. Why? What, what, what's,

Marvin: i, I just like it, right? It's, it's, it's sort of like, like, you know, you get to work, work with super, you know, young, super [00:04:00] smart people.

Marvin: Generally speaking, most of them are young. You know, like you learn new things all the time. They come up with new tactics and techniques all the time. And you know, the risk reward profile is good, right? Like, you know, some of my best portfolio companies have returned like 4, 000 X of the money, right?

Marvin: So not all, like, obviously not all of them, like some of them. And so the, the, it's asymmetric. Like, you know, they're basically you're taking a semester risk and I've gotten good at it. So if you like, if you've gotten, I think I've gotten good at it. And so if you think you're good at something, you should keep on doing it to sort of like improve your craft.

Marvin: And I, I generally think in, in startup investing is sort of like this stuff that, you know, your knowledge and experience accrues, right. But you're also learning all the time. So I think that's what makes this sort of like a very unique sort of like. occupation and role. And so I, I really like it. And you're kind of in the human potential business more so than universities, right?

Marvin: I actually think like that you can actually have way more impact doing this than, than saying, you know, like say for example, like working at a university, I think you have way more impact in general. [00:05:00] Well, learning

Raimonds: means doing mistakes. I'm sure you've done your fair share and you've seen other investors do.

Raimonds: What are those mistakes that startup investors most often do?

Marvin: I mean, I, I think there's so many of them where just like, you know, understanding people and appreciating is really about understanding the founders and their motivations. And you know, less about business model, even less helpful. I also think a big part of that, that we, that we make mistake on is even if you get the market and the market size, right?

Marvin: A lot of times you get the timing wrong, right? If just like. You know, you miss certain things of just like, it usually requires multiple trends coming together for a business to get very, very big. That's what they're riding on. Right. Like that's the wave that they're riding on. And so like, you know, I was right on 3d printing being a large market, but I was wrong on the timing of it.

Marvin: I think I was just way too early about that stuff. Right. I think there's a lot of, there was a lot of money being put into metaverse stuff. I still think metaverse will probably exist. I think it's going to take longer than a lot of people think to get there.[00:06:00]

Raimonds: And out of all the regions that you are focusing quite a lot of attention to Central Eastern Europe. How come?

Marvin: I think number one for B2B, I do a lot of developer tools, I do a lot of B2B SaaS software, like, like the technology's good, UX usually is not bad, but I also think there's just a hunger level in general.

Marvin: And so, yes, I've done investments in France, I've done investments in the UK and you know, you know, I did an investment in a German company as well too, but in general, I just think the founders here are just tougher. You know, like startups are like a 10 to 12 year play. So, you know, you really need the grit and endurance.

Marvin: And if you come from this region, you naturally have it. I just think they're softer in, in Western Europe. That's just the reality. You

Raimonds: mentioned before we started. Local maximum versus global maximum. Can you tell tell me what you meant by that? Yeah.

Marvin: So, so local maximum is like, okay, great. I'm, I'm the best founder in Riga, right?

Marvin: I'm the best founder in Latvia or [00:07:00] Estonia. I'm like, yeah, okay. Who cares? Right? Like, like, I see this a lot. Like, you know, I, I, I mentor a lot of different Starbuck seller, one of the German seller. They're awesome. They're really, really good people and they have a good program. I love what they do, but this is one of the problems.

Marvin: It's like, Oh, I'm just like, I have this awesome product. I'm like dominating Germany. They come to us, they just get their faces ripped off because it's such a different market, right? You're going from market of 80 million people. It was 80, 90 million, something like 80 or 90 million people to market 330 million people.

Marvin: It's just a different scale, different velocity. And so you, you know, and you were in my program, my accelerated program back in, I don't know, five years ago or something like that. You saw that right. 30, at least. A third of the batch was international. Like they were the top companies from their company, you know, from the countries coming to coming to Silicon Valley.

Marvin: You're like, Oh my God, like I'm nothing. Right. And I, I felt the same way. I'm Canadian. You know, I was just like, Oh, I'm so smart. I went to the best university in Canada. And then you come to us and I'm like, yeah, I'm a piece of crap. Like I'm nothing. Right. And I have to sort of like relearn everything. I, at a different pace.

Marvin: Yeah. Everyone's so much more competitive, like everyone's [00:08:00] smart, right? So it's like the high school hero syndrome, we joke. It's like, you know, like this is what happens with people who like do well in high school. They usually just get destroyed when they go to university because everyone's smart, everyone's athletic.

Marvin: So you're nothing special. And I think that's, that's sort of what a lot of people have to learn, right? Like, just cause you're great in your home country. Like, are you, are you good at a global level? Like understand that competition's at a global level, not at a local level. I

Raimonds: definitely got that imposter syndrome when I landed in SF just a month after getting a yes from you inviting me to 500.

Raimonds: So, so I can definitely live relive that now.

Marvin: So I think the only point I'm going to make it just sort of like, it's really, really important of just like who you spend the most time with. Right. So there's a reason SF is crappy say you live in, but it's still where all the best conversations, the best investors, the best founders are, and that raises your game and it helps you understand.

Marvin: So what the level is. So for

Raimonds: founders, the recipe is spend more time in [00:09:00] SF for startup investors for angel investors coming out of central Eastern Europe. What do they do? How do they see the local the, not just the local maximum, but be able to pick the global maximum tune their senses that, Hey.

Raimonds: I know the global maximum. This doesn't cut it.

Marvin: Yeah. So, so here, here's what, here's one suggestion that I wish I did and I never followed it. I didn't follow it. I didn't realize it until late. So for example, AngelList has these syndicates, just join these syndicates. You don't have to do the investment, but join these syndicates.

Marvin: So you get the deal memos and you see the type of investments are being done. And so, you know, Jason Kocanis has one. I, I have mixed feelings about him, but he has like fairly good deal flow and he writes good deal memos, you know you know, Peter Livingston from unpopular ventures, like he's great. He's a good investor.

Marvin: And so like, go look at the deal, but he writes great deal memos as well, too. Like just sign up, you know, for a bunch of like you know, like angel of syndicates and, and see the type of deal flow that these folks are getting. And that helps you calibrate sort of like what is quality. I [00:10:00] should have done that to be honest.

Marvin: I wish I did that. Otherwise, I wouldn't have lost my own money, right? And even as a VC, I still should have done that, because then you, you can sort of see what's out there. It took me making my own mistakes, right? You know, my first 80 investments I did, maybe one or two of them, like, Chippo yeah, I said, like, like, one of them was really good.

Marvin: All the other ones were, like, not that great. And so, it's one of those things that just, like, it just takes you, sort of, like, you need to get exposure. What's your biggest mess?

Raimonds: And how did it change your mindset?

Marvin: I don't, you know, I'm not sure sort of like I, if I, if I'm really, really honest, I'm like, yeah, I miss tons of deals.

Marvin: I miss tons of deals. And, and I think that's just normal. Like what I tell folks is like, look, the reality is that. You know, if you have a process and you have a thesis, follow the thesis, you know, be prepared to break that rule every once in a while, but it has to be sort of like an exceptional situation.

Marvin: And so I, I, I don't know if there's anything that starts change where it's like, Oh my God, I missed this deal. And now I have to change all these things. I'm not sure about that because there's some deals I missed and I really regret [00:11:00] it. And I'm like, Oh crap. I found out later on, like, wow, that was, I'm so glad I missed that one because that turned out to be fraud or turned out to be like.

Marvin: Just a total disaster. Right? So, you know, I think, you know, you, you, you just take the lesson that you try not to second guess yourself too much.

Raimonds: Okay. And what is the best advice you've gotten on angel investing or startup investing?

Marvin: I mean, look, the, the best advice, which I follow, which is why I don't find too much stress in it is that, look, you know, you do it with money that you, you can afford to lose and you treat it as tuition.

Marvin: Okay.

Raimonds: Now a good segue into okay. I have a bucket of money ready to lose and play around with. I've how do I start? Where do I start? How much to put in one startup? How regularly to do it? How do I?

Marvin: Yeah. I mean, I, I mean, as an angel investor, I would honestly do syndicates first. Participate, write your small checks into syndicates first, do like four or five of them and see how they go, and then sort of like build up to sort of like going and doing, [00:12:00] doing your own.

Marvin: You know, that, that would be looking, looking back like, like, you know, sort of like if that, that should have been how I started. That's what I would have done. Okay, dual syndicates

Raimonds: first.

Marvin: Because you just, you know, like I said, you know, you're putting money where your mouth is. You see where that works out.

Marvin: You get the, you get the updates and you see what, what happens. And that helps you build knowledge and confidence to sort of like go do these, you know, to go hunt and do these deals yourself later on. Just like baby steps. What does it mean

Raimonds: to do syndicates first? How do you approach it? You don't get a playbook from every syndicate.

Raimonds: Hey, here's how you should be

Marvin: thinking. Yeah, but, but you do syndicates where like when they send you deals, you review the deals, and then you, you decide whether you're going to participate or not, right? So that could be a 1k check, that could be a 5k check, whatever. And so you, you, you put in these little small chits to sort of see how they work.

Marvin: And then as you, like I said, as you develop confidence, then you can go and start doing your own deals. Because I think a lot of times angel investors, [00:13:00] even for tech, right? I was from the tech industry. I've been in the tech industry at least like 12, 13 years at that time. And I'm like, Oh, I got, I can figure out this angel investing thing.

Marvin: You, you think, you know, you don't know. So you think you understand how to value founders. You have no idea. You think you know how to evaluate marketplaces. You have no idea. Like, like market size, you think you know how to evaluate business models. Not really. I think I screwed up some of that as well too.

Marvin: So like, yeah, there's all these things, like there's lots of things that you, you learn from, from just going and doing this you know, through syndicates and even reading the deal memos are really helpful because they provide a framework for you in the future for how to evaluate deals. Okay, learning

Raimonds: by doing and not just learning on the sidelines, but actually putting money

Marvin: in, right?

Marvin: Correct. Yeah, into the syndicates, right? Into the syndicates, so a small trick that you don't go off of. Yeah, so for example, yeah, so for example, Peter's like, hey here's this awesome deal. Anybody interested? You read the deal memo and you're like, oh, I'm interested. Maybe ask a bunch of questions, but otherwise, like, like you're like, yeah, this is super interesting.

Marvin: And [00:14:00] I'm going to put in whatever, like 3k or 5k or something like that. That's a good start. How many

Raimonds: data points should I collect? How many investments should one do to start feeling, okay, I'm getting a pattern here. I can I get my, I mean,

Marvin: you know, I think, I think most people are smarter than me.

Marvin: So for me, it wasn't, it was 88 deals. Like I started doing really well, like after those first 88 I guess you kind of understand what's good. I, I think most people can figure this out probably at like 10 or, or 20.

Raimonds: You're selling yourself short but that's a high bar we need to hit 88 deals.

Marvin: It's just super hard.

Marvin: This stuff is hard, right? So it's just, it's hard to be good. At

Raimonds: Bad Ideas we are right now at 15 deals. And 1. 8 million deployed over 12 months. So that's like every three or four weeks a new deal. And that's exactly how it's, how it's going. Yeah, one two, three K tickets that folks put in and start collecting those data points.

Marvin: [00:15:00] Yeah. It just, this is a learning process, right? I think anyone who says that this is easy, you know, they don't know what they're talking about or the line. It's not easy. How

Raimonds: do you think about the risk versus upside? This is connected to evaluating deals. How much are you looking at what can go wrong here?

Raimonds: And are there remedies for that? I

Marvin: think, I think you have to like, look, the downside is just what you put in, right? And so, you know. In general, I usually think it's better for, like, you, you want to look for glaring risks, right, like, and then the other thing you want to figure out sort of like what, you know, what are these teams doing to sort of like mitigate these risks, but I think one of the dangers of you can always talk yourself out of deals.

Marvin: And so I do think you have to look at the downside like okay what are the risks and it's actually really really important to sort of understand them. And, and by the way, you can never de risk these, right? Like you just have to be comfortable with them. So, you know, my recommendations, like, like, you know, you have to do the deals knowing that there's some stuff that will break and that's normal, right?

Marvin: You just, can they, can they recover and [00:16:00] fix that? So there's always going to be risk. There's nothing, there's no de risk deals ever. And you know, if there, if it's de risk and it's not, there's no upside. But the other thing you have to ask yourself ultimately is like, okay, how big can this get if it works?

Marvin: Right. Like, you know, what needs to happen for this to actually work? And if it does work, can this be big? I've made lots of mistakes of, of, of sort of like only looking at the downside and not looking at the upside, right? Like if this works, what could this turn into? And so that's something I care a lot about.

Marvin: Like, like you have to ask yourself both these sides, both these questions.

Marvin: And

Raimonds: related pre seed, seed, series A and beyond what should an angel investor pick as

Marvin: stages? Pre seed is much riskier, but it has the highest upside. Seed, you can look at traction and it's a little bit more baked. So I, I think, I, I think there's no right or wrong answer. I think pre seed is where the companies need the most amount of help.[00:17:00]

Marvin: Seed is, seed is a little bit more baked, right? You have traction, you have a lot more data points to work with. Very good.

Raimonds: Any final pointers, suggestions, things you think are important for startup?

Raimonds: I mean, the only thing

Marvin: I, I mean, the only thing, the only thing I'll just say is just, I think. Investing in startups is a very important part of your overall portfolio. You need to think about your, your assets as a portfolio, right? Like do not put like this is just, I want to stress, don't put 80, 90% of your portfolio into startups, right?

Marvin: Like it's like maybe 5 or 10% of your portfolio into startups. Like don't do 80 or 90. Don't do 50. It's, it's that's insane. Because you're going to be holding this, if it does well, even if you do do well, the earliest you're going to get some return is 10 to 12 years. So it's super liquid. That's what I'll tell angels.

Marvin: 10 to 12 years. But you should do it.

Raimonds: So you've seen that there's a little chance of getting it [00:18:00] faster?

Marvin: I mean, you could potentially sell secondaries, right? On the way up. That's one way to do it. But then you also give up all the upside, right? Like the whole point is like high risk, high reward. I told you my best portfolio companies like return 2000 to 4000 X, right?

Marvin: And that, that, that requires holding. That's, that's, that's the reward for holding for a long time, right?

Raimonds: So asset rich, cash poor, that's the recipe for wealth building.

Marvin: Well, yeah, I mean that, that exactly, this is an asset, but that means that you're going to be like cash poor. Like, so, so make sure that, that is, like you said, it's a part of your portfolio that you can, you know, that, that you're open to sort of like like either losing or at least, you know, being, you know, allowing to be a liquid for a long period of time.

Marvin: Otherwise don't risk it. Right. So we have LPs, like, you know, you know, like I said, they're my, my fun. We have LPs and we're like, yeah, dude, like, I don't think this is like the risk reward is like, you're going to be [00:19:00] locked up for a long period of time. If you need this cash, like, like you're not going to get access to this.

Marvin: Right. So better that you don't do it. We've turned away people. Good, good

Raimonds: warning. Thanks. This has been amazing advice.

Marvin: Yeah, I hope it's helpful. I hope it's helpful. Don't make the mistakes I made.

Raimonds: , good final note.