Naval Ravikant is one of the most respected and successful angel investors in Silicon Valley.
He’s invested in well over 100 startups, including several “unicorns” that went on to become huge companies like Twitter and Uber. He is also the founding CEO of AngelList, a resource for entrepreneurs and angels to find each other and make deals.
Since Ravikant has both been an entrepreneur and come to know countless ones over the past three decades, Ferriss asked him what he looks for in one when they have their first conversation.
Here’s what Ravikant needs to see before he makes an investment of capital, time, and energy.
Ravikant and Ferriss joke about how there can often seem like a fine line between a madman and a startup founder, but Ravikant says he first looks to see that founders not only have an ambitious idea but that they thoroughly understand their product and industry.
He says this has nothing to do with an entrepreneur’s age or experience, “it’s how deep is their understanding of what they’re about to do, so intelligence is key.”
Being a founder is “brutally difficult,” Ravikant says, and scaling a company requires years’ worth of tireless devotion and an ability to endure and overcome massive difficulties. “In the long run, people who succeed are just the ones who persevere.”
Ravikant looks to see if entrepreneurs have any hesitation about their plans, if they’re unsure of themselves and constantly looking for feedback, or if they’re easily upset by a setback, since these are all warning signs that these founders aren’t ready for the long haul.
If you have a very intelligent and energetic founder with questionable morals, “what you’ve got is a hardworking, smart crook,” Ravikant says, laughing.
He explains to Ferriss that this is the hardest thing to judge and typically requires getting to know someone beyond just an introduction, but he’s ultimately looking for “a core set of values that rises above and beyond [their] financial incentives.”
With time, he’s learned what to look for. “So, for example, if I’m talking to a founder and they offer to do something that is slightly unfair to a shareholder or employee or founder in exchange for making me happy, that’s a red flag.”
Ravikant says that being likeable isn’t required for success, per se, but he says that any time he considers investments he needs to genuinely like the founders.
There’s a chance with any startup that it will fail or that his relationship with the founders will fall apart, but he says he needs to go into every deal with the assumption that the founders will be part of his life for the next 10 years.
If meetings and phone calls with a founder is exhausting or difficult, then “no amount of money is worth it,” he says.
He seeks out relationships with founders who will in turn make him a better entrepreneur and more savvy investor.
“My favorite founders are actually the ones who I learn from,” he says. “So every time they call me up because they need help with something I jump on it because I know [after] walking around the block with them for an hour I’m gonna [be] much smarter.”