Jason: I am doing these hackathons to sort of jump start entrepreneurship. I have a $10 million angel fund that I'm currently investing, just this year. I've invested in five companies so far. I'm basically investing in the companies that participate in these hackathons or the LAUNCH festival, which occurs in February. 40-50 companies will be launching on stage for the first time.
Those events, the LAUNCH series, have been going on the last six years. The first three years, I did them with Mike Arrington at the TechCrunch50 event, which I created and partnered with him on. Then, we sort of split up. After three years, I did LAUNCH, and he did Disrupt.
The LAUNCH festival is once a year at the end of February. A lot of great companies have launched from that. We added a hackathon this year, this spring, and we're doing a second hackathon in a couple of weeks.
We made it 48 hours, so it's kind of a little bit longer than most. And we prescreen everybody. We have a developer who manages the process. We check everybody's GitHub. We make sure that they have really good commits. And we check their design portfolios, if they're a designer. They have to form a team. There'll be over 250 teams of three, four people. We check the code that's being written onsite to make sure people are not cheating.
The winners then get an investment from my angel fund, the LAUNCH fund. This year will be the first time we're going to syndicate them to the AngelList syndicate program. That'll take a little bit of time, because these companies are very new. The people who have the teams are probably not even incorporated or ready to do an investment. So, it'll take 30 days probably after the event for them to actually incorporate and set up their legal docs, and then accept an investment from me. And maybe even another 30 days after that to prepare themselves to go through the AngelList syndicate process. But I'm pretty confident that'll occur.
At the first hackathon, a company called WizzyWig from Pittsburgh raised $100,000 on stage, and then was accepted to a very elite -- the most elite, but I can't say the name, because I don't think it's public -- incubator. So, we have a pretty good track record right now, and if the first two winners don't accept the investment, we'll just go down the list to the next two, to the next two. So I'm pretty committed to making sure somebody gets invested in.
But of course, this is a new concept, and it's going to take some tweaking, and it's going to be a little bit imperfect. But generally, it's got people really excited. And more than 50% of the people coming to the hackathon, which will be right in the heart of San Francisco at the Metreon, are not from San Francisco. Just like WizzyWig was from Pittsburgh, we're drawing people from all over the world who are coming to compete.
Samzenpus: Do you know how far away some of the competitors are from?
Jason: Yeah. We'll definitely have people from Australia and from different cities in Europe and from South America. I don't have the exact names of the cities, but I know all three of those regions for sure will be represented.
Samzenpus: What are the top prizes this year?
Jason: I'm going to invest $50,000 in the top two companies, and then syndicate them to AngelList. So that means it could be as high as an $800,000 investment. And then, in addition to that, some of the supporters of the conference, which include Google and Amazon and Facebook, are giving out prizes. So there's a $10,000 Amazon AWS credit, which is not insignificant for the winner. And then a $1,000 one for second, third, fourth, and fifth place.
The Google Cloud platform -- you know, the compute engine -- is giving a $20,000 credit. Then DigitalOcean they're giving a $5,000 credit.
And then Kevin Rose, a famous entrepreneur who is now at Google Ventures, has agreed to take hour-long meetings with the two winners. So we're basically also providing access. That's a big part of the mission, we want to inspire people and create a sense of competition to drive excellence, and then, three, we want to provide massive support. Additionally, the top five winners will also get a guaranteed placement in the LAUNCH festival in February, which had 6,000 people last year, and will have 8,000 this year. They sort of automatically get on stage at the big American Idol event.
Samzenpus: How many different hacks or projects are there to work on?
Jason: We're letting people do whatever they want to in terms of hacks or projects. So they don't have to solve a specific problem we're giving. They can come up with any idea they want for a startup, and it can be outlandish. We hope that people start doing some hardware. We started to see some hardware hacks coming, so we're hoping maybe some Arduino or maybe some accelerometer kind of sensors from Android and iOS phones maybe will be incorporated.
Samzenpus: There seems to be a lot of hackathons going on right now and more and more businesses seem to be excited about getting involved. Do you think that the hackathon format lends itself to find angel investors?
Jason: I don't think anybody really has dipped down this far, I think mainly because angel investors maybe are a little bit risk averse, they want to see more proof points. For me, I believe in our process. We are much more diligent than a normal hackathon. Most hackathons just have a form, you sign up and then you show up, and they hope for the best.
What we're trying to do here is a hackathon to create companies. So it's not a hackathon just to maybe try to solve some problems. It's trying to solve some problems in the world that then could become sustainable companies. We just take it a little bit more seriously, I think, than the other ones.
That doesn't mean the other ones are bad in any way, but I think a lot of them are out there maybe to service the sponsors maybe more than the people going. So they kind of force you, like, "Do something with this API that you would not normally use. We're going to buy you pizza." I kind of think that that's a little disingenuous. I mean, listen. developers are coming to it open-eyed and not being abused in any way. Free pizza is free pizza. But I think we've sort of taken the game to a different level. Let's actually make this like a competition, and let's put something at stake, something very real. Let's try to transform a team's life. Let's try to create companies that could change the world. And to do that, you really have to invest a lot more.
So, this is going to cost about a quarter of a million dollars for us to do, and I'll probably wind up losing $50,000 at this point on it. But that's okay, because I'm playing a longer game, which is, if two or three companies come out of this, and I invest in them, and I do it for 10 years, and over 10 years I invest in 30 companies, I think a great company could come out of this, or 2 or 3 or 10. And so we're taking a portfolio approach.
We're going to do this twice a year for the next 10 years. There'll be 20 hackathons. There'll be two or three winners from each. We'll have 50 winners. We'll have invested $50,000 in each winner, and so we'll have put $2.5 million to work. And all we need is one of those companies to become a $25 or $50 million or $100 million company, and we're in the black.
To me, if you have that kind of discipline, and you build a really good team, it's a model that could work. I'm not saying it's going to work, but I think it's got a very good shot of working, and I think it's got a shot of returning a serious amount on capital in terms of the investment process. And so that's why I'm doing it.
I think most of the hackathons are not about angel investing in the companies. They're about getting developers exposed to APIs. There's no problem with that. It's marketing. But this isn't a marketing ploy. This is an investment ploy. This is an investment strategy.
If you're willing to go through our really difficult application process - and we've probably kicked back more than 50% of people who apply, because a lot of people try to sneak in who aren't coders, who aren't actual designers or UX people -- if you're good enough to get through that, and then you're good enough to compete. We have 250 teams. I think it'll boil down into maybe 5 or 10 really good projects with really motivated teams. So, I think we're pretty much assured to get startup quality product at the end of this process.
We saw that with WizzyWig. In 48 hours [they] did just as good as the companies from the LAUNCH festival who had been working for six months. In fact, the companies that got launched at the LAUNCH festival, I would say WizzyWig would have been in the top five of those 50.
br> There was a serious amount of recognition from the judges, and just from people saying, "I want to invest in that content management system you built. It's phenomenal." And obviously if the number one accelerator in the world with the best track record accepted them, it says something about it.
Competition increases performance. Healthy competition is kind of the American spirit. I think they're sort of turning into, in a way, almost like a sport, like a bracketed college basketball system, where a group of teams compete, and there's winners and there's losers, and you might lose this year, but you come six months later to the next one. You try again, you lose again, and you win in the third one. So I really think it's got great potential to motivate people and to increase their performance through competition.
Samzenpus: You mentioned the AngelList syndicate a little bit. Could you give some background on that, and how it's different than other VC funding models?
Jason: So, I have my own fund, and previous to that, I just invested my own money. I'm a professional angel investor now. What that means is I invest my own money, and I invest money on behalf of what are called LPs, limited partners. Those are people who give me money and they say, "You invest it, and whatever the return on capital is, you keep 20%." And that's how venture capital works. It's a pretty standard format. But I have to go to those LPs, sell them on my fund, and then close the fund and then go put it to work. And they typically have to have a minimum investment size, typically $25 or $50,000, which means even for accredited investors, it's a big chunk of change.
Now, what the angel syndicate program says is, "We've got thousands of accredited investors in our social network, essentially, investors." They can see what you've invested in. So when they look at my portfolio and they see, "Oh, wow. He invested in Boxbee and SpaceMonkey and Uber. I like his track record. Let me agree with a sort of gentleman's agreement that I'll put $1,000 into every deal he does and give him a 20% carry, or a 20% cut of the profits."
And so this is an experiment done by AngelList, and it's had tremendous response. I have over $800,000 to each deal I do. So if I invest $50,000 or $100,000 or $250,000, which is what I typically invest, $50,000 to $250,000 in a company, if I syndicate it to AngelList, another $800,000 could possibly come in, which means that takes me from an angel investor who's got some influence into, really, venture capital territory. I can say, "This company is good enough that I'm going to give them enough money that they can go operate for a year," which is what venture capitalists typically only have the ability to do. An angel investor could give somebody enough money to operate for a couple of months, but a VC could say, "Here's enough money to operate for a year or two."
What you're going to see is, angel investors who have good track records and maybe have good deal flow, they'll be able to really mobilize more capital. And this program is just a couple of weeks old. It's possible that it will go from $800,000 to $2 million. In fact, Kevin Rose is in the system, who's speaking at the event, and I think he's up to $1.5 or $2 million in the system. So, this is really groundbreaking stuff that's going to change venture capital forever. You'll have individuals who don't need to set up funds who can do venture-sized investments.
This is before unaccredited investors are allowed to invest. So there's a whole other class of people, what investors would call "civilians", in other words, non-rich people who are called non-accredited investors. That means they have under $1 million dollars in liquid net worth and under $200,000 a year in salary. They're going to be able to make $500 or $1,000 bets, just like they do in Vegas or just like they do on the New York Giants or whatever they like to gamble their money on. And that's going to be the ultimate democratization of capital, because then I can go to my 175,000 Twitter followers, and say, "Listen, I'm doing this deal. I think it's an incredible company. I think it's a great opportunity. If anybody wants to put $50 or $100, $250 in, go ahead. You can buy a couple of shares."
And you know what? I think individuals, if they're allowed to go play blackjack or buy drugs or spend their money on booze or spend it on cable TV or Miley Cyrus CDs, they should be able to invest in companies, as well. I don't mean to be flippant about it, but it's a really dated law. And that's why the government, Obama, with the Jobs Act, fought very hard for it. This is not the era of the Depression and people selling gold mines in California.
It doesn't mean that there won't be bad investments. Of course there'll be bad investments, but I think people should be allowed to, especially people who are middle class or lower middle class or even poor people, if they think that LinkedIn, this new site that they saw, or Twitter, this new site, or Facebook is a cool company, why shouldn't they be able to invest? Only rich people can? I think this is why we have a problem of polarization of wealth in our society, is access to capital and access to deal flow.
So, the LAUNCH hackathon is really about opening up access. Anybody can come to it. And the fact that the majority of the people are not from Silicon Valley speaks to that. The people in Silicon Valley, for developers, if they come up with even a bad idea, there's a good chance they're going to get funded in this market. To be honest, I see a lot of bad ideas that are funded. And I shake my head like, "That idea would not have been funded three or four years ago." But there's enough rich people who are willing to take chances.
If you are not in the Valley, if you're in Pittsburgh, like WizzyWig was, they're actually not going to be able to find angel investors there. So, the fact that they come to this hackathon, and that's their first experience in San Francisco, I mean, many of them, it's their first trip. I think some of the members of the WizzyWig team, that was their first trip to the Valley. And not only was it their first trip, but they won a competition.
For me - I'm a kid from Brooklyn who did okay in the tech business - I love the idea of opening this up a little bit. I love the idea of it being competitive. I love the idea of outsiders winning and getting funding. To me, that's what technology was supposed to do. It was supposed to empower people and level the playing field.