David Weisburd here – investor in 23andMe, DraftKings, Headspace, Palantir, Robinhood, and Wish.

I’ve been an angel investor for 12 years now, and a venture capitalist (VC) for more than five. Over the course of my professional journey, I’ve learned that angels and VCs use different tools and strategies to make their decisions – which leads to very different outcomes.

Venture capitalists in particular have access to a suite of resources and institutional knowledge that the typical angel investor does not. But as far as I’m concerned, it’s time to bridge the gap and share those insider tips and tricks – the ones VCs don’t want you to know.

Let’s discuss the three that I think are most important.

#3) Valuation is important – but it’s not the primary consideration.

As I’ve mentioned before, investing is a game of power-laws – which means that the companies that win, win very big. If a company goes public for $10 billion, it doesn’t (really) matter if you invested at a $10 million valuation (a 1,000X return) or a $15 million valuation (a 666X return). Either way, you end up with a multimillion-dollar payday.*

While the exact entry valuation doesn’t make a big difference, the round of investing makes a huge one. In the above example, the seed round may be priced at a $10-$15 million valuation, whereas a Series A for a hot company could be at a $100MM valuation. That would lower your return from 1,000X to 100x, or from $10 million to $1 million on a $10,000 investment.

#2) The founding team is important, but not as important as the market.

When you press a venture capitalist on what is more important – team vs. market – they’ll tell you that the market is most important (in private, never in public). That is because perfect execution in a B- or C-rated market will always have a limit to how much it can return.

Conversely, B or C execution in a high-growth market has unbound upside potential (think of Amazon, Airbnb, or Uber).

Remember, you are backing the team in the given business, not the team throughout its entire career, so the industry that the team is currently pursuing is of prime importance.

Some investors will bet on a pivot. They invest in the team hoping that team will alter course and steer for a more favorable market. But betting on a pivot is dangerous and increases the risk by at least 3X-10X on an investment. In other words, you should assess the investment at a 3X-10X higher valuation in order to compensate for the additional risk.

#1) The best opportunities may not have an industry report.

It can’t be emphasized enough how much venture capital is driven by power laws. One of the effects of this power law dynamic is that the best companies end up creating new markets vs. competing in existing markets.

The effect of this is that the true market size or industry size and are rarely known or available for truly disruptive startups until they’ve successfully created the market.

For example, there was no on-demand taxi service until Uber came along, just as there was no streaming movies and TV until Netflix was started.

*returns are approximate and do not take into effect potential dilutive effects.

Keeping these three tips in mind has made me a better angel investor over the years – and it’s even allowed me to teach my family and friends how to invest like the top 1%.

There’s so much insider knowledge you can only learn by earning your stripes in the upper echelons of Silicon Valley. My ultimate goal is to ensure that those “secrets” end up exactly where they belong: in the hands of angel investors who are ready to learn.

I can’t wait to keep sharing them with you. Stay tuned – I’ll be back with more later this week.

Very best,

David Weisburd