This is episode 1 of The OpenVC podcast. In this episode, Francis Santora, a full-time angel investor, shares his journey of backing high-growth startups, with four of his investments reaching $10M in ARR. He discusses his approach to B2B SaaS and consumer subscription investments, common mistakes angels make, and what founders can do to impress investor
Harrison Faull (00:28.205)
Would you mind telling our audience a little bit about yourself? I know that you're a serial angel, that you've had a career in health tech before.
Francis Santora (1:28.205)
You got it. I got into angel investing because I read a great book that I would really recommend. It's called Angel by Jason Calacanis. It really explains how to invest in tech startups at the early stage. And unlike some other books in this field, it's not boring and it's not long. So I think.
Francis Santora (1:55.205)
A lot of founders read it too and it helps kind of hack the psychology of investors and figure out what they're looking for. Before I did this, I started right out of college at what might be the most hated company in tech, a company called Epic that makes medical software, which well, that's a long story, but if you want to know more about that, you can watch Bill Gurley's talk from the latest All in Summit.
Suffice to say, I was straight out of college and I really needed money. And then I've been angel investing for about 3 years.
Harrison Faull (03:31:23)
Awesome. You mentioned Jason, I think he's becoming a bit of a legend in the angel investing space. I follow. I've actually attended a few angel university sessions. And, yeah, they're awesome. Yeah, really good. Very valuable to anyone looking to get into this space.
It's quite candid with all the lessons that you've learned and how you can structure your own investment thesis, which brings me on to yourself. On LinkedIn, you said that your primary focus is B2B SaaS and consumer software companies. Is that, is there much thinking behind that?
Francis Santora (3:59:33)
I like software in general. I tilt toward B2B SaaS. It's what I know best. It's the industry I came from. I understand it more than what I do other forms of technology. That's why I don't do biotech. I don't do hardware. I don't do semiconductors. I don't do spacecraft. I don't know anything about that stuff. About a year ago, I had a company, a SaaS company.
It's publicly announced a company called Edge. They passed 10 million ARR. I was in their seed in kind of mid 2021. So that was the first one of mine that it was one of my first investments that started to really hit. If you could tell the audience a little bit more about what they do. Let's say that Harrison comes to Francis's barbershop and I cut Harrison's hair. Okay. Harrison's hair looks fantastic.
Francis Santora (04:44.301)
He still has hair, which is always nice. I can't say the same. And when it's done, my shop sends Harrison a text message. And it says, Harrison, you got your hair cut at Francis's barber shop today by Francis. Did Francis do a good job? Rate him from one to five. And then you can text back, Francis was a five.
He did a great job on my hair. And then it will prompt you to post that to Google as a Google review. Then if Francis gets, say, you know, a five or four, the software will process to Francis a payment of like five or ten dollars from the whoever owns the store, basically..
My example actually wasn't really perfect because in reality this isn't so much for like the single location but rather for large franchises. One of their big customers is Massage, Envy, those things are...
at least in the US. So that's kind of what they do. Like you can take your marketing budget that might currently be spent on Facebook or Instagram ads with poor performance and repurpose that to motivate your employees to provide awesome service, which gets you really good reviews, which pushes you up in Google search. People check the reviews before they go places almost always these days.
It's frankly a lot more impactful than your typical Instagram ad. So that's the long version of what they do. Yeah, no, that's really, really good because I think startup founders were always incentivized to chase rapid growth and that can come quite quickly with PPC and Google ads. But actually in terms of long term profitability and sustainable growth, organic marketing is often overlooked as a growth strategy.
Harrison Faull (06:56.077)
And so that's really tapping into keep your customer acquisition costs low, actually make your customers part of your sales team.
Francis Santora (7:29:33)
Right. And a really smart product. Yeah, they really there's nobody else doing this as far as I know. And they basically created the category the same way that Airbnb created the category of staying in somebody's spare room, which nobody was doing really. So.
It also helps a lot. Edge helps a lot with keeping your employees because if I'm getting $10 because Harrison was really happy with the haircut and then maybe Jim comes in after him and I do a great job for Jim too and maybe I get another $10. This can add up. It can really add up. And that's one of the toughest things these days is employees and service type jobs, you cannot retain them, at least not in the United States.
States you can't. There's a horrendous labor shortage in this country, especially for those middle and more modestly skilled jobs, even more so than what there are for rich techies. So Edge can really help with that as well. It solves all your key problems as an in -person business. Getting people in the door, getting marketing in a cost effective way,
retaining employees. All your problems are solved. If I had an in -person business, I would have signed up for this long ago. I just, I don't. Awesome. I know you said you invested early and actually I think Jason Calacanis and the launch accelerator got involved as well. Yeah. So has it been the same idea throughout or has the team pivoted? It's been the same basically since I invested in the seed anyway. I think angels that are new to the space, a lot of them.
they don't necessarily recognize quite how much startups can change and how frequently pivots occur. So someone like yourself that's been in the game for a while now, will see how quickly things can change and actually how startups stumble upon successes that are so far from the initial concept, which is why a lot of investors really focus on the team as a slide in a pitch deck, more so sometimes than the idea. If the team's impressed enough, they think they'll stumble into something.
Harrison Faull (09:20.269)
That's a pretty solid approach. Some companies that I've invested in, what they're doing today has absolutely no resemblance to what I invested in. But I'm fine with that. Go where the opportunities are. Yeah. Yeah. You want to see your reactive teams, people that stick to their original concepts when the data is showing them that they shouldn't. It's a red flag. When it comes to your...
Angel investments. Would you describe yourself as an active angel or a passive angel or a hybrid?
Francis Santora (09:59:33)
I don't want to be meddlesome. That's probably my first start. Before I even think about adding value, I want to make very sure I'm not subtracting any. I am sensitive to the fact that I am a minority investor. I'm not on the board. I'm not leading this. I'm sure as heck not running the company and I don't aim to. Then I start thinking about how I can help. What I generally do is I will watch the ad.
asks in the investor updates very closely. And I will take each bullet point as a personal challenge. I like to tell myself when I see we need to meet a CFO like you can't do it, Francis, can you? And start a little competition with myself. And I'm like, you watch me. What an amazing approach. well, thank you. I try. There's a company that.
I invested in in 2022 and they're looking for a CFO. So I talked to a bunch of people I know and then I kind of pre -screened a few candidates and sent them over to the company and they're meeting one of them next week. Who they hire, it's up to them, but this person is very well qualified. They're the current CFO at a company that's actually in the same space sort of. I mean, they're both prop tax.
Harrison Faull (11:18.317)
But that company, like a lot of companies these days, and TAC is going through some restructuring. So, you know, that's an opportunity for my company. Whether they hire them or not, it's their decision, but at least they get some really well -qualified candidates that are pre -screened that they didn't have to do anything to get. And if they get a little cash too from me along with it, well, then all's the better. Like, I mean, what have you got to lose at that?
Francis Santora (11:59:33)
Yeah, no, that sounds like a really big value add, but a lot of angels possibly don't look to maximize as far as they could do. Networks are so valuable. And if you're in the startup space and you've seen operators over a period of years, you will know the best performers. And actually introducing those people to startup founders that are new to the space or maybe it's their first company is really important. The success rate of your first hires is so critical.
This is to the success of the startup. So that's a great synergy to share with your angel. Well, I have an unfair advantage that I'm full time on this and many angels are not. That helps. Okay. Okay. So that actually that is very interesting. And I'd like to take tap into where you're sourcing deal flow because I believe you actually made history as one of the first angel investors on open BC.
and better the company through the deal flow that we're providing. Yeah. Is that so? I didn't know that. How long has OpenBC been around? I actually don't know. It's been around for a while, but... Definitely, because they've been building it for four years now. It's getting to that point where we're hitting exponential growth. So about a thousand founders a month are using us or signing up with fresh accounts every month. And yeah, we're really looking forward to accelerating that growth. Wow.
Well, I remember seeing Open VC and I was thinking maybe this is only for institutions, maybe like angels aren't supposed to do this. And then I said, you know, the famous quote, it's better to ask for forgiveness than permission. I'll sign up if they want to kick me off. That's their business. Until then, I'm not going to stop myself. I'm going to go after it. And I have found some really great companies on there and I hope to find many more.
just invested in one at the, wired the money beginning of February. Can't announce it yet because the round is not a hundred percent closed, but my money and most of the money's in. But yeah, it's a really great SaaS company that I found on OpenVC. I don't want to make this whole thing, you know, a testimonial, but there is some very good deal flow there. And I would suggest that investors check it out. Thank you. Yeah.
Harrison Faull (14:03:22)
We're looking to build the angel side a little bit more as we progress, which is why for this podcast series, we're looking to get a mix of angels and professional PCs.
It's such an important space for angels to get involved in, especially the early stage. There aren't too many funds focusing on the early stage. A lot of people like to invest once there is traction, but actually it's up to angels to take that initial risk at the idea stage and back a founder.
Francis Santora (14:26:13)
Yeah, I don't really do ideas. I look for some early traction. You know, typical investment for me is 2 to 500K ARR. That said, a lot of the institutions are much later even than that. So, yes, I mean, I agree that like somebody, a relative handful of early stage funds and angels basically need to get it to the point.
that the big institutions start getting involved, you know. The earlier you go in the ecosystem, in the investment phase, the more choice you have, because no one's really failed at that stage, like everyone's at the same position. So it's really a skill as an angel to pick the right investments that you think have the potential to grow into lucrative investments. While we're there, I think it might be good for our audience to know.
Harrison Faull (16:05.677)
what you like to see and what you don't like to see in pitch decks, what excites you and what kind of would make you think twice.
Francis Santora (17.11.12)
Just looking at a whole bunch of pitch decks through Mercury Rays right before this call. So you asked me at a good time. I want to know two things first and foremost. I want to know what do you do? And then I want to know what is your traction. If I know those two things, I know most of what I need to know to see do I want to.
meet this company, do I not? That I don't have to hunt through your deck, that's 37 slides to try to find it. That's too long for a deck, by the way. I try to go something more closer to a dozen. If I'm hunting around, realistically, if I have 30 to review right now, if I can't find it within a reasonable amount of time, I'm gonna need to move on. I have to sleep at some point, folks.
And so do all the other investors. So please, please, please, please, please put that where I can find it and put it close to the beginning. Those are the things that people want to know. No, that's really, really good advice. And actually it's something I say myself. If you're a tagline and your traction, like they'll highlight traction figures. I do need to be on your cover slide. It gives me a reason to go through your deck. It instantly helps you stand out from the crowd and I get a positive impression within the first few seconds of opening a pitch deck.
rather than combing through and trying to figure out what exactly it is that you do. So yeah, I think that's very wise advice for founders looking to raise capital. Thank you. Yeah, I mean, the idea of putting it on the first slide, I actually never really thought about that, but it's a pretty good idea. Because you know, at the very least, if somebody opens the deck, they will see the first slide. There's no way not to. Will they see slide two, three, four?
76? I don't know, maybe, maybe not. The odds go down with each additional slide basically. But if you can get it on the first slide, great. If you can't, certainly get it within the first three, I would say.
That would be my advice. On the flip side, you've been involved with a few startups that have actually gone on to be acquired.
Harrison Faull (18:20.685)
I was just interested as an angel, what's it like to be in that position? Have you got any advice for other angels that might be going through a similar thing? Have they all been positive experiences or some of them been a bit harder than others? Well,
Francis Santora (18.56.33)
Realistically, if you invested in a company at pre -seed or seed the way I do, and one of your companies is acquired within a year, two years, three years, it's probably not a huge financial outcome. It's probably more of a small acquisition that finds the team a good home where they can, as they say, rest and vest.
They can take a couple of years. They can recover from the enormously difficult experience of starting a startup. And when they have some ideas for their next move, I would like to be the first person that they talk to. I want to back a person's company once, twice, three times, until we get an Uber or an Airbnb, however long it takes. I want to back people throughout their careers.
So long as they did their best, they worked hard and they kept us reasonably updated. That's all we can really expect. I think we both might have studied the career of Jason Calacanis and the way he got into Uber was being an early investor in Travis's original company. I think it was Red Swoosh or something like that. Yeah, that sounds good. Which didn't have a big exit. And there was another company of his. I think it was even before that. It was Fowler or something. Yeah. What was it called?
Scala? Something like that. I forget. Travis's first company got him sued for a quarter of a trillion dollars. If that happened to me, I would hide inside of a massive corporate bureaucracy for the rest of my life and pray to God no one noticed me and I never get sued again. I certainly would not have had the moxie to start two, no three more companies because Cloud Kitchens.
But that's why I'm not Travis. Yeah. I don't think there are many Travises in this world. No, no. And our whole job is to find what very few that there are. That's all we do as investors.
Harrison Faull (20:42.669)
You mentioned Mercury Rays a bit earlier as a source of deal flow. Do you use anything else? You plugged into any other areas that you'd recommend other angels also would researching become a part of?
Francis Santora (20.56.33)
I use everything.
I'm a member of almost 100 syndicates. My network provides deal flow. My blog, Tremendous.blog, gets me in front of people. That provides yet more deal flow. My Twitter provides deal flow. My LinkedIn provides deal flow. OpenVC provides some great deal flow. Mercury Raise. It comes from many directions and I try to pick.
whatever is the - You're not maximizing your top of funnel. You're not maximizing your chances of finding those unicorns. I think a lot of angels are actually a bit passive when it comes to maximizing the deal flow because not all sources are high quality, very few filter appropriately. A lot of people just try and throw everything at you, hoping that you're investing in something rather than are long -term aligned. Well, certificates do that with carry.
And I'll tell you, I would far rather have 80 % of Uber or Airbnb than 100 % of nothing. So I don't shy away from paying those fees. I do some deals direct, I do some deals through syndicates. I've done two deals so far this year, I'm pretty sure I've got a third identified. The first one was direct, the second one was through a syndicate. I just did the best deal I could do at that time. And that's, I think,
about as good an approach as any.
Harrison Faull (23:05.261)
Yeah, it's an odd game. You don't necessarily know if you're a good angel for a while. You certainly don't. The three investments that have become big successes already. What kind of timeline has that happened under?
Francis Santora (23:17:22)
I would identify four companies that are either north of 10 million ARR or close to it.
And I made the investments in those companies between mid 2021 and mid 2023. So I would say 2 or 3 years from their pre -seeder seed, these guys had jumped out to large levels of revenue, large for an early stage company anyway. Obviously, there's a very long way to go and we cannot.
count our chickens before they're hatched. But at the same time, we've got to celebrate those small wins along the way or we'll lose all our motivation, won't we? That's pretty quick. I was expecting you to say more like six or seven years, but to hear that's been two or three, that's very... I got lucky. Well, there's that old phrase, isn't it? You create your own luck. So... That's what they say. And they say I'd rather be lucky than good. And yeah, I agree.
Harrison Faull (25:01:22)
Would you consider becoming a full -time VC or do you prefer managing your own money?
Francis Santora (25:16.261)
I do it full -time now just with my own capital. That said, once I've established a real track record, I would consider raising a fund. I don't know, I can't really tell you now whether or not I'm going to try to do that. Part of me says, yeah, it's a great way to have a bigger impact.
Part of me says managing other people's money is a pain in the neck. So I'm not sure what direction I'll go with that. If it could be just a small number of really great investors that I really like that we get along awesome, that are helpful to the portfolio companies and to me that have the right expectations and attitude, I would have to seriously consider that. In terms of track record.
I'm not going to sell somebody a product that would be like what I would have to sell now because I don't believe in it and I wouldn't invest my own money in it. I don't have any unicorns. I've only been doing this for three years. It's going to not quite three years. It's going to take 10 to 12 years for any of those investments to really hit. That would be a typical time window. I wouldn't invest in a fund that the guy had never hit a unicorn.
Why? When you could invest in somebody who did. So until I have a bare minimum of one, I'm not going to try to raise a penny from anybody. And even once I do, I'm not sure if I will or not. Wow, that's a very high bar. Hopefully, you'll have more than enough for a minimum viable fund if you're a seed investor in a unicorn. Maybe. I guess we'll see. It'd be nice. How do you?
Harrison Faull (25:28.813)
Have you ever thought about actually investing in VC funds instead of being so active yourself?
Francis Santora (25:55:32)
Well, I tried to invest in Jason's fund, but I'm on the wait list. So if I ever get off the wait list, then I guess I will be an investor in a fund. And if I don't, then I'll try for his next fund. As you can imagine with his track record, there's a lot of demand. A lot of people want to invest with Jason because he's one of the best in the world.
But generally speaking, I'm not focused on investing in funds. Do you have a geographic focus when you're looking for investments?
Francis Santora (26:55:32)
I go for the US and countries that are very similar to the US. So I actually have an awesome investment in London, a great company called Caribou, formerly Rebank, a really great company, founder, one very hard worker. So yeah, I do US. I have done UK.
I would be open to like Canada, Australia, New Zealand. I haven't done any there yet. I'm hoping to actually, I have a Canadian company peg that should be happening soon. They need to be a Delaware C Corp though. And that is something that a lot of companies abroad and actually a certain number of companies here in America too get long. So please, please, please, please, please with pink sugar on top.
make it a Delaware C Corp or my taxes will be a disaster and you will suffer a lot of difficulty in fundraising, at least from US investors. Why don't I do other countries? I don't really know anything about those countries like selling to customers in Argentina, for example. I never even been to Argentina. I speak some Spanish, but frankly, not that great.
And I just don't understand the market. I don't know anything about that. That makes no sense. It comes back to having discipline again, is that angel knowing what your comfort zone is and what you're willing to invest in? Yeah, nobody in the world is in every good deal. Nobody, even Sequoia, the greatest firm on the planet. They're not in every good company. They're in a lot of good companies, not every good company. So you can't be afraid to miss things, you know.
Harrison Faull (27:50.989)
you're always going to miss a lot. Just so long as you're in one really great investment in your career, you're fine. I mean, what if Jason had only invested in Uber and never made another investment the rest of his life? He'd be doing pretty well, you know? Yeah. It's the game of outliers.
Francis Santora (28:05:32)
Absolutely. And one thing I would say about the perspective of an angel for the founders that are going to listen to this, try to maximize your conversion rate.
is really important rather than doing a spray and pray approach when it comes to targeting angels. The more custom your outreach can be, the more compelling your message can be as to why I've targeted you as a potential angel. The research I've done on your profile, the prior investments will stand out because very few people do. Let me just say, like, what I do is really easy compared to what founders do. It's a breeze. Like,
I can leave early on a Friday sometimes. They don't really get to. I used to wish founders like have a great weekend. Then I realized that would be like somebody wishing me a great Rosh Hashanah. It's a holiday I simply or a day that I just don't celebrate. So I don't really say that. I just say have a great day basically because for so many founders there is no real weekend.
In the end, like the technology industry can operate without investors. It would be harder, but they can do it. It cannot operate without founders. So I just want to like, thank everybody out there who's building something, whether you're big, whether you're small, whatever you are, thank you for doing what you're doing. This is what moves human beings forward. And we couldn't do it without you. And we know that you're really...
sacrificing personally in many cases. It's not as glamorous as it is all the TV shows make out and the overnight successes that people pretend to have on Twitter. An overnight success that took 10 years is what they say. And frankly, 10 years, it might be more than that. And that was episode one of the Open VC podcast. I hope you enjoyed it.
