Deliberately Playing a Losing Game – Angels and “Cool Deals”

I was an extremely picky eater as a kid - and rarely strayed far from a very boring diet. While I did have a food allergy as a newborn, I eventually outgrew it as an infant. So, there was no real reason to restrict foods. 

Once I studied abroad in a tiny little Italian mountain town in college, things changed. There was one small cafeteria with limited hours and 2 even smaller tabacchis in the entire town…the only choice was how much to change. By the time I returned to the States, my palette exploded. 

These days, I eat almost everything, and could live solely off Thai food (or several other cuisines). Sushi is another favorite food - and if my wife felt the same way, I’d happily have sushi 7 days a week. While there are no great Thai places in Tysons (Finn Thai is great - but is 15 minutes away in Great Falls), there are some good sushi spots - namely Cafe Ile. However, I do like variety too - and enjoy random Japanese stuff. 

Marufuji is walkable (for now), and carries a surprisingly big variety of Japanese staples. Since we have a 20-month old at home who prefers to go to bed late, we often eat even later (after he’s sleeping). Eating dinner at 9 (or later) is probably a bad habit for us, but it has one small perk…at least 1 or 2 nights a week. 

Marufuji likely throws out all its sushi/nigiri every night - and closes at 9 PM. A few weeks ago, I picked up my wife’s dinner, and rushed over to Marifuji for a few things (and sushi). The selection was pretty limited, but enough for me - and I grabbed a few rolls. Once the total popped up, I was confused – in a good way. I thought they did not scan something…but learned that they take 50% off all sushi after like 8:20 PM. Since their sushi is actually really good, it’s a crazy bargain. I’ve been back a few times since then, and will work it into the dinner rotation once or twice a week. 

Our son cannot go anywhere near sushi right now…but he inherited my love for another Japanese staple, Pokemon. He lights up at the various Pokemon intro songs (I never watched the episodes as a kid, but do now with him) - and knows a few of the well known Pokemon. And, he has great taste with Pokemon cards…he will insist on holding the rarest vintage cards on my desk and throw around the modern ones we got him (most of them are worthless though). 

I had my own first edition Pokemon cards as a kid - but lost track of them over time, and sold them in a bulk trading card sale many years ago (thinking they were not worth much). While most of those cards were not in amazing condition (I actually played most of them), I still think of those cards…and those experiences as a kid. 

Sealed vintage Pokemon packs are extremely rare - and expensive. 1st edition base set (the first English Pokemon set) packs are next to impossible to find – and sell for $5k+ each. The next two sets, Jungle and Fossil are dramatically cheaper - but still expensive ($400-$1000 per pack). And, the extension sets (Team Rocket, Gym Heroes, and Gym Challenge) are actually more expensive - usually selling for $450-$1200 per pack. Since the packs and cards are 20+ years old, even pack fresh cards regularly grade as PSA 8s and 9s (not 10s). And, the price difference between a PSA 9 and 10 is massive - for everything from a common card to a Charizard holo. 

In most (basically all) cases, anyone who buys, and opens a sealed vintage Pokemon pack is destined to lose a lot of money. Even if someone pulls a good holo, it will likely grade as a PSA 8 or 9, and not justify the pack price. So, as someone who likes the idea of buying half off sushi, it might seem crazy that I would even consider buying a few vintage packs. And, in many ways, it is. But, the nostalgia factor is strong, and I don’t always operate with the investing mindset. 

So what does this have to do with venture investing?

As usual, there are a few parallels. However, the most pertinent theme aligns with angel investing - and choosing investments as a Fund GP. As a General Partner investing my investors money, I have no nostalgia, no emotion, and will aggressively hunt down the half off sushi type deals. In many ways, I only care about maximizing returns and minimizing risk. Any cool deals, or founder stories are great, but have zero influence on my decision making. In many ways, I avoid any cool deals or stories - most of these deals carry equally cool valuations and operate in hypercompetitive industries. 

Many of my investors send me deals to look at - some as a sounding board, and some to just put on my future radar. While I never tell an investor what to do, I do offer feedback. And, as most of my investors will attest, I don’t have much of a filter. In a few rare cases over the years, I’ve called (instead of emailing) an investor to relay feedback – and in every case, it was a cool deal. The industries were always interesting, and the business models were compelling (if everything went perfectly). But, the deals themselves were generally awful. 

Even after relaying generally terrible feedback, and pouring cold water over the deals, most of them still invested. They would acknowledge the risks, accept the likelihood of a loss, and justify it for the experience/stories/learnings. I’ve never had gambling money (so to speak) for material-sized angel investments, so it’s always been hard to reconcile these conversations. However, after many years of calls like this, the puzzle pieces are finally coming together – and tie directly to my vintage Pokemon pack situation.

If I buy any sealed Pokemon packs, I know I will lose money. The only question is how much I’ll lose - and how much it’ll cost to get the cards graded (not to sell though). These packs are the equivalent to those angel checks in cool deals. Although my angel investing will likely always be as boring as my diet as a kid, I’m increasingly understanding why investors pick deals that can seem like certain money losers. At the end of the day, it’s not necessarily about always chasing a return for them - it’s about the experience itself (and having the chance of a huge possible exit if everything fits together perfectly).