Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

As Angel Investors Pull Back, Valuations Take a Hit

wsj.com

Post reply on HN
Print view View original

51–60 of 117 posts

Re: As Angel Investors Pull Back, Valuations Take a Hit

#51

Post by jacquesm »

dsacco wrote: post #2

As an angel investor, I can anecdotally confirm that I've become more cautious recently (in the last year, really). However, I'm not at all concerned about the stock market. That has never influenced my decision to fund a company. My belief is that a strong company can weather a bear market. I'm concerned with the current state of valuations - I enjoy giving investments to companies on the order of five figures or so…

> There has been a flood of folks entering the "startup game" who seem to be planning for their IPO before they've even gotten a product off the ground. Again, anecdotally, I'm observing a noticeable increase in fraud among founders who are trying to raise money unscrupulously, especially with novice investors.

FWIW I'll back you up on this, definitely a complicating factor for novice investors.

Free tip to novice investors: If someone approaches you with a request for funding, if it is still 'just an idea' and if the idea will surely deliver billions and if the funding required is Anything that will grow to turnovers that high will surely require a little bit of traction after implementation before any figures can be projected at all and anything that hasn't been implemented yet doesn't even qualify to be discussed in other terms than hypotheticals.

Another free tip for novice investors: pair up with a more experienced investor to vastly reduce your chances of being ripped off on your first investment(s).

This is also not a guarantee but it will increase your odds considerably, it also requires you to convince another, hopefully more skeptical party that what you've found is really worth an investment.

Re: As Angel Investors Pull Back, Valuations Take a Hit

#52

Post by jacquesm »

DenisM wrote: post #23
dsacco wrote: post #2

As an angel investor, I can anecdotally confirm that I've become more cautious recently (in the last year, really). However, I'm not at all concerned about the stock market. That has never influenced my decision to fund a company. My belief is that a strong company can weather a bear market. I'm concerned with the current state of valuations - I enjoy giving investments to companies on the order of five figures or so…

An unrelated question, if I may... When evaluating a startup in a given area, how do you bridge the gap between your expertise in that area, and that which is required to assess the opportunity? Obviously the startup founders will always project the fields of gold ripe for the taking, so you can't blindly trust that. Do you only invest in the field you know well? Do you look for behavioral clues? Do you look for your…

Hire an expert. This is routinely done during any kind of due-diligence, if you don't know the field find someone who does, get them to sign an NDA and start picking the proposition apart.

Make sure there is absolutely no conflict of interest, make sure the expert will be told up front they will not be able to participate in any kind of deal and will only be paid an agreed-up-front hourly rate for their participation in the due-diligence process.

Re: As Angel Investors Pull Back, Valuations Take a Hit

#53

Post by mbesto »

jacquesm wrote: post #52
DenisM wrote: post #23

Earlier quoted context omitted.

An unrelated question, if I may... When evaluating a startup in a given area, how do you bridge the gap between your expertise in that area, and that which is required to assess the opportunity? Obviously the startup founders will always project the fields of gold ripe for the taking, so you can't blindly trust that. Do you only invest in the field you know well? Do you look for behavioral clues? Do you look for your…

Hire an expert. This is routinely done during any kind of due-diligence, if you don't know the field find someone who does, get them to sign an NDA and start picking the proposition apart. Make sure there is absolutely no conflict of interest, make sure the expert will be told up front they will not be able to participate in any kind of deal and will only be paid an agreed-up-front hourly rate for their participation…

Unfortunately angels rarely do due-diligence. The fees to do this for a portfolio approach (which VC's model is) are much too high.

Re: As Angel Investors Pull Back, Valuations Take a Hit

#54

Post by jacquesm »

mbesto wrote: post #53
jacquesm wrote: post #52

Earlier quoted context omitted.

Hire an expert. This is routinely done during any kind of due-diligence, if you don't know the field find someone who does, get them to sign an NDA and start picking the proposition apart. Make sure there is absolutely no conflict of interest, make sure the expert will be told up front they will not be able to participate in any kind of deal and will only be paid an agreed-up-front hourly rate for their participation…

Unfortunately angels rarely do due-diligence. The fees to do this for a portfolio approach (which VC's model is) are much too high.

The amount of money you spend on a due diligence should be related to the size of the investment. Under 100K investment 5 to 10% should be enough to keep you out of trouble. A couple of hours (or a full day) of an expert in the field that you're going for would amount to maybe $1K to $3K depending on the field. Easy money for the expert and a very cheap insurance for someone putting down 20 to 100K of their hard earned money.

The funny thing is they don't bat an eye at spending that kind of money on a lawyer but to actually get a good look at the material it is suddenly 'a lot of money'.

Re: As Angel Investors Pull Back, Valuations Take a Hit

#55

Post by DenisM »

jacquesm wrote: post #52
DenisM wrote: post #23

Earlier quoted context omitted.

An unrelated question, if I may... When evaluating a startup in a given area, how do you bridge the gap between your expertise in that area, and that which is required to assess the opportunity? Obviously the startup founders will always project the fields of gold ripe for the taking, so you can't blindly trust that. Do you only invest in the field you know well? Do you look for behavioral clues? Do you look for your…

Hire an expert. This is routinely done during any kind of due-diligence, if you don't know the field find someone who does, get them to sign an NDA and start picking the proposition apart. Make sure there is absolutely no conflict of interest, make sure the expert will be told up front they will not be able to participate in any kind of deal and will only be paid an agreed-up-front hourly rate for their participation…

Enginers like you and I may have the same idea of what's right, but I'd rather see an actual investor describe how it's actually happening.

Re: As Angel Investors Pull Back, Valuations Take a Hit

#56

Post by jacquesm »

DenisM wrote: post #55
jacquesm wrote: post #52

Earlier quoted context omitted.

Hire an expert. This is routinely done during any kind of due-diligence, if you don't know the field find someone who does, get them to sign an NDA and start picking the proposition apart. Make sure there is absolutely no conflict of interest, make sure the expert will be told up front they will not be able to participate in any kind of deal and will only be paid an agreed-up-front hourly rate for their participation…

Enginers like you and I may have the same idea of what's right, but I'd rather see an actual investor describe how it's actually happening.

I'm also an actual investor (but on a very small scale, I'm pretty careful) and that's how it is actually happening.

Except when it isn't and there will be blood (investor blood).

I make a living like doing tech dd, and when a due-diligence needs other expertise I'll be the first to point it out. This works pretty good for investors and technology people alike.

Investors that don't do due diligence at all end up losing their shirt, so that's a pretty good starting point. Just abbreviate the process relative to the amount of money involved, after all, it is a risk mitigation strategy, not a risk erasure strategy (if you don't want risk: don't invest anything just sit on your money and watch it evaporate, every other kind of investment strategy will carry risk to some degree).

Re: As Angel Investors Pull Back, Valuations Take a Hit

#57

Post by aetherson »

crpatino wrote: post #41
aetherson wrote: post #13

Earlier quoted context omitted.

Median income in San Jose is $80k, so 50% of all households make less than that. $100k does not mean you're barely capable of breaking even. For any reasonable amount of income, it is possible to spend in such a way that you're barely breaking even, of course. But this whole meme of six figures is hard to keep afloat with is the worst kind of cringe-worthy "Oh poor well-paid me." My wife works at Habitat for Humanity…

Median income does not mean what you think it means. There are basically 4 socioeconomic classes in modern society: the disposessed, the working poor, the middle class and the wealthy class. You can split hairs and make different cuts, but if you follow this model. * The disposessed is the people that fell through the cracks. They are struggling to survive usually for multiple issues that are holding them back, even…

I think that "median income" means "half of all households make less than this and half of all households make more than this."

Re: As Angel Investors Pull Back, Valuations Take a Hit

#58

Post by gmarx »

staunch wrote: post #45
gmarx wrote: post #27

Whenever I see articles about how easily the investment money flows or had flowed all I can think of, from a purely self-centered point of view, is "what kind of loser am I that I have never been able to raise a single round?" Seriously, my ideas aren't objectively stupider than the ones I see funded. Even in this article, I mean, home eye exams? Did I read that right? How about a startup that will come to your house…

It took me a long time to figure this out, because no one tells you, but it's actually very simple. There are two ways people raise money in Silicon Valley: 1. Traction (rapid week-over-week growth, significant press) 2. Reputation (elite background, connections) It's very easy to get some initial traction for these local services businesses, so investors fall for them easily. They lose money on every transaction but…

I like this comment but I'm unsure how to parse the penultimate paragraph. What counts as "their products in Silicon Valley"?

Re: As Angel Investors Pull Back, Valuations Take a Hit

#59

Post by gmarx »

czr80 wrote: post #31
gmarx wrote: post #27

Whenever I see articles about how easily the investment money flows or had flowed all I can think of, from a purely self-centered point of view, is "what kind of loser am I that I have never been able to raise a single round?" Seriously, my ideas aren't objectively stupider than the ones I see funded. Even in this article, I mean, home eye exams? Did I read that right? How about a startup that will come to your house…

Feel comfortable sharing one idea? Just curious, completely understand if you'd prefer not to.

Most of the ideas and products I attempted to get funded were around the idea of transforming the electronic medical record (in the broadest sense) from a mostly free text entity to a mostly well modeled discrete data entity. For more specific ideas I would be happy to discuss outside this board.

Re: As Angel Investors Pull Back, Valuations Take a Hit

#60

Post by gmarx »

draw_down wrote: post #34
gmarx wrote: post #27

Whenever I see articles about how easily the investment money flows or had flowed all I can think of, from a purely self-centered point of view, is "what kind of loser am I that I have never been able to raise a single round?" Seriously, my ideas aren't objectively stupider than the ones I see funded. Even in this article, I mean, home eye exams? Did I read that right? How about a startup that will come to your house…

Nothing about any of this is objective, though.

I disagree. Judgments are difficult in the vast formless middle but some things are objectively good business ideas and some are objectively bad. Unless we are having a philosophical discussion about the possibility of anything being "objective", I submit it is possible to define some criteria for a good business idea, then assign by consensus a probability with which each idea meets these criteria.
Post reply on HN