As Angel Investors Pull Back, Valuations Take a Hit • Hacker News Board

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

#61

Post by frandroid » Thu, Jan 21, 2016, 8:45 PM UTC

CPLX wrote: post #18

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…

> However, I'm not at all concerned about the stock market. That has never influenced my decision to fund a company. You may be the exceptional person who has no assets whatsoever tied up in the stock market, but nearly every investor who has the resources to be an angel will have money in the market. When the market falls they have less money. They use money to invest in things. The correlation between the market an…

It depends if the investor pulls their money out of the market when things start to shake down, or if they have some insights that would push them to do so ahead of a downturn. If they do, they might have _more_ money than usual to invest during a market downturn. Also, as a VC, your money is in a variety of startups that can crest even when the rest of the market goes sideways. Shopify had its IPO this year, others have been bought by the big guys, so their investors are now flush with new money. I mean if we have another big recession, there's going to be an investment chill so even an investor with cash to spare will have trouble finding partners to invest with. But we're not there yet.

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

#62

Post by Kinnard » Thu, Jan 21, 2016, 8:56 PM UTC

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 these points are only radicalized by things like Bitcoin which will have an effect like the silver coming in from the "New World" . . . except more eerie . . . or ethereal: Ethereum's currency is called "ether"

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

#63

Post by bsder » Thu, Jan 21, 2016, 9:11 PM UTC

jacquesm wrote: post #51

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 in…

> anything that hasn't been implemented yet doesn't even qualify to be discussed in other terms than hypotheticals.

Except that once you implement it, investors start anchoring to how small your numbers are. Catch 22.

I work with an actual IoT startup. Hardware--implemented. Backend and frontend--up and running on Azure migration to AWS ongoing. Customers who pay? Yep--and they love it.

So, investors?

"Ick, haaaardwaaaaare? But ... but ... but ... that's going to take actual moooooney." (yeah--well, so did Nest, thanks)

"Your numbers are too small to be meaningful" (no duh--does the word "startup" actually mean anything to you)

"This isn't going to scale." (translation--it takes money and marketing to acquire customers--welcome to a business with actual value and customer lockin).

"Big data is uninteresting to us now." (translation--"actuarials" and "business process" are only profitable--not wildly profitable and flippable)

To a certain extent, I'm looking forward to these unicorns winding up on the butcher block and being discovered to have no meat. The lead VC's of these unicorns are going to give a bunch of the initial investors a huge haircut via preferences (don't get me started ranting on the stupidity of that). Suddenly, initial investors are going to have to start looking at "sustainable" rather than "flippable".

Those of us with actual profit will be waiting.

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

#64

Post by akgerber » Thu, Jan 21, 2016, 9:12 PM UTC

tyingq wrote: post #16

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…

>>and no, they aren't all living with their families or have spouses helping out Honestly curious...what are they doing then? Isn't the typical rent cost higher than the entire salary of a low level employee at a charitable org?

They find 'non-typical' rentals, e.g. group houses (even as a married couple), trailers parks, etc. Or they commute obscene distances.

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

#65

Post by xmj » Thu, Jan 21, 2016, 9:13 PM UTC

sireat wrote: post #42

xmj wrote: post #28

Earlier quoted context omitted.

With the difference that $100k is easily reachable in Silicon Valley for engineering positions even before reaching senior levels. Here in Tallinn, not so much.

Was going to say that in Baltics 50k a year is not a salary that an average engineer can aspire to. It is more than the premier makes.. Additional data point: UBNT is paying 36k in Riga which is an outlier at the top. I think most positions with a few years of experience are around 25k in Riga and starting salaries are around 12k.

Time to move to Tallinn. ;-)

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

#66

Post by ryporter » Thu, Jan 21, 2016, 9:16 PM UTC

jacquesm wrote: post #51

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 in…

Pairing up with a more experienced investor is a great idea. The easiest way for an outsider to do this is to join an angel group. When I first started angel investing, I joined the Seattle Angel Conference [1], and I learned a lot from the more experienced members.

[1] http://www.seattleangelconference.com/

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

#67

Post by bsder » Thu, Jan 21, 2016, 9:18 PM UTC

paulpauper wrote: post #5

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…

It's easy to separate the potential winners from the losers though. Start-ups that deal with hardware and other physical stuff tend to fare much worse than apps and software.

> Start-ups that deal with hardware and other physical stuff tend to fare much worse than apps and software.

I'm not sure I buy this.

Maybe on Kickstarter, et al. I do, because most of the people trying to do hardware there are hobbyists who have never actually shipped a product and so have highly unrealistic expectations. My baseline for a hardware Kickstarter is "Take the Bill of Materials and Multiply by 3--if that isn't retail price they're in big trouble."

Hardware startups take quite a bit more money to get running. However, once they do, you tend to have a very strong customer base and a less assailable position. They have hardware after all--3 guys and a dog can't just clone them.

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

#68

Post by ProAm » Thu, Jan 21, 2016, 9:43 PM UTC

themartorana wrote: post #3

Valuations are fake, so who cares? I don't mean to be flip, but valuations are only important to other VCs. No surprise they created their own bubble. Valuations for the Uber-of-this or the AirBnB-for-that have been absurd. I'm not saying there aren't business opportunities there, but sometimes those opportunities are in the tens of millions of dollars, not billions, and hey, tens of millions is fantastic by the way.…

> Valuations are fake, so who cares? I don't mean to be flip, but valuations are only important to other VCs.

When a company decides they want to go public it becomes very important.

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

#69

Post by shin_lao » Thu, Jan 21, 2016, 9:50 PM UTC

jacquesm wrote: post #54

mbesto wrote: post #53

Earlier quoted context omitted.

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 earn…

That's because they know they can't do the lawyer job but believe they are inteligent enough to understand the field without the help of an expert.

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

#70

Post by jkaljundi » Thu, Jan 21, 2016, 9:59 PM UTC

sireat wrote: post #42

xmj wrote: post #28

Earlier quoted context omitted.

With the difference that $100k is easily reachable in Silicon Valley for engineering positions even before reaching senior levels. Here in Tallinn, not so much.

Was going to say that in Baltics 50k a year is not a salary that an average engineer can aspire to. It is more than the premier makes.. Additional data point: UBNT is paying 36k in Riga which is an outlier at the top. I think most positions with a few years of experience are around 25k in Riga and starting salaries are around 12k.

$50k gross is <€3k net monthly. There are quite many who make that, probably over 2% of the tech workforce (more than 2-300 people in Estonia). But even with €2k net your consumable income is bigger than for someone making $100k in the Valley.