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As Angel Investors Pull Back, Valuations Take a Hit

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

#81

Post by jonnathanson »

api wrote: post #74
bsder wrote: post #63

Earlier quoted context omitted.

> 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, haaaardwa…

> Except that once you implement it, investors start anchoring to how small your numbers are. Catch 22. Are investors really that irrational?

Some are. The rest aren't irrational so much as impatient. They tend to believe -- correctly or not -- that the winners and losers among their portfolio can be identified quickly, and prioritized accordingly.

They are not just thinking about your company in isolation. They are thinking about it in terms of stack-ranked IRR on a spreadsheet with other investments.

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

#82

Post by jonesb6 »

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…

I'd counter that free tip with a dose of the real world. That less then $50,000 is rent and payroll.

If I'm a software start-up with a Sure I'm going to tell you all about our sales projections, remember when you asked to hear them in the meeting, and yes the projections will be optimistic (but still fundamentally sound). No I will not go into too much depth about all the reasons we pushed launch back two months (the meeting would go past the ~30 minutes allotted and you would likely feel bored towards the end of the meeting.. not good).

I think both investors and founders are products of our current environment. We both ride the roller coaster, yet I feel like founders often get portrayed as the dishonest ones (I'm guessing it's because we don't hold the money). Maybe I would just like to feel more representation in this thread.

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

#83

Post by hiddencost »

jonesb6 wrote: post #82
jacquesm wrote: post #51

Earlier quoted context omitted.

> 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…

I'd counter that free tip with a dose of the real world. That less then $50,000 is rent and payroll. If I'm a software start-up with a Sure I'm going to tell you all about our sales projections, remember when you asked to hear them in the meeting, and yes the projections will be optimistic (but still fundamentally sound). No I will not go into too much depth about all the reasons we pushed launch back two months (the…

Cheap engineers you've got there.

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

#84

Post by staunch »

gmarx wrote: post #58
staunch wrote: post #45

Earlier quoted context omitted.

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"?

The false narrative told in Silicon Valley is that VCs are in a constant search to fund new innovative technology products. That they consider it their job to actively seek out great new products to fund.

In reality, they sit around waiting for winners to emerge and then try to pounce (traction). Or they back people that have such prestigious credentials no one will blame them if it fails (reputation).

Palmer Luckey could have gone door-to-door with the Oculus Rift prototype and not a single investor in Silicon Valley would've been interested (product). Without reputation or traction, he had nothing they valued.

It's actually a very exciting situation because it means there's huge untapped potential waiting to be unlocked. YC has tapped into this just a little bit.

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

#85

Post by jonesb6 »

hiddencost wrote: post #83
jonesb6 wrote: post #82

Earlier quoted context omitted.

I'd counter that free tip with a dose of the real world. That less then $50,000 is rent and payroll. If I'm a software start-up with a Sure I'm going to tell you all about our sales projections, remember when you asked to hear them in the meeting, and yes the projections will be optimistic (but still fundamentally sound). No I will not go into too much depth about all the reasons we pushed launch back two months (the…

Cheap engineers you've got there.

Yup, it sucks. And it's become par for the course. My biggest fear is that a downturn in VC will only cause more of it.

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

#87

Post by bsder »

api wrote: post #74
bsder wrote: post #63

Earlier quoted context omitted.

> 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, haaaardwa…

> Except that once you implement it, investors start anchoring to how small your numbers are. Catch 22. Are investors really that irrational?

Now that I stopped laughing, I can give you a reasonable answer.

Yes, they are. But, then, handing someone a couple million dollars in the hope that it will turn into 50 or 100 million is an irrational act, too. So, it's hard to get too upset over them being purely irrational.

There are two problems:

1) VCs/Investors are sheep.

This is the infuriating one as it makes most of the VCs/investors you deal with effectively useless. To the point that when pitching to them the goal is to trigger that behavior (the term is FOMO-"Fear of Missing Out" aka: acting like sheep). So, if everybody is investing in something, everybody will invest in something. Until it blows apart. If you just want funding, try to pitch something which runs downwind of this tendency.

2) It's really all after the fact rationalization of "I don't like/trust you."

This doesn't make me mad--I just would rather a VC/investor just say this. But they won't turn you down definitively for lots of social reasons (mostly hoping they don't turn down the next AirBnB/Uber/etc. and get laughed at at the country club). I would actually respect someone more who simply said "My astrologer says the signs aren't right. KTHXBYE." Or, even, flat out "I don't like you." I'm cool with that--my personality is straightforward--most people like it, a few call it tactless and arrogant. If you're one of those I rub the wrong way, fine, we need to find different dance partners.

The problem is that too many investors want you to jump through hoops when they're looking for reasons to turn you down. Generally, you should simply read this as "No" and move on. It's like trying to date a pretty girl--when she gives you some excuse multiple times, she's probably telling you "No" but trying to keep you in her list of options just in case.

Upshot: raising money is hard work. If you want to sit in the big chair, you had better be prepared for the slog.

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

#88

Post by bsder »

stcredzero wrote: post #75
bsder wrote: post #63

Earlier quoted context omitted.

> 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, haaaardwa…

I'm looking forward to these unicorns winding up on the butcher block and being discovered to have no meat. http://amzn.com/B00EWZCTD0

I love the Stross "Laundry" novels. Added to my reading list.

Thanks.

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

#89

Post by [deleted] »

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…

[deleted]

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

#90

Post by pcmaffey »

gmarx wrote: post #58
staunch wrote: post #45

Earlier quoted context omitted.

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"?

>It's actually a very exciting situation because it means there's huge untapped potential waiting to be unlocked. YC has tapped into this just a little bit.

Very much agree. The root problem stems from people's inability to independently measure value. They rely on external signals (traction, reputation, etc), because believing in a team and product independently is hard work. It's a leap of faith, where you have to believe in yourself first. Most people would rather run with the herd.

That said, there are more and more people who don't follow that pattern. As they become successful and turn to investing and supporting the next generation, I think we'll see a lot more daring ventures come to light.

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