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Things I wish someone had told me before I started angel investing

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Re: Things I wish someone had told me before I started angel investing

#31

Post by LoSboccacc »

throwaway2048 wrote: post #12
seibelj wrote: post #3

My 2 cents - As an investor or potential employee when analyzing a startup, pay close attention to how scrappy and capital efficient they are. Do they have excessively nice office space? Are the founders making too much in salary? Does it seem like the executives are working like animals, or do they have the big company mindset where they take it easy? Startups are nothing like established, revenue-generating compani…

When you see startups blow millions a year on AWS spend because its "easy", when you could do the same on dedicated hardware for 1/10th or even 1/100th the price, it always shocks me. Yes, queue the comments about "Total cost of ownership", past the point where you cant afford an OPs person(s) (which you will eventually need for AWS anyways) AWS is a money-sucking black hole.

For RDB? Sure. For EC2? Depends on many factors. Storage per safe, backed up and versioned gigabyte? Can't see anyone competing there.

Re: Things I wish someone had told me before I started angel investing

#32

Post by flylib »

"If you want to make money angel investing, you really have to treat it as a full time job, not because it makes you more likely to pick the winners, but because it makes it more likely that the winners will pick you."

plenty of good entrepreneurs have great angel investing track records doing it part time (Elad Gil, David Sacks, Aaron Levie)

Re: Things I wish someone had told me before I started angel investing

#33

Post by sabalaba »

TheAceOfHearts wrote: post #23
seibelj wrote: post #3

My 2 cents - As an investor or potential employee when analyzing a startup, pay close attention to how scrappy and capital efficient they are. Do they have excessively nice office space? Are the founders making too much in salary? Does it seem like the executives are working like animals, or do they have the big company mindset where they take it easy? Startups are nothing like established, revenue-generating compani…

Surely you can succeed without working like an animal? You probably can't take it easy like with a larger established company, but it doesn't mean you have to run yourself to into the ground in order to be successful.

The game of international capitalism is one where if you aren't working both smart and hard then somebody else is going to eat your lunch and leave your company's corpse on the side of the road.

Re: Things I wish someone had told me before I started angel investing

#34

Post by jacques_chester »

polote wrote: post #5

Summary: beginners almost never invest well. And it is the same for stocks, many people think they will make money by investing in a specific company because their logic says it is good idea. Investment is a job, and to win you need experience

> Summary: beginners almost never invest well.

Investing in startups is closer to betting on horse races than stuff like the S&P 500 or buying bonds.

There're a lot of people who will sell you systems. There's a lot of form guides. In a booming economy more people take a flutter on the fillies. And every once a while a thoroughbred emerges that is simply unstoppable.

But in general, only the bookies win.

The main difference is that in horse racing you can bet on a single horse and in the course of a few races, you'll probably bet correctly and make a little scratch.

In startups you can only bet the trifecta: you'll probably never hit it in your entire life, but the payoff is much higher if you do.

Re: Things I wish someone had told me before I started angel investing

#35

Post by v12golfcart »

gt_ wrote: post #19
beambot wrote: post #14

Earlier quoted context omitted.

My immediate thought was more along the lines of companies that were built for acquisition -- either for the team or a technology (without business model).

Good point. I've only spent a limited amount of time in startup space but it seems this intention is usually considered more as a possible path rather than an intention. It's a common accusation but seems outlandish and unnecessary to me. If anyone thinks this is wrong, please say so. I'm interested.

My two cents, heavily influenced by Blank's book :)

While any sentence-long description will be an oversimplification, I think fitting everything under the sun in a "1st way" is counterproductive. If all we're talking about is how they succeed with Ron's components in mind, then there are at least a few ways.

I see the the need-being-met thing as a spectrum. The more unmet the need is, the less likely competition is a problem at that moment, so just solving it is sufficient (who knew having a car was actually a 'problem' versus purchasing transit from 'a' to 'b'?)

I've also seen that sometimes a product that focuses on a niche and does it REALLY well is better (for that niche) and NOT cheaper, but they succeed too (e.g. Veeva).

Sometimes a product that focuses on the lower end of the market is cheaper and not better (i.e. functionality) but ppl underestimate the long-tail of non-users. (maybe like Gusto vs. traditional payroll providers or RelateIQ vs. Salesforce)

On acquisitions, I've heard that acquihires usually make little-to-no money for the investors. But as beambot also mentioned, the business could be acquired for hard tech that, even if no customers/bizmodel, some other business would find value in having (maybe like Facebook>Friendfeed or Linkedin>RunHop). But to reverse engineer that from day 1 I imagine would be even harder than building a product to an unmet need haha. You don't know if the bigger co is working on it internally or if they'd scoop up somebody else. Wonder if this was Meerkat's plan, gone awry <-- speculation. ¯\_(ツ)_/¯.

Re: Things I wish someone had told me before I started angel investing

#36

Post by logicallee »

The investor names only "one way" to succeed (though alluding to a second one that this investor does not name):

>To make a product that fills a heretofore unmet market need, and to do it better, faster, and cheaper than the competition.

This is an insane sentence. Let's make it only slightly more insane to throw it into starker relief:

>To make a product that fills a heretofore unmet market need that nobody has expressed or even thought about until the company announces it, and to do it absolutely perfectly, instantly without any development time, and make it free for the consumer, while getting money from a sustainable high-margin source and having a proprietary moat that makes it impossible for any other market players to enter even a similar market. Also I'll add that the company must have such strong network effect that the utility of any competitor's product is negative (people would regret getting it even for free) unless the competitor is able to get at least 98% market share.

That's pretty insane, and if you re-read what I quoted you will see it's the same kind of insanity.

Why do people even write stuff like this.

-

EDIT:

Downvoters don't understand my objection. I'm not going to edit this comment. If you don't get it, you don't get it. This investor literally named "good, fast, cheap" (except as: better, faster, cheaper) as three of four requirements that must be met. (The fourth named requirement being "heretofore unmet".) You cannot get more insane than this except in magical la-la land where there are no trade-offs of any kind. It's absurd.

Re: Things I wish someone had told me before I started angel investing

#37

Post by jcousins »

lisper wrote: post #9
brianwawok wrote: post #2

I was hoping for a fact like "And this is how I made 42 investments in my first 3 years. All are now bust, and I am out 1.4 million dollars" Obviously not fun to tell the world how much money you lost, but it would help to add color to the people behind the VCs, that developers love to see as the frenemy (terrible people out to screw you, but man their money is nice sometimes).

Looking at what other people did and how that turned out is completely useless because the things that matter are the day-to-day details which you can only get by immersing yourself in the process full-time for a long time. So sharing that data would be worse than useless. At best it would serve to satisfy some prurient interests, and at worst it would cause someone to act on what cannot be anything other than hopele…

With hindsight would you take the same path with your career and funds? I find myself at this crossroad right now, both financially and professionally, so found your article useful - thank you.

Re: Things I wish someone had told me before I started angel investing

#38

Post by birken »

> But the cool kids don't beg. The cool kids — the ones who really know what they're doing and have the best chances of succeeding — decide who they allow to invest in their companies.

The company I was an early employee of (that ended up being a "unicorn") was not a cool kid, and we certainly were begging people to invest both at the angel stage and (especially) the series A stage. And those people got a really really good return on their money.

This isn't to say there aren't valuable signals perhaps involving "cool kids" status, but there are a lot of diamonds in the rough.

> I figured it would be more fun to be the beggee than the beggor for a change, and I was right about that.

As a much smaller time angel investor myself than the author, I'm still the beggor. You are only the beggee if you are writing 25k+ checks (and more like 50k-100k to really be the beggee). If you are writing 5k or 10k checks, you are going to be begging people to take your money, cool kids or not cool kids. So if you are looking to get into angel investing today without allocating 6-figure amounts to your hobby, I wouldn't advise doing it for ego reasons :)

Re: Things I wish someone had told me before I started angel investing

#39

Post by gizmo »

trevyn wrote: post #30
lisper wrote: post #11

Earlier quoted context omitted.

Yes. [UPDATE: before you downvote this answer you should know that I am the OP.]

Something specific, or just unethical behavior in general?

Most unethical behavior doesn't pay. Some unethical behavior is staggeringly profitable. I don't want to go into detail, because the less known these things are the better.

I think there are two main cases:

1) business models based on the exploitation of others, and

2) low margin businesses where ethical players get crushed by those willing to take unethical/illegal shortcuts.

Luckily you _can_ become successful even if you rigidly adhere to the highest ethical standards, you just have to choose your business model carefully.

Re: Things I wish someone had told me before I started angel investing

#40

Post by lisper »

trevyn wrote: post #30
lisper wrote: post #11

Earlier quoted context omitted.

Yes. [UPDATE: before you downvote this answer you should know that I am the OP.]

Something specific, or just unethical behavior in general?

Not "in general", but there is a long list of unethical behaviors that, sadly, can contribute to success. Selling snake oil. Abusing monopolies. Flat-out lying.

However, it's not good to go to the other extreme. I've seen companies fail because the CEO bent over too far backwards to be ethical and as a result let people walk all over him. One of the qualities that seems to be required in a successful founder is a willingness to be an asshole when circumstances demand it (and being able to tell what those circumstances are!)

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