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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

#131

Post by graycat »

lisper wrote: post #120
graycat wrote: post #82

Good news: I can agree with some of the OP. Much better news: I do believe that it's fairly obvious that there are good solutions to the most important problem mentioned in the OP. First a remark on scope: I'm talking about information technology (IT) startups based heavily on Moore's law, the Internet, other related hardware, available infrastructure software, etc., and I'm not talking about bio-medical technology w…

> We can outline a simple recipe in just three steps for success as an IT startup: You might as well put a sticker on your forehead that says, "SUCKER." Four of my investments (including a startup of my own) were absolute slam-dunks according to your process: large, well-established markets, orders of magnitude price-performance improvement over the competition, good IP protection. They all failed. Like I said: unles…

Fill us in; why did they fail?

I've seen a lot in business, and I never saw anything as challenging and perverse as your "creative ways the universe will come up with to screw you".

The worst I heard of was law suits by patent trolls.

For "secret sauce" in IT, that's in software locked up in the internals in a secure server farm. Tough to know just what is in that. Tough to get a judge to force you to present all your software to some troll without a lot of good reason.

There can be collusion in restraint of trade, but that's much harder to do now than 100 years ago.

There can be nuisance law suits, but the usual response is that those are too much work and trouble if the defendant is small and too little chance of winning if the defendant is big enough to defend themselves.

I saw a lot of how FedEx grew; some Teamsters were angry, but all they wanted was the usual, just money. Your statement of the perverse universe was not the case at FedEx.

I've seen some families do well with life style businesses. They commonly had problems, e.g., union problems, but they didn't have anything line your perverse universe claims.

Somehow I doubt that IT startups will have union problems anything like what was common in some old US businesses and industries some decades ago.

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

#132

Post by aerosmile »

arikr wrote: post #128
logicallee wrote: post #107

Earlier quoted context omitted.

the article-writer OP claimed "There is a small cadre of people who actually have what it takes to successfully build an NBT [next big thing], and experienced investors are pretty good at recognizing them." which is hilariously and demonstrably wrong. we already have one person chime in with a counterexample (the person you replied to) and that is a very common experience. No, experienced investors are not pretty goo…

Benchmark Capital has a pretty small number of bets, and a pretty high hit rate, from my perspective. They certainly seem better at picking than most. Though I'd say a lot of that is of course positive selection - the best founders self-select to Benchmark/Sequoia/A16Z, and to Greylock/Accel.

Genuinely curious if your choice to group those investment firms is intended to imply something about them - such as they generally work together/compete with each other, belong to the same tier, etc.

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

#133

Post by taneq »

cbhl wrote: post #127
empath75 wrote: post #112

Earlier quoted context omitted.

How is it that a $10k check even gets a startup to take your call? That pays like one engineer for a month, if that. (Genuinely curious)

A $5k check will give a super-early-stage "startup" (two or three college kids) with no salaries and about $1000/month burn rate ("living expenses" in the right market outside of SV) about four months of runway. You'd have to approach at a sufficiently early stage (like so: http://velocity.uwaterloo.ca/funding/velocity-fund/ ).

What share of the company would you expect for that kind of investment? If the amount would be trivial then why would you bother (little reward for so much risk), but if it's non-trivial then why would they accept your money, given how small the amount is compared to the value of their sweat equity?

If they really believe in what they're doing, they won't want to give chunks of it away so cheaply. Conversely, if they're willing to sell on those terms, wouldn't you be concerned that they aren't serious?

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

#134

Post by _jal »

eropple wrote: post #94
throwaway2048 wrote: post #12

Earlier quoted context omitted.

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.

It's not about the hardware. It's about what happens when it breaks--which it will--and when you need stuff you can't reliably build off the top of your head--which you will. The axe you're grinding is profoundly weird, and indeed a large part of my business is because the stuff we build is extremely cost-competitive with dedicated hardware. Difference being that I can open up the console and start shooting servers a…

I don't see anything "profoundly weird" about it (a bit specific, maybe, given the rest of the conversation).

You're right, of course, about naive deployments. But it just isn't that hard to build reliable systems, assuming some experience. And if you're doing anything more interesting than pretty CRUD forms (say, atypical storage or bandwidth requirements), DYI becomes much cheaper, fast.

To reiterate, yes, you need someone who knows what they're doing on the systems end. But you will anyway at some point, and making that hire earlier can pay for itself.

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

#135

Post by taneq »

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.

Isn't that basically one of two possible paths for a startup? It seems like these days, most people aim for an "exit", ie. either an IPO or acquisition by one of the big companies. You don't often see people talking as if their endgame is to keep running and growing their company indefinitely.

All of the focus seems to be on getting to the next series of funding. The survivability metric used is not income over burn rate, it's investment dollars over burn rate. The whole goal is to get as big as possible then exit.

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

#136

Post by david927 »

lisper wrote: post #101
burrows wrote: post #92

Earlier quoted context omitted.

Alternatively, this just shows that it's hard to build the NBT without funding.

The causality definitely runs both ways. If a company is perceived as an NBT, and that results in investors piling on, then the company is that much more likely to actually become an NBT. That's one of the reasons investors like to pile on: just because a prophecy is self-fulfilling doesn't make it any less accurate (just the opposite in fact).

You can't point to funding at a later stage (everyone sees that something's a hit a pile on) and work back to say that those were the only founders who could pull that off. You can't prove a negative.

You're saying, "Only a few seeds 'have what it takes'. Experienced gardeners see that and so they give those seeds water."

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

#137

Post by logicallee »

arikr wrote: post #128
logicallee wrote: post #107

Earlier quoted context omitted.

the article-writer OP claimed "There is a small cadre of people who actually have what it takes to successfully build an NBT [next big thing], and experienced investors are pretty good at recognizing them." which is hilariously and demonstrably wrong. we already have one person chime in with a counterexample (the person you replied to) and that is a very common experience. No, experienced investors are not pretty goo…

Benchmark Capital has a pretty small number of bets, and a pretty high hit rate, from my perspective. They certainly seem better at picking than most. Though I'd say a lot of that is of course positive selection - the best founders self-select to Benchmark/Sequoia/A16Z, and to Greylock/Accel.

They could be awful at recognizing them and only invest when founders show up with a box pooping out bars of gold already, and not at any point before then, since they're so awful at recognizing them.

so you can have a 100% success rate (investing only in founders that show up with a box already pooping bars of gold) while having a 0% ability to identify successful founders.

a high hit rate does not mean you can evaluate founders correctly.

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

#138

Post by soham »

empath75 wrote: post #112
birken wrote: post #38

> 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 real…

How is it that a $10k check even gets a startup to take your call? That pays like one engineer for a month, if that. (Genuinely curious)

There are usually several of these $10K ones, especially from angels the founders like and want to have a longer term relationships with. Also, most initial development is either outsourced or done by the founders.

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

#139

Post by [deleted] »

mojuba wrote: post #114
empath75 wrote: post #112

Earlier quoted context omitted.

How is it that a $10k check even gets a startup to take your call? That pays like one engineer for a month, if that. (Genuinely curious)

Considering that "cool kid" founders do engineering themselves and that they typically don't pay salary to themselves, 10k could cover their initial hosting or say hardware prototyping costs.

[deleted]

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

#140

Post by mstaoru »

empath75 wrote: post #112
birken wrote: post #38

> 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 real…

How is it that a $10k check even gets a startup to take your call? That pays like one engineer for a month, if that. (Genuinely curious)

Or it pays one skilled non-tech employee for a YEAR here in China. I'd gladly take $10k in exchange for 0.5-1% at this stage.
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