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The New Funding Landscape

paulgraham.com

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Re: The New Funding Landscape

#51

Post by drusenko »

notAdvertising wrote: post #12

Ok. Negative points for my last comment justified. Here is my dilemma: Our company has created an online application we call "Supertrainer." The reason we named it "Supertrainer" is because we are providing personal trainers with tools that allow them to separate themselves from all other personal trainers out there. There is a tangible and measurable difference between the average personal trainer and the "Supertrai…

The reason you're being downvoted isn't that you're "biting the hand that feeds", but rather that you're being both pedantic and inaccurate.

Pedantic because your point on the name certainly didn't deserve the belaboring you gave it.

And inaccurate because, well, you're just wrong. The people being called "Super Angels" today are the same people that invested more money than your average angel, and in more startups than your average angel. For example: Ron Conway, Mike Maples, Aydin, Steve Anderson, Dave McClure, etc.

They were all pretty much considered to be in a different class before, but ever since some started investing others' money, they've now earned a new name.

Re: The New Funding Landscape

#52

Post by rythie »

philwelch wrote: post #44
rythie wrote: post #19

He doesn't mention crowdfunding at all as model, though it's clearly generating enough funding for several businesses.

Really? Which businesses? And how do you avoid the obvious legal liability issues involved in crowdfunding?

The Gilf is a good example of something that needed investment to get started: http://www.kickstarter.com/projects/danprovost/glif-iphone-4...

My understanding is that the people funding these sites do not own any part of the business. Clearly for that reason it's not interesting to investors but can be to business owners.

Re: The New Funding Landscape

#53

Post by iamelgringo »

mrshoe wrote: post #9

Angel investing is kind of a fad right now. Everyone's doing it. My gut instinct is that it's at least a mini bubble. In 3-5 years a lot of angels are going to be unhappy about negative returns, the stock market is going to be looking stronger, and they'll shift their money back to stocks and bonds. Surely this huge influx of angel investors has contributed to the much higher valuations early stage startups have been…

Angel investing is kind of a fad right now. Everyone's doing it. My gut instinct is that it's at least a mini bubble

I disagree. I believe it's a long term trend that isn't going to change any time soon. Around 3-4% of the population in the SF Bay area are millionaires. The majority of those have probably created their wealth in Tech, so I think it's completely reasonable that the number of angel investors in the area could increase to the thousands. Right now, the Angel List only has around 450 angels listed, but that number seems to be growing quickly.

Not only that, but when Facebook, Yelp, Twitter, LinkedIN decide to start IPO'ing, there's going to be a huge motivation for investors to try and find the next Facebook/Yelp/Google/etc...

I'm sure the funding pipeline will slow down in a couple of years, but I also think that we're seeing a fundamental change in how Silicon Valley works.

Re: The New Funding Landscape

#54

Post by metageek »

brk wrote: post #26
csallen wrote: post #5

> So if some of the super-angels were looking for companies that could get acquired quickly, that would explain why they'd care about valuations. But why would they be looking for those? Because depending on the meaning of "quickly," it could actually be very profitable. A company that gets acquired for 30 million is a failure to a VC, but it could be a 10x return for an angel, and moreover, a quick 10x return. Rate…

The scenarios are greatly simplified here, so it's hard make direct comparisons. But, on the surface it sounds like you're assuming the investment size stays relatively constant. You might invest $10M in a web-type startup this year, and $1B in a radical new solar panel manufacturing facility 2 years later that promises to halve the price of solar-watts, etc. It also assumes that everyone wants to reinvest 100% every…

Excuse me, I went to upvote this, missed, and downvoted it instead. Sorry.

Re: The New Funding Landscape

#55

Post by csallen »

pg wrote: post #45
csallen wrote: post #5

> So if some of the super-angels were looking for companies that could get acquired quickly, that would explain why they'd care about valuations. But why would they be looking for those? Because depending on the meaning of "quickly," it could actually be very profitable. A company that gets acquired for 30 million is a failure to a VC, but it could be a 10x return for an angel, and moreover, a quick 10x return. Rate…

You wouldn't reinvest all your returns. You'd distribute most of them to your limited partners (the people who supplied the money).

Right. I guess what I wanted to point out is that you may be overestimating the super angels' strategy and the returns VCs would have to get to compete ("10^6—one million x"). If the super angels can't reinvest all their returns, they won't actually make anywhere near that much. Even if they could reinvest it all, their returns would diminish each year.

So the question is, how much will they make with their current strategy? I don't know enough about the relevant numbers to do anything more than speculate. But if I had to, I'd bet the super angels are better off focusing on finding big winners than they are worrying about valuations and quick returns.

Re: The New Funding Landscape

#56

Post by csallen »

greendestiny wrote: post #32
csallen wrote: post #5

> So if some of the super-angels were looking for companies that could get acquired quickly, that would explain why they'd care about valuations. But why would they be looking for those? Because depending on the meaning of "quickly," it could actually be very profitable. A company that gets acquired for 30 million is a failure to a VC, but it could be a 10x return for an angel, and moreover, a quick 10x return. Rate…

That's assuming every single one of your investments gets 10x. Any kind of very naive exponential assumptions are going to look silly quite quickly. Besides other people would be willing to take on those investments even if they are too small for these incredibly lucky super angels.

Well, it's assuming your investments average 10x yearly. Of course some will tank and some will get more than 10x.

But my point is that, over 6 years, you won't be able to get 10^6, or really anywhere near that, because: (1) That would require re-investing all your returns, and as PG mentioned most of them have to go back to your limited partners. (2) Even if you could re-invest all your returns, it would be impossible to maintain an average of 10x yearly with that much money.

So the super angels can't really expect to find phenomenal success by just looking for quick exits. They need big exits too. Which means caring more about finding winners and less about valuations.

Re: The New Funding Landscape

#57

Post by notAdvertising »

drusenko wrote: post #51
notAdvertising wrote: post #12

Ok. Negative points for my last comment justified. Here is my dilemma: Our company has created an online application we call "Supertrainer." The reason we named it "Supertrainer" is because we are providing personal trainers with tools that allow them to separate themselves from all other personal trainers out there. There is a tangible and measurable difference between the average personal trainer and the "Supertrai…

The reason you're being downvoted isn't that you're "biting the hand that feeds", but rather that you're being both pedantic and inaccurate. Pedantic because your point on the name certainly didn't deserve the belaboring you gave it. And inaccurate because, well, you're just wrong. The people being called "Super Angels" today are the same people that invested more money than your average angel, and in more startups t…

Touché
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