Angel investor: Want my money? Here's my checklist • Hacker News Board

Re: Angel investor: Want my money? Here's my checklist

#11

Post by nostrademons » Mon, Oct 06, 2008, 2:12 PM UTC

mpfefferle wrote: post #5

Does this mean that the enterprise is back in style again?

Enterprise (or paid small-business services) always comes back in style in recessions. Look at 2002: the two big IPOs were PayPal and LoudCloud/Opsware. It's because ad spending - and particularly, ad spending in unproven mediums - tends to fall dramatically when money is tight. It's the first thing to go, well before productivity enhancements.

Of course, this means that for entrepreneurs starting companies now, consumer may be the way to go. It'll take a couple years to ramp up, and by then, the field has been thinned because investors only want to invest in enterprise startups. So there's more chance of the surviving companies getting the consumer attention they need to survive.

Sucks for people (like me) who started consumer web startups in 2007, though.

Re: Angel investor: Want my money? Here's my checklist

#12

Post by jd » Mon, Oct 06, 2008, 2:27 PM UTC

dhuck wrote: post #3

cbrinker wrote: post #2

Not sure if that's exactly for the YC crowd. While everyone would love to have a multi-million dollar business, the reality is that there are a lot of smaller good ideas that don't need $1mil+ funding. I think YC takes a better approach in the way of financing. However, I think YC forces a group to be extremely frugal and thoughtful in their fiscal decissions. I think receiving large funding may lead to improper inve…

I bristled at this: "A business that needs no more than $1-$2 million in financing to become a $25-$50 million (exit value) company, simply by executing the core business plan." That is an insane requirement for return. I'm not sure how that's even possible - or if any company has even managed to do that. Someone prove me wrong?

$25 million is a lot of money, but so is $1 million in funding. Most web 2.0 companies need no more than $100k or so to get to profitability, and can easily exit at $2.5 million. Same ratio, but it sounds a lot more achievable. So the only real issue is scale.

Bear in he's talking about enterprise software (i.e. support contracts, custom software, consultants). When you start doing custom work and get paid by the hour your revenue goes through the roof. So you can get to a $25 million valuation pretty easily, if you're willing to be a software/consultancy hybrid.

Re: Angel investor: Want my money? Here's my checklist

#13

Post by ph0rque » Mon, Oct 06, 2008, 2:43 PM UTC

nostrademons wrote: post #11

mpfefferle wrote: post #5

Does this mean that the enterprise is back in style again?

Enterprise (or paid small-business services) always comes back in style in recessions. Look at 2002: the two big IPOs were PayPal and LoudCloud/Opsware. It's because ad spending - and particularly, ad spending in unproven mediums - tends to fall dramatically when money is tight. It's the first thing to go, well before productivity enhancements. Of course, this means that for entrepreneurs starting companies now , con…

> Sucks for people (like me) who started consumer web startups in 2007, though.

Do you have anything you're working on now, Jonathan?

Re: Angel investor: Want my money? Here's my checklist

#14

Post by fallentimes » Mon, Oct 06, 2008, 2:45 PM UTC

dhuck wrote: post #3

cbrinker wrote: post #2

Not sure if that's exactly for the YC crowd. While everyone would love to have a multi-million dollar business, the reality is that there are a lot of smaller good ideas that don't need $1mil+ funding. I think YC takes a better approach in the way of financing. However, I think YC forces a group to be extremely frugal and thoughtful in their fiscal decissions. I think receiving large funding may lead to improper inve…

I bristled at this: "A business that needs no more than $1-$2 million in financing to become a $25-$50 million (exit value) company, simply by executing the core business plan." That is an insane requirement for return. I'm not sure how that's even possible - or if any company has even managed to do that. Someone prove me wrong?

We're trying.

Re: Angel investor: Want my money? Here's my checklist

#15

Post by shafqat » Mon, Oct 06, 2008, 2:48 PM UTC

infoarbitrage wrote: post #6

dhuck, let me clarify. what i am looking for is a clear path to that level of an exit without a company needing to spend more than $1-$2 million. this means getting customer traction, market validation, and revenue momentum. However, I acknowledge that some businesses require a B round to get there. I don't view this as a problem. What i do view as a problem is needing $5-$10 million before you can say "this is a via…

Everything you said makes sense. In fact, I think your requirements should apply at all times, not just during tough market conditions. There's really no excuse for startups not to be lean, agile and cheap. Maximizing output from scarce resources is what entrepreneurship is all about.

So can we get in touch with you re: funding? ;-)

Re: Angel investor: Want my money? Here's my checklist

#16

Post by joshu » Mon, Oct 06, 2008, 2:49 PM UTC

The problem with this list, in my mind, is that it's a checklist of descriptions of a successful company.

If the signs are this obvious then the valuation would already be high enough to be unattractive to an angel.

I've done some (roughly 8 deals) angel investing myself, and prefer to look for something market-shaped; matching buyers to sellers, or similar; a team I would seriously consider working for; and a working prototype for me to look at.

The first is because that's the kind of thing I like to think about and because I think those tend to be scaleable businesses, the second is because as an angel I want to actually spend time for them, and the third because I think most powerpoint presentations are crap.

There are some additional parameters around investing (like how much the valuation is) but I'd much rather help an entrepreneur who is going to shoot for the moon.

Re: Angel investor: Want my money? Here's my checklist

#17

Post by wensing » Mon, Oct 06, 2008, 2:50 PM UTC

A business that has an inherent call option, that could boost its base-line exit value by at least 10x

I will go ahead and expose my novice status and ask: what is an inherent call option?

Re: Angel investor: Want my money? Here's my checklist

#18

Post by joshu » Mon, Oct 06, 2008, 2:51 PM UTC

jd wrote: post #12

dhuck wrote: post #3

Earlier quoted context omitted.

I bristled at this: "A business that needs no more than $1-$2 million in financing to become a $25-$50 million (exit value) company, simply by executing the core business plan." That is an insane requirement for return. I'm not sure how that's even possible - or if any company has even managed to do that. Someone prove me wrong?

$25 million is a lot of money, but so is $1 million in funding. Most web 2.0 companies need no more than $100k or so to get to profitability, and can easily exit at $2.5 million. Same ratio, but it sounds a lot more achievable. So the only real issue is scale. Bear in he's talking about enterprise software (i.e. support contracts, custom software, consultants). When you start doing custom work and get paid by the hou…

This is not the sort of situation I would invest in. If you are billing by the hour, it is unlikely to be a leveraged business, and the investment return is unlikely to be as comfortable. Additionally, due to the smaller size, there would have to be many, many investments; it's hard to find many of very good quality.

Re: Angel investor: Want my money? Here's my checklist

#19

Post by pedalpete » Mon, Oct 06, 2008, 2:52 PM UTC

niels wrote: post #7

I find it interesting that he is interested in enterprise ROI types of technologies. Something I think is undervalued here at Hacker News.

I don't know that enterprise technologies are undervalued at HN, as much as they often cater to a smaller market. My side project (to my main start-up which is my main side project) is enterprise focused, and I'm sure I'm not the only one. But enterprise is rarely as interesting as consumer. Doesn't mean not useful or interesting, just not AS interesting.

Re: Angel investor: Want my money? Here's my checklist

#20

Post by wensing » Mon, Oct 06, 2008, 2:57 PM UTC

sd wrote: post #8

cbrinker wrote: post #2

Not sure if that's exactly for the YC crowd. While everyone would love to have a multi-million dollar business, the reality is that there are a lot of smaller good ideas that don't need $1mil+ funding. I think YC takes a better approach in the way of financing. However, I think YC forces a group to be extremely frugal and thoughtful in their fiscal decissions. I think receiving large funding may lead to improper inve…

It seems like the core message (apart from getting to profitability quickly) is pretty important to YC startups keen on getting acquired - "in a poor economy, companies really need to find better, cheaper, and more efficient ways of operating." In other words, stop making widgets that turn your Facebook friends into zombies and start creating ones that make it easier for people to sell or make things.

In other words, stop making widgets that turn your Facebook friends into zombies and start creating ones that make it easier for people to sell or make things.

Or make it easier to be informed (saves time).