51–60 of 61 posts
> Elad was elusive but the angel who was most consistently influential and supportive during my entire five-year run at Akita. We had a fifteen-minute call almost every quarter, sometimes at an unpredictable time, but always full of great guidance. How helpful can a person who spends less than 5 hours over 5 YEARS be? How much time are they even spending learning / thinking about the company?
> if a VC investor is doing their job well, they will make sure to keep investing in your company until they have a good amount of ownership. This means it is against their incentives to introduce you to other investors or do anything else that interferes with their ability to buy more shares in your company for a good price. this is only true for larger multi-stage funds who compete with each other, not for Seed or…
Yes, it's completely backwards really. In most successful companies, a VC's holdings are likely to decrease over time, not increase, as the company raises more money and existing investors are diluted. And investors are (in general) motivated to introduce you to new later stage investors because it increases the value of their holdings, even when diluted.
The AI boom is in full swing. You've got product market fit, lots of paying users, everything is gucci. So when they issue 40 million more shares to new investors, there's 50 million shares out there, you have 2/50 million, but, hey, lookit! The new valuation is $100 million. You now have $4 million of a $100 million company. Not bad! It turns out that when things are good, things are quite good!
Unfortunate, it's discovered that your product is actually the torment nexus. Users flee, the bubble pops, the entire sector goes bust, your remaining users sue you, you run out of money. Your board fires you and the new CEO takes on a new round of investors. They issue 950 million shares, at a $one million valuation.
Fuck.
For all your hard work, your blood sweat and tears. Failed personal relationships. Your 2 million shares are now 2/1000 of $1 million, or $2,000. That's right, two thousand dollars only. Do not past go, Do not collect money to FIRE, hope you can get a job running Door Dash, except that got automated away so you can't do that.
Edit: Before commenters reply, That's not possible! I have preferential rights written into my contract. They won't and can't do that! And maybe you're right. Maybe you've got a totally iron clad contract written up by a lawyer who experienced the com bust and there are provisions against the exact scenario written above isn't possible. Except you were collecting a founder's salary of $50,000 /year and don't have $200k in savings to afford a high-powered corporate lawyer to sue and get back what's left of your company. Say you do regain control, it's got a $1 million valuation for a reason. Maybe it'll be like Pebble and you win, and you can run it as a life-style business because there are enough loyal customers who like your brand of torment nexus, and you eke out $10,000 of revenue (gross, not net) per month. Not bad per se, but still not the NYSE bell ringing IPO you were hoping for. Plus you're in debt to your lawyers and it's going to take forever to pay them off.
Stay away from the Angel investor game unless: 1. You're extremely rich. 2. You see it as a learning opportunity or you enjoy helping, without thought of financial reward. What will happen, at the slightest whiff of success, is that professional investors and VC will swoop in at a moments notice, and dilute you to pieces. In the end, you will have paid for the company while it was small, to get it started, and then t…
Angel investing is a fools game, unless you enjoy it for its own sake.
Earlier quoted context omitted.
That’s what angel investing is. Instead with this strategy you get a whopping 5% of profits and Andreessen gets 95% for your efforts / network.
What? The scout doesn’t risk capital, of course they get only limited return.
Why not just be an actual angel? Presumably the author has the capital for it now. And if they’re confident enough to risk someone else’s capital why not risk their own?
Earlier quoted context omitted.
How does this happen with the typical SAFE?
Future investors can negotiate liquidation preference and participation terms that will give them a bigger part of the pot than their % ownership during a “liquidation event” I.e. basically any outcome other than an IPO will trigger those rights
Seems like you get just as diluted by future rounds as the professional VCs that will make up the next round, if you get the same terms?
FWIW I don't think angel investments make any financial sense but see them as a minor chance of upside and a significant way to help and connect with people.
Unrelated to article, but I had a call with Jean when she was running Akita pre-acquisition, and she was so thorough and thoughtful. We didn't end up buying Akita for various reasons, but I remember walking away thinking, this person can not fail.
Earlier quoted context omitted.
Yes, it's completely backwards really. In most successful companies, a VC's holdings are likely to decrease over time, not increase, as the company raises more money and existing investors are diluted. And investors are (in general) motivated to introduce you to new later stage investors because it increases the value of their holdings, even when diluted.
That's because most of us can't actively remember back to the dot com bust and have only been around for the boom times since. Success is great! Say you're an early investor, with 2 million shares out of 10 million issued, or 20% of the company at a $10 million valuation, or $2 million dollars. Pretty good! $2 million is $2 million. The AI boom is in full swing. You've got product market fit, lots of paying users, ev…
And ultimately, if your product is the torment nexus, nobody is going to make money regardless of valuation.
FWIW, I remember the dot com bust very well.
Earlier quoted context omitted.
That's because most of us can't actively remember back to the dot com bust and have only been around for the boom times since. Success is great! Say you're an early investor, with 2 million shares out of 10 million issued, or 20% of the company at a $10 million valuation, or $2 million dollars. Pretty good! $2 million is $2 million. The AI boom is in full swing. You've got product market fit, lots of paying users, ev…
No successful company is issuing 40 million shares to new investors from a base of 10 million. Why would investors or founders sign off on that level of dilution? And ultimately, if your product is the torment nexus, nobody is going to make money regardless of valuation. FWIW, I remember the dot com bust very well.
That’s fair. It was just to get to the third act. If you can think of a way to do part two that’s equally succinct that’s more plausible, I’d love to hear your rendition.