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The New Funding Landscape

paulgraham.com

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Re: The New Funding Landscape

#21

Post by wwortiz »

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…

It certainly isn't the amount of money they're investing

It actually partly is, super angels (as discussed in the essay) are investing more money than angels, but there is another distinction (mentioned in the essay) they are investing other people's money.

Somewhat paraphrased summary from the essay on the definition of super angels: super angels are VC's who invest less but act more like angels.

Re: The New Funding Landscape

#22

Post by runT1ME »

mloc wrote: post #20
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…

Everyone who made a few hundred thousand $ and their sisters, turned into angel investors in the valley in the recent years. The reason in my opinion is the prestige that derives from being a startup investor. I know at least 5-6 people who do this with one semi-successful startup as their experience. Naturally, this means more supply which results to higher valuations and more startups being funded. So, the bar gets…

I think a question to ask though, is will these type of pastime angels continue to invest even if the returns aren't spectacular? Are they doing it for fun and some cash, or are they doing it because they think it's the best way to make money?

Re: The New Funding Landscape

#23

Post by jonathanjaeger »

runT1ME wrote: post #22
mloc wrote: post #20

Earlier quoted context omitted.

Everyone who made a few hundred thousand $ and their sisters, turned into angel investors in the valley in the recent years. The reason in my opinion is the prestige that derives from being a startup investor. I know at least 5-6 people who do this with one semi-successful startup as their experience. Naturally, this means more supply which results to higher valuations and more startups being funded. So, the bar gets…

I think a question to ask though, is will these type of pastime angels continue to invest even if the returns aren't spectacular? Are they doing it for fun and some cash, or are they doing it because they think it's the best way to make money?

I think it's a combination of both. Many angels are rich already, but they want to contribute to the ecosystem. They can dabble in many different startups, so it never gets boring and they don't have to sink all their time in with one idea. If they come out making a solid buck (either on par with the stock market or better), then that's all gravy. If they make less than they would have in the stock market, then it comes down to whether they did it for the fun ride. When/if there is a bubble burst, we'll see who gets separated out as the "real" angels.

On a side note, here's a good follow-up by Chris Dixon on Graham's post http://post.ly/15hcU.

Re: The New Funding Landscape

#24

Post by jpwagner »

ecuzzillo wrote: post #3

s/hoplessly/hopelessly/ Edit: If someone who downmodded feels like explaining, please do, because I thought it was a nice thing to do to correct typos in someone's essay.

correcting typos should be reserved for when it causes confusion. in this case, no one thought he was describing a rabbit with no legs.

Re: The New Funding Landscape

#25

Post by bkudria »

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…

I asked PG to clarify his thoughts on why this isn't a bubble - he was referring to the SV landscape in general. His definition of a bubble, IIRC: when people overpay with the expectation that others will overpay even more. He doesn't think that's happening here.

(PG, feel free to correct me if I misinterpreted your answer)

Re: The New Funding Landscape

#26

Post by brk »

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 year, you'd get some investors who would be happy to just make back the $20M they lost in another market, and not keep doubling down.

So, I think the model is sustainable for longer than you might first guess.

Re: The New Funding Landscape

#27

Post by cli »

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…

I think you should read this: http://www.paulgraham.com/disagree.html

Re: The New Funding Landscape

#28

Post by gfodor »

There's a startup idea in here. It sounds like super angels can be given a pitch and make a decision quickly. So, why not provide a website that can coordinate these pitches. Hell, maybe some angels would be willing to invest some small amount of money by just doing a live pitch over the web. Whatever the minimal barrier to closing a deal is, a startup should come along and automate to make it as fast and painless as possible. One could imagine a Groupon like model being applied here as well, with one super angel really going all out and meeting with the founders multiple times, and the others hopping on board with a click of their mouse after watching a less impactful pitch like a pre-recorded one or just reading the feedback from the "head" super angel.

Re: The New Funding Landscape

#29

Post by mloc »

runT1ME wrote: post #22
mloc wrote: post #20

Earlier quoted context omitted.

Everyone who made a few hundred thousand $ and their sisters, turned into angel investors in the valley in the recent years. The reason in my opinion is the prestige that derives from being a startup investor. I know at least 5-6 people who do this with one semi-successful startup as their experience. Naturally, this means more supply which results to higher valuations and more startups being funded. So, the bar gets…

I think a question to ask though, is will these type of pastime angels continue to invest even if the returns aren't spectacular? Are they doing it for fun and some cash, or are they doing it because they think it's the best way to make money?

I don't think this noise creates a big problem, I just think it's not going to last for long. Also, IMO "traditional" angel investors will continue investing because they probably enjoy doing it.

Re: The New Funding Landscape

#30

Post by rms »

bkudria wrote: post #25
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…

I asked PG to clarify his thoughts on why this isn't a bubble - he was referring to the SV landscape in general. His definition of a bubble, IIRC: when people overpay with the expectation that others will overpay even more . He doesn't think that's happening here. (PG, feel free to correct me if I misinterpreted your answer)

Yeah... in my opinion there is clearly more money floating around startup investment than is strictly rational but it's a long way from a systemic bubble.
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