Angel Investment Journal – Angel Investing and Entrepreneur Blog



Squirrel Nut Zippers.com

Posted in General,Web by angel on the February 27th, 2007

Chris at the NameInspector, has a good post on Web 2.0 names. It covers 10 categories that encompass nearly all Web 2.0 companies. He has some other interesting posts which you may want to check out including one on Guy Kawasaki’s blog, How to Change the World.

I am not a brand or naming guru, but when considering a name, here are a few things I take into consideration. Can you get a brandable name which is also descriptive of the company? “Angel Investment Journal” is descriptive, but is not a name I would consider to be a good brandable name, even though any name can be brandable. Companies that are focusing on building their brand, however generally try to get a name that is not too long and easy to understand, even if it is not descriptive. Amazon and Monster are the two prime examples of this and I would consider them to be great names, as would most people. The wildcard is the domain. Is it available?

One other thing comes into play when talking about a domain is that you can gain credibility by having a great, descriptive name, even if it is generic. It may be considered online branding, because you can get credibility just by having a certain domain. We found this out when we started a site that would help people find vacation properties at lakes. We were able to purchase the domain lakerentals.com for a reasonable price. Even though it may not be considered a brandable name in the offline world because it is so generic, it works very well online. It is descriptive and people would consider it more authoritative than a site like yourrentalplace.com or vacationrentals411.com (even though they are both fine sites).

A final thought on the name for your Web 2.0 company is that a descriptive domain can also help in terms of marketing, specifically search engine marketing. For example, when people link to LakeRentals.com they generally include the name of our company/domain, which is “Lake Rentals”. Those links will also help us rank for searches including “lake rentals” in them. So yourrentalplace.com and vacationrentals411.com may have an advantage over a brandable name such as going2travel.com in that respect.

Of course, you can always go with the route of naming your company like bands do. Just combine a bunch of random words such as Squirrel Nut Zippers.

Using Stock as a Thank You Note

Posted in Startups by angel on the February 25th, 2007

Rick, at The Post Money Value, writes about a start-up that recently went bust as a result of not being able to get funding. The company actually had a VC ready to invest and needed to get some paperwork signed. One piece of paperwork was the shareholders agreement requiring all of the shareholders to sign.  The problem? The founders were generous in giving out shares of the company in the early stages:

A little code help? Here, have some shares.  Dropping a pizza by? Here, have some shares.  Some cash? Bless you, here, have some shares.   You get the point. All told, 42 shareholders which owned 22% of the company.  42 people spread out over three countries.  42 signatures required.  And, as fate would have it 21 missing shareholders.  Moved, not returning phone calls, no emails, etc.

Giving out shares is not necessarily bad, but you should be sure you do it only in exchange for things that are truly valuable to you. In addition, Rick discusses setting up a voting trust:

Draw up a voting trust for everybody who has less than a certain percentage of share ownership. You can use less than 10% or whatever number but spell it out and ensure the language is clear and reviewed by a qualified lawyer.

Early in your start-up keep in mind that you may want to get additional funding, even if it is not in your immediate plans. New investors do not want to have to deal with anything too complicated. An investment in any company is inherently risky and the more complicated things are, like having 42 investors that need to sign off on any deal, the riskier the investment becomes.

Valuation Breakdown of a Start-up

Posted in Funding/Investing,Startups by angel on the February 23rd, 2007

Entrepreneurs looking to get funding for their start-up company often value their company much differently than investors. Entrepreneurs use the concept for the business (the product or service) as the driving factor behind the valuation they seek and feel they deserve. In fact, they usually think the idea is so brilliant, that they attempt to keep it top-secret and prefer not to disclose many ideas. They even like to require that investors sign an NDA (see my previous post related to investors and NDA’s).

Unlike Entrepreneurs, investors tend to place much more value on the management team. Bill Payne’s book, The Definitive Guide to Raising Money from Angels, shows the general breakdown for what he considers when valuing a start-up:

Management Team – 30%
Size of Opportunity – 25%
Product or Service – 10%
Sales Channel – 10%
Stage of Business – 10%
Other Factors – 15%

Even though this breakdown makes the percent of the valuation attributed to the product or service appear to be very minimal (10%), Bill mentions that there are other factors that are directly attributed to the product or service, such as size of the opportunity. But it is obvious that the management team of the start-up is very important. Some of the most successful companies are not a result of the initial product idea. For example, you probably know that Flickr started as an online multiplayer game. The team behind the company adapted and made it into something huge.
So just because a company has a brilliant idea or a fantastic technology, it does not support a huge valuation.

By the way, if you have not checked out Bill’s book, I would highly recommend investing the money to purchase it.

Ride the Tide and DIFN

Posted in General by angel on the February 21st, 2007

There is a tide in the affairs of men
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat;
And we must take the current when it serves,
Or lose the ventures before us.

– William Shakespeare, Julias Ceasar

Quadszilla, a well known blogger in the SEO industry, made an interesting post a few weeks ago that included that quote from Shakespeare.  The post was about getting things done or DIFN, as Quadszilla puts it. Bill Payne, an angel investment guru, says that execution is one of the biggest challenges facing Entrepreneurs (see his Inc TV interview where he talks about it).

I have said in other posts, there are plenty of ways to make money and plenty of ideas out there. But many entrepreneurs have failed with even the greatest ideas. The reason for the failure generally comes from lack of execution. Either they do not know how to execute properly or they just do not take the action to get something done. The latter is too often the issue and that one is inexcusable.
I find myself getting into ruts where I will work 9 hours in a day, but I don’t get much done. It is not as a result of screwing off, which many people get in the habit of doing at work, but it is a result of not taking the appropriate action to get something checked off your To-Do list. I get caught up with research and planning as well as spending time putting out fires and other things related to running a business. Those things are all necessary, but they are not what makes your company money or helps the company grow. You need to figure out what needs to be done and do it.

DIFN is a acronym that has been getting dropped around the office quite a bit in emails IM’s and has helped us focus on doing the important things that need to get done.

New Advertising Format Follow Up

Posted in Marketing by angel on the February 21st, 2007

I posted previously regarding the fact that there are always new ideas out there. I used advertising as an example and pointed out how companies are now advertising on clothes hangers from dry cleaners. I

I just saw a bit about another form of new advertising that was pretty interesting.  It involves putting advertisements on egg-shellshere are going ideas out there. In fact, there are so many ideas out there, the tricky part is figuring out which ones to go after.

YouTube Payday and Sequoia

Posted in General by angel on the February 8th, 2007

You have probably seen the figures today about the payday some people received as a result of Google’s acquisitions of YouTube. One of the investors was Sequoia Capital.

Sequoia has invested in a lot of hugely successful companies including Google, Yahoo, PayPal, eHarmony, Zappos, LinkedIn, and YouTube. Obviously they have made many, many other investments that did not work out as well. But the question needs to be asked – Are they just extremely good at picking companies or do they add value to the companies to help them be that successful?

Companies seeking investments should try to get some “smart money”, meaning investors that will be able to provide guidance and advice. That is something that can be expected from angel investors as well as VC money. It is very likely that Sequoia does add a great deal of value in companies which they invest. Even though the YouTube founders had some great experience before starting the company, without some “Smart Money” it is unlikely they would have achieved the level of success that would allow them to buy an NBA team.

On the other hand, Sequoia has another advantage, they are a big name and big player that has a proven track record. So it is much more likely they have a larger selection of companies coming to them. A company that gets money from Sequoia instantly gains more credibility than if they receive funds from a less well known VC. So they are more likely to have an interest in working with Sequoia. And since some VC’s have claimed it is getting harder to find good deals because there is so much money in the market investing in private companies, picking from a larger pool of potential companies makes it easier to pick a winner.

So it is likely a combination of expertise and having a great brand that has helped Sequoia achieve so much success.

Creative Fundraising

Posted in Funding/Investing by angel on the February 7th, 2007

A team that is attempting to compete for the Lunar Lander X-Prize is trying to raise money by auctioning a piece of the action. The auction on eBay says that you can bid on the chance to not only sponsor the lander which they build, but you get to keep one of two crafts which will be used in the contest. In addition, you get 50% of the prize money, meaning you could win up to $675k. Via Engadget.

This is a creative and potentially successful way to help raise money for their venture. Not only does it help raise funds, but the method of raising the money can generate great publicity.

The World is Running out of Ideas

Posted in Web by angel on the February 5th, 2007

When I was in college, I read a story about a guy that patented the concept of advertising on turnstiles. I thought that was awesome and since I wanted to start my own business, I tried to think of new places where you could advertise. I figured I could form a business around a entirely new form of advertising.

Everywhere I went, I made notice of where my eyes looked to see if that was a potential advertising space. But I had trouble finding places that did not already have advertisements. But it was not that we had run out of places to advertise, it is because I was not thinking about places to advertise in the right way. Instead of looking harder, it often takes a new way of thinking to find new ideas. Many new brilliant advertising models have arrived (not to mention the entire internet). But I heard about one today and thought it was awesome. It involved advertising on clothes hangers. It not only reaches a huge audience, but it has great visibility and you can target specific demos. And it is simple. Post-it note simple.

Recently I have heard some people say companies wanting to get in on Web 2.0 may be late in the game. They say the great ideas are already out there. Now it is just a matter of improving and innovating on them. That is ridiculous. There are always new and even totally revolutionary ideas out there. And even if there are a ton of great ideas out there, we always have Web 3.0.

“Everything that can be invented has been invented,” — Charles H. Duell, Commissioner, US Office of Patents, 1899.

Blogs vs Big Media

Posted in Web by angel on the February 5th, 2007

I have been involved in the online marketing world since 1999 and that is the industry which I follow more than any other.  Today, I saw a post from John Battelle talking about the release of Yahoo’s new Search Marketing product – Panama. He said it was covered more in depth at other sources. He included links to the New York Times, Time magazine and two industry blogs, one of which is run by one person. Do you know which ones I clicked on?  I visited two of the links, but neither had the word “Time” in it.

The reason is because I knew the other two sources would appeal to a general audience and the article details and writing would reflect this. Whereas the two industry blogs would get more detailed and cover things which would interest an online marketer. The same can be said for any industry. That doesn’t mean I don’t refer to the NY Times or Time magazine. In fact, I subscribe to RSS feeds from both, but that is specifically for general information on topics and news. If I want specific, detailed information from an expert, I go to the blogs.

MBA’s and Sunscreen

Posted in Resources,Web by angel on the February 2nd, 2007

I am slowly adding more great investor and entrepreneur blogs to my RSS reader. Speaking of which, I am amazed at how many people do not use RSS readers. Some people continue to manually go to every blog they want to read. So if you don’t use an RSS reader, get one now.

I recently started reading Charlie’s blog, This is going to be big. In the past few weeks, he has a couple of great posts. He posted this one today:

We’re posting a job here that includes the following line: “An MBA is not only not required, it is frowned upon.”

I thought that was pretty funny. I am sure an MBA is valuable, but it needs to include some great experience while getting it.

I used to scalp tickets with a guy in college that was getting his MBA. Yet, I know he learned 10x more scalping tickets than he did throughout his MBA program. Hopefully you will have some good teachers that will learn you a thing or two and hopefully you get some real experiences.

I don’t know if I would say I would discourage getting an MBA nor that I would prefer a non-MBA vs someone with an MBA, but the actual value of one, outside of the corporate world, is little. If you want to be an entrepreneur, I would recommend starting a company or two, instead of “investing” $30,000+ in an MBA. You have $30,000 to piss away, so don’t worry about a few failures.  Anyway, failures are awesome. I definitely learned more from my failures than I have from any particular successful venture, project, or idea. And if you get through the failures and still want a job, but don’t have an MBA to your credit, come talk to Charlie or me.

In another post, a few weeks ago, he include words to a song he calls The Start Up Song or “Sunscreen 2.0”. Hopefully you remember the Baz Luhrmann song with a similar name. His version was awesome and I cracked up while reading the entire thing. Since I was laughing, my wife wanted to see what I was reading, she got through a few lines, rolled her eyes and shook her head. OK, maybe you have to be a little dorky to enjoy it as much as I did, but there is a lot of good stuff there and I am sure any entrepreneur that is working in the internet space will love it.