Angel Investment Journal – Angel Investing and Entrepreneur Blog

Negative aspects to a high valuation

Posted in Entrepreneur Advice,Funding/Investing by angel on the April 30th, 2007

Paul Graham has a great piece called The Hacker’s Guide to Investors. He makes a lot of great points, but a very interesting point is this:

“A high valuation can be a bad thing. If you take funding at a premoney valuation of $10 million, you won’t be selling the company for 20. You’ll have to sell for over 50 for the VCs to get even a 5x return, which is low to them. More likely they’ll want you to hold out for 100. But needing to get a high price decreases the chance of getting bought at all; many companies can buy you for $10 million, but only a handful for 100. And since a startup is like a pass/fail course for the founders, what you want to optimize is your chance of a good outcome, not the percentage of the company you keep.

In addition, a valuation that may be too high may make it difficult if you need additional funding. Mainly because the initial investors want to see that their investment has increased, so they will expect the next round to be higher. However, if you increase the valuation too much, it makes the investment less attractive to the potential investors in the next round.

What did you learn today?

Posted in General by angel on the April 25th, 2007

I student taught (in the second grade) and one day I had the class lined up and ready to leave, but we had about 2 minutes before the bell rang to let them out to the bus. As you probably know, 26 second graders standing in line is an eternity. So I asked them a simple question. “What are 5 things you learned today?”

Every hand shot up and we got to the fifth thing right before the bell rang. The interesting thing was that we had a quiz a few days later. One of the questions on the quiz was something one of the kids brought up when talking about the 5 things they learned that day (it was a coincidence, I didn’t plan it). EVERY kid got that question right. I like to think it was because I was such an awesome teacher, but in reality, it was more likely a result of the kids reflecting a little on their day and about what they learned.

As many people will tell you, experiencing something is probably the best way to learn something (and that is usually done in the form of a mistake). But one problem some people have is that they don’t learn from their experiences or mistakes. That is likely because they do not take time to reflect on it. Without reflecting, hopefully you will learn something subconsciously, but taking time to think about what it is you learned and defining it is a much more effective way to learn.

You probably have the chance to learn 50 things every day, whether they are new or just reinforcements of what you already know. The problem is that most people don’t actually get as much from the day as they could since they don’t reflect. Everyday at 4:45pm, I have a reminder that pops up reminding me to “Reflect” for the day. So I try to think about what it is I learned that day and I write these things down in a file. Some are from reading (blogs, books, magazines or something else), some are concepts I come up with as a result of something that happened that day, and others things come out by accident (maybe while driving).

But even though I take the time and effort to reflect, define what it is I learned, and write it down, I still have the challenge to get myself to go back and read what it is I have learned for some reinforcement.

I decided to do this post as a result of a post on Brad Feld’s Blog – I’ll Never Do An Investment In That Kind of Thing Again.

Interesting posts from this week

Posted in Resources by angel on the April 10th, 2007

The Business Plan Archive has a nice post about lessons that should be learned from the Dot Com Meltdown.

Technomagic tells you why you should make something people want.

GoBigNetwork, a resource connecting entrepreneurs seeking and investors, has a post talking about what start-up offices look like.

Redeye VC discusses the concept of failing cheaply.

Congress may help spur Entrepreneur activity with new legislation

Posted in Funding/Investing by angel on the April 4th, 2007

Congress is discussing passing legislation that would give tax breaks for angel investments. Tax breaks are given to corporations for a variety of things and they get tax breaks for moving (or keeping) a factory in a certain city, state or even the country. But how much does keeping factory jobs in the US actually help the economy? Companies that are pursuing new ideas and innovation are things that have grown this country (and others) and encouraging that type of activity is a fantastic way to continue economic development.