Angel Investment Journal – Angel Investing and Entrepreneur Blog



Entrepreneur All-Star

Posted in Startups by angel on the June 24th, 2007

I found an old post from Mark Cuban via The Great Success blog. The post discusses the idea that Entrepreneurs only have to be right once. Cuban says:

In basketball you have to shoot 50pct. If you make an extra 10 shots per hundred, you are an All-Star. In baseball you have to get a hit 30 pct of the time. If you get an extra 10 hits per hundred at bats, you are on the cover of every magazine, lead off every SportsCenter and make the Hall of Fame.

In Business, the odds are a little different. You don’t have to break the Mendoza line (hitting .200). In fact, it doesn’t matter how many times you strike out. In business, to be a success, you only have to be right once.

One single solitary time and you are set for life. That’s the beauty of the business world.

It is an interesting and accurate post. I think that nearly all Entrepreneurs that have achieved success in a business, have many other business which were not a success. To reach All-Star status in the entrepreneur world, you just need to hit one homer. To get that homer, it helps to have a lot of plate appearances. It also helps if you don’t try to bunt. Dream big.

Marc Andreessen on Hiring

Posted in Entrepreneur Advice by angel on the June 7th, 2007

Marc has a post discussing hiring practices that is pretty insightful. Give it a read if you have time (it is long for a blog post). He discusses three main things to consider when hiring someone:

1) Drive
2) Curiosity
3) Ethics

Drive is obvious.

Curiosity relates to identifying if the position is something that the person would enjoy doing. For example, if you are hiring for a programmer position, does the candidate stay updated on related news and topics? Does he read industry blogs, magazines, forums? Does she have opinions and ideas on trends in the industry?

When testing for ethics, he suggests:

Test for how someone reacts when they don’t know something. Pick a topic you know intimately and ask the candidate increasingly esoteric questions until they don’t know the answer. They’ll either say they don’t know, or they’ll try to bullshit you.

Guess what. If they bullshit you during the hiring process, they’ll bullshit you once they’re onboard.

I like to see what other people do. I don’t think we have a great hiring process, even though we are constantly in hiring mode. We give short intelligence tests at all our companies for all new hires. We are not looking for the brightest people, instead we are just trying to weed out the ones that are clearly lacking in the intelligence department. We only have 17 questions. From experience, the difference in performance between someone that gets 13 right and 17 right is not a big deal in performance. But if someone does not get 11 or more right, it is a telling sign.

When we decided to start giving the test to candidates, we gave it to existing employees.  It was surprisingly accurate in helping predict people with potential and the people that would be better off in another position. Every person that was in the top 30% of our company scored above a certain threshold. Whereas the bottom 30% of the people almost all scored below a certain mark.

It is not an amazing test nor is it extremely accurate at predicting just how well a person will do. But it is one tool that helps us in identifying people we should avoid hiring. That alone is a great help because one bad employee is a drain on any company.

Be like Dr. Evil

Posted in Startups by angel on the June 4th, 2007

In Austin Powers, Dr. Evil plans to “hold the world ransom for… 1 MILLION dollars!” He is laughed at because the amount is so small. He later increases his demand, but you could take a lesson from this. Don’t try to request too much money when you are starting.

I see many entrepreneur’s seeking seed investments that want to get enough funding that will take them to profitability. There may be reasons why you need to get all of the money up-front, but I would highly advise entrepreneur’s to consider seeking a smaller amount of money from the beginning. Why?

1) Your estimation on the amount of time and money it will take before you are profitable is likely much lower than it will actually take. You will likely need to get additional funding in the future even if you think you will have enough. So trying to only require one round of funding may be pointless anyway.

2) It will be much harder to raise the amount of capital you seek if it is too high. First, most angels (or angel networks) prefer to invest in deals under $1 million. Plus, the less you seek, the more likely you are to find the sweet spot of more investors, which can only create a better situation for you in terms of speed in which you can get funding, deal terms, etc.

3) Related to #2, getting the funding quicker will allow you to begin work on the business and spend your time on what actually matters. Wasting your valuable time trying to raise a million dollars when you could actually get 6 months out of $150,000 may not be the best idea.

4) One of two things will happen once you get started. You will start seeing some success and you will have evidence that your idea is valid and has big potential. The other option is that you won’t see this success. If you can’t prove the idea has potential fairly quickly, then you are likely going to have problems with your entire business, not just when it comes to getting investments. If you can show your idea has potential, getting additional funding is not likely going to be a problem. People are much more willing to invest in a proven concept than a simple idea. In addition, you will probably be able to retain more equity since you will be able to increase the valuation of your company. If you had received all of the money at the beginning, your valuation would have been lower and the equity would have been more expensive for you.