Angel Investment Journal - Angel Investing and Entrepreneur Blog

37Signals has a post today talking about the fact that they don’t do 5, 10, or 20 year plans. I tend to agree with this because most business I have been involved with that have achieved success actually achieved success in areas that we didn’t even know about when we started. The same is true for a many companies. Only when you get into an industry and find the demand for a specific niche do most companies achieve their greatest success.

Jason talks about the best business advice he has ever received:

“Focus on the things that won’t change.” Today and ten years from now people will still want simple things that work. Today and ten years from now people will still want fast software. Today and ten years from now people will still want fair prices. I don’t believe we’ll have a “I want complex, slow, and expensive products” revolution in 2017.

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.

VentureHacks has a good post discussing ideas to consider when you are determining whether you should raise debt or equity for your company.

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.

Most Entrepreneurs looking for angel money are always interested in getting people to sign NDA’s anytime they tell someone about their idea. The problem is that most Angel’s, and especially VC’s, will not sign NDA’s right away. There are too many reasons as to why they won’t. Find out how you should approach the NDA as well as what you should and should not disclose. The Post Money Value has two great posts talking about NDA’s. Another post talks about the two broad types of investments “The Black Box and the Execution Play” and when an NDA is applicable in either of them.

One piece of advice is to simply refer to the NDA as a Confidentiality Agreement. An NDA scares a lot of investors. Within the posts are also some ideas on how to protect yourself. They include filing a disclosure document relating to a patent process as well as keeping great documentation of who you meet with along with what happens at those meetings.