Angel Investment Journal - Angel Investing and Entrepreneur Blog

Marc continues to make amazing posts on his blog. Check out this post talking about how a business plan really does not have much value as related to determining the success of a company. The main reason being is that you don’t know what it will take to be successful. The chances are you will need to revise the plan as you learn more about the industry.

He includes an excerpt from Randall Stross’s book about Thomas Edison, The Wizard of Menlo Park. I just ordered it from Aamzon as it sounds like a great book.

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.

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.

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.

A lot of the time people will give you one of  two reasons as to why they don’t like your idea:

“It’s been done before”
“It’s never been done before”

One of those two phrases has been true of every idea or business that has ever been successful.

From Seth

There is a interesting piece on Paul Graham’s site posing the question, Why To NOT NOT Start a Start Up.

I heard good things about Start-Up School this year. I spoke with Ben Roodman, who runs a mobile social network start-up - ImThere.com with David Gorman. Ben attended Start Up School and said it was a great place to network. He even had a chance to speak with Paul Graham.

If you are a start-up, it may be a good idea to check the school out next year.

The Myth of the Great Idea talks about the fact that a lot of people talk about starting up a company, but claim they need to find their great idea before they begin. He claims that the problem with this is that a lot of times it is just an excuse not to do something. No company can simply rely on a great idea, they need to be able to execute. A brilliant idea is better than a crappy one, but without execution, even a brilliant idea cannot succeed.

In addition, successful companies may start with a great idea (or at least one which they feel is great), but end up changing their focus as they grow and learn. I have been reading “Founders at Work” that has some very interesting stories about successful start-ups. The stories in the book support the idea that many companies change their entire concept as they grow. Most find a niche within the industry or with just one aspect of their company and change their entire game plan.

The most important part of a “Start-Up” is actually Starting. Start to do something and learn from it. Failing fast and often is fine (as long as you can do it cheaply).

Greg Moreno has a cool post about the value of an idea:

Awful idea = -1
Weak idea = 1
So-so idea = 5
Good idea = 10
Great idea = 15
Brilliant idea = 20

No execution = $1
Weak execution = $1000
So-so execution = $10,000
Good execution = $100,000
Great execution = $1,000,000
Brilliant execution = $10,000,000

I would say that it should be altered a bit since weak and so-so execution should probably be negative numbers. Spending time and money on an idea but not having good execution will likely end up with a negative result.

Stanford will be hosting Start-Up School on March 24:

We’ll have a range of experts speaking on all the things you need to know to start a company: what makes a good startup idea and where to get them; what to look for in a co-founder; how to get angel and VC funding; how to incorporate a company and what agreements founders should have among themselves; when and how to apply for patents; what can go wrong in a startup; what acquirers look for; and how the acquisition process works.

I have not been, but it looks interesting. Matt Knox’s blog has some notes from Start-Up School 2006 that can give you an idea of what to expect.

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.