Angel Investment Journal – Angel Investing and Entrepreneur Blog

“If we trained the Horses like we did the people, we’d kill them.”

Posted in General by angel on the August 18th, 2008

This was a quote by Michael Phelps coach, Bob Bowman when talking about Phelps’ (and his fellow swimmer’s) training regime. Bowman not only trains Olympic swimmers but he also trains thoroughbred racehorses.

I liked that quote because it shows that the people at the top of their sport don’t get their by genetics or luck (although both of those would help). Those people, more likely than not, train much harder than the rest of the field.

I am Too Sexy…

Posted in Startups by angel on the July 18th, 2008

I get to hear a lot of ideas from people wanting to start a company. The vast majority of the time, people want to start a “sexy” business. Whether that be the current hot online trend (at least half of the ideas I hear related to the web involve some sort of social networking) or even something more simple like starting a bar.

The problem with sexy businesses is that a lot of people are going after them because simply as a result of them being sexy or exciting. But those businesses are generally highly competitive as a result of the vast number of people going after them because of their appeal.

If you are trying to start an online business similar to what 1,000 other people are doing, you need to have a something remarkable or meet a demand no one else is meeting, which is more likely going to be a specific niche.

People also generally go after the sexy business ideas because that is what they hear about in the media. They hear about valuations and acquisitions of these companies that seem exciting. But I see many, many hundreds of million dollar deals with companies no one ever hears of and many times it is because the business is not exciting/sexy.

Look for that path less traveled.

My advice

ACA Session – Negotiate Now or Pay Later

Posted in Resources by angel on the May 12th, 2008

Robert Robinson, founder of the Hawaii Angels, gave a session on negotiating at the recent ACA Summit.

The following are some brief notes from his session:

-Angels need to negotiate in the following areas-
Term sheet
Portfolio Governance
Follow on Financing

-Your negotiating strength is proportional to the value of your alternatives AND inversely proportional to the value of their alternatives.

-“Principles unite and numbers divide.” Don’t talk numbers in the early stages. Talk about the vision for the company over the next year and beyond or related topics. Once you start talking valuation you are in adversarial position from then going forward.

-Many times entrepreneurs get too concerned about getting too diluted. However, dilution is not the worst thing that can happen to entrepreneur. The most proximate cause of company death is running out of cash.

Dave Berkus on Boards at ACA

Posted in Resources by angel on the May 12th, 2008

I just returned from the Angel Capital Association Summit in San Diego. It was a great event and would highly recommend it to all angel investors. David Berkus who is widely known for his contributions to the Angel community as well as for his method of valuating companies – the “Berkus Method” gave a presentation on boards that was excellent.

Some quick notes from his talk:

-Every board needs an audit committee and compensation committee. Other committees could also be beneficial, but it is on a case by case basis.

-A general guideline of board compensation is 1 percent that is vested over 2-4 years.

-The boards of small companies should focus the spending where there is a demand pull. Don’t go in direction of using ‘cost push’ to determine spending. This is where the CEO says where he thinks costs should go. Instead, find where demand is pulling on company and go in that direction. Try to “expand the runway” in the direction of this “demand pull”.

You may want to check out his book “Extending the Runway” which discusses Boards (all of his proceeds go to the Boys Scouts of America). I spoke with Frank Peters after the session. He said he and Dave may do a show expanding on this presentation which will get into some war stories about being on boards.

Not Starting a Business

Posted in Entrepreneur Advice,Startups by angel on the April 1st, 2008

Recently I have come across a few different instances of people talking about when not to start a business (E-Myth Revisited and Scott Shane talking about his book while
on The Frank Peters Show). It is a topic that does not get much coverage, probably because most entrepreneurial-types like to read things to motivate and inspire them, not things that dissuade them from going after their dreams.

It is an important concept because starting a new venture is going to require a significant amount of time and possibly a significant amount of capital. So it is vital to make sure the resources you are dedicating to it are going to be on something worthwhile.

My freshman year in college, I wanted to start a sno-cone stand. I grew up in St. Louis which has an abundance of sno-cone stands all over the place doing consistent business. In my college town, just two hours from St. Louis, there was not a single one. I was pretty confident I could start a stand and make money from it. Twelve years later, I am pretty sure it would have made money, but it would have been a foolish use of resources. Instead, my brother convinced me to go after another business we had just started in the ticket industry. That company eventually grew to a $22 million company before it was acquired. If I had started a sno-cone stand, maybe I could have expanded and had a few locations. Maybe I could have franchised it or found an exciting niche in the industry that could have been big, but the chances of it being as big as the ticket industry were very slim. And there is no way I could have gone after both businesses to the extent that was required for success.

This isn’t meant to get you to think too much about your idea before going after it. Thinking too much is a major reason people never start a business. They do too much thinking and not enough action. The point is that you should be sure to think big. If your idea has big potential then take action (DIFN) and try to validate your idea as cheaply and quickly as possible.

The Frank Peters Show Podcast

Posted in Resources by angel on the March 28th, 2008

A while ago I pointed out some interesting entrepreneur and investor podcasts, but I only recently started listening to The Frank Peters Show. If you are an angel investor, I would highly recommend subscribing to the podcast. It is put together very well, it is informative, and he has some excellent guests on the show.

Don’t be Conservative

Posted in Entrepreneur Advice,Funding/Investing,Startups by angel on the February 21st, 2008

I was at InvestMidwest this week and saw some really exciting companies. I was impressed by the presentations and it seems many of the presenters were either coached on what their presentation should include or they just intelligent entrepreneurs that knew what needed to be done.

Most presentations I see include one aspect that is so common it has started to frustrate me. It happens when the presenter gets to the part of the presentation about projections. They start talking about revenue projections and they present the figures, but say that they believe this projections to be “conservative”.

I don’t know why it frustrates me, but apparently I am not the only one that feels this way. Fortunately, I only heard one entrepreneur (out of 12) claim their projections were conservative. And, upon hearing this, I saw another investor look at his buddy and smile.

Why shouldn’t you use the word “conservative” when talking about your projections?

First, when coming up with projections, especially if you are a start-up, it is extremely hard to predict what you could actually do. But you should do whatever you can to support your projections. So don’t try to say you just need to get 1% of a gigantic market in order to experience huge success. Talk about what aspect of that market you expect to penetrate. But since it is so hard to predict, you probably don’t know what is conservative and what isn’t.

Second, why would an entrepreneur that is trying to “sell” the concept of his business and raise money quote conservative numbers? It is unlikely you would, so don’t try to make the projections look bigger than what you actually believe.

Finally, even if your numbers are conservative, don’t use the word “conservative”. Don’t qualify your projections at all or maybe use a different word like “realistic” if you actually believe those projections are within reach.

The Trick to Making Money – There is no Trick

Posted in Entrepreneur Advice by angel on the February 18th, 2008

While watching Citizen Kane last night, one particular quote in the movie made me think:

It’s no trick to make a lot of money… if all you want to do is make a lot of money.

Things are not as simple as that short phrase, but it does have a lot of truth behind it. If you have one goal and one concern in your life – to make a lot of money – it is very likely you will be able to do it.

The concept requires that you are willing to sacrifice all other aspects of your life (being the type of person that doesn’t care about any other aspect of your life will work just as well as having to make sacrifices). But most people want to make money to have freedom, to be able to do fun things, to not have to worry about money, etc. Money alone means nothing. You strive to make money as a result of the benefits of having money. But it is also true that you could have money and not have those things. This is why you need to stay focused on what you are ultimately seeking. Having a lot of money without a loving family or friends is probably not your ideal goal. Having a lot of money without having any fun along the way sounds like a pretty crappy lifestyle.

There is nothing wrong with being motivated to make a lot of money. Just be sure to know what you ultimately seek. Be willing to make smart choices about what you are willing to sacrifice, because success will likely require a lot of them. I was fortunate in college to have made smart choices in what I sacrificed. I never played video games in while some guys would spend hours a day playing them. I also made sacrifices in the amount of time and energy I put into school, which turned out to be a wise decision. Instead, my brother and I ended up building a solid company while going to school. I didn’t sacrifice going out and having fun and now I wouldn’t sacrifice spending time with my family.

Be sure you know why you strive for whatever it is you seek and make sure the sacrifices you are giving up are worth it.

Dignity and Professionalism are Overrated

Posted in General by angel on the January 16th, 2008

Paul Graham argues that Dignity and Professionalism are not only overrated, but they are actually deadly. Kathy from Creating Passionate Users summarizes a speech given by Paul Graham discussing this concept.

When you evolve out of start-up mode and start worrying about being professional and dignified, you only lose capabilities. You don’t add anything… you only take away. Dignity is deadly.

Fortunately, within our companies, we have been able to avoid a focus on being dignified and being perceived as professional. We have very modest offices, we don’t require ties or even business casual. Hats, sandals, and graphic tees are commonplace in the offices and no one was to worry about being especially cordial to one another (although respecting fellow employees is demanded). Passion is what is important. Being passionate about making sure every customer is taken care of and happy is valued. Making sure employees are happy and comfortable in their work environment is also important.

If am employee does something considered unprofessional such as telling a client about how they went out and got drunk this past weekend, it is not a cause to worry. But if they ever did anything that was not in the best interest of the client, that would result in a deserved ass-chewing or worse.

Passion creates action. Professionalism leads to timid people. Passion makes people do what they know is right. Professionalism makes people do what they think will be perceived as being right, regardless of whether or not it actually is.

Investment Checklist

Posted in Funding/Investing by angel on the January 4th, 2008

Will Price put together an investment checklist that he goes threw when considering an investment in a company. A great checklist for angel’s and VC’s.

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