Angel Investment Journal - Angel Investing and Entrepreneur Blog

I generally recommend that people try to get their business going for as little money as possible. Bringing investors in too early is not the best idea. If start seeking money then you will likely spend too much time working on funding instead of building your company. And getting the funding will be harder since you probably won’t have achieved much progress. Once you see some results from your efforts, it is much easier to convince someone to invest in your idea.

Sometimes it is necessary to get funding for a variety of reasons. One of them is to get a great domain for your company. There are a variety of reasons to spend money on a good domain, one of them is establishing credibility. We started a vacation rental site and would contact people to see if there were interested in listing on our site. Most would reply saying they were already on enough sites, but when they saw our site - lakerentals.com, they were much more likely to list. When we were acquired by the Weather Channel Interactive, this was one of the main reasons they were interested in our company. They really liked the domain names we had. So an investment in a domain is usually not a bad investment anyway (as long as you don’t pay too much) because it will likely have value regardless of what happens to your company.

Building credibility is also extremely important for your conversion rates. For example, without looking at the sites, would you rather buy from SoccerPro.com or soccer-training-info.com If you start out with a bad domain name, that can potentially hurt you as long as you are in business. Having an advantage with your conversion rates is a huge advantage over the long term and is largely undervalued.

A great domain also has other advantages including some help with your online marketing. Aaron Wall has a great write up on the value of domain names for SEO purposes and you should check it out.

On the other hand, you can start your venture and validate your idea without needing the best domain name. You can get a domain that could be considered more of a brandable domain, such as wisecamel.com. And if you validate your idea and decide you would like to try to get funding (as well as a different domain), you can always for a 310 redirect to send all traffic to the new domain.

Getting some funding to help purchase a great domain is one of the reasons where getting some funding early on is not a bad idea, as long as you can find investors that realize the value of a good domain name. But it still may be a better idea to hold out on funding and the domain until you have a validated business concept.

One of my favorite questions to ask in an interview is a relatively short and simple one, but does a lot to help you learn about the person. The question is “What Blogs, Journals, Magazines, or websites do you read?” If they don’t have a list, they are probably not the best candidate because they are not likely excited or passionate about their profession.

Our companies like to give intelligence tests for most positions. We are not looking for MENSA caliber people, we just want to make sure they are at least relatively intelligent. Motivation, people skills, and specialized knowledge are more important than having an extremely intelligent individual, but there are few positions where someone can excel if they don’t know which number is the smallest - 2, .6, or .18.

Interviewing for a new position is also a great opportunity to learn new ideas. When interviewing for a Public Relations position, I learned all kinds of things about PR which I had not previously known. So take advantage of the situation and try to learn from the interviewee in addition to learning about them.

Paul Graham has a great post about called the Future of Start-ups. He touches on a variety of topics including the fact that starting a company is much easier today than in the past.

My first prediction about the future of web startups is pretty straightforward: there will be a lot of them. When starting a startup was expensive, you had to get the permission of investors to do it.

He follows that up with this great little quote:

Now the only threshold you have to get over is whether you have the courage to.

Another great idea included in this is a concept I think most companies shoudl try to do, but few do it:

We often tell startups to release a minimal version one as soon as possible, then let the needs of their users tell them what to do next. In essense, let the market design the product.

Most start-ups don’t want to release until they have the perfect version of the product/software. The problem is that you don’t know what the perfect product/software is until you start getting feedback from the users.

And a final bit of advice which I also like:

Instead of going to venture capitalists with a business plan and trying to convince them to fund it, you can get a product launched on a few tens of thousands of dollars of seed money from us or your uncle, and approach them with a working company instead of a plan for one.

Most start-ups don’t think they can succeed without raising money. But it is a heck of a lot easier to get money if you have something to show. In addition, if you have something to show for it, you don’t have to give up as much in equity.

I go to a lot of search engine marketing conferences and the exhibitors always have various swag. Some of them are neat, creative, or useful, but most are pretty worthless. Bloggers usually do a recap of the swag given away at the conferences and I have never really found much worth talking about. However, I attended the Inc 500 conference this past weekend and Amex gave away something that is deserving of a mention. They gave everyone a free iPhone. They didn’t even require you to go through much. It took me less than 3 minutes in total to give them my info and get my free iPhone. They even asked if I would like to get additional info from Amex and allowed you to decline.

This was done to help promote their new card - the Plum Card. Not only did they give away free iPhones, but they had a kick-ass party at the House of Blues. All I can say is “Well done, Amex. Well done.”

Having read quite a bit about Harry Houdini while growing up I enjoyed 37 Signal’s post today discussing 5 Business Lessons from Harry Houdini. They include:

- Focus on the killer bit
When he started out, he was doing a bunch of tricks and escaping from handcuffs was just one in the batch. A vaudeville bigwig saw him do his act and told him that no one cared about any of the tricks except the handcuff escape. Houdini dropped the rest of the tricks, did a show that focused exclusively on escapes, and flew to stardom.

- Give ‘em a story
Houdini knew the aura of escape was just as important as the actual escape. So he always gave people something to talk about. He’d often stretch easy escapes into lengthy affairs in order to build tension. When he finally broke free, the crowd would erupt in cheers.

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.

My buddy Rafe has a great post talking about “Management 2.0″. The post discusses concepts related to it and brings up the growing idea that management innovation, not technological innovation, may be the key driver of economic value.

His list includes some great ideas such as taking advantage of crowdsourcing and user-generated content and implementing emerging concepts such as a Results Oriented Work Environment, which Best Buy has helped make famous. He encourages people to add their own Management 2.0 concepts to the list.

Paul Graham has an interesting post that discusses his idea on how you can determine how much equity should be given to an investor or employee. This is often a tough thing to determine for entrepreneurs, but Paul tries to simplify it. His Equity Equation can be easily explained:

If an investor wants to buy half your company, how much does that investment have to improve your average outcome for you to break even? Obviously it has to double: if you trade half your company for something that more than doubles the company’s average outcome, you’re net ahead. You have half as big a share of something worth more than twice as much.

The equation is: 1/(1 - n)

In the general case, if n is the fraction of the company you’re giving up, the deal is a good one if it makes the company worth more than 1/(1 - n).

Venture Hacks followed this up with his thoughts on the post.

He makes a few good points, but these two are great to keep in mind and explain why you can’t just use the Equity Equation to determine how much equity you should give an investor or employee.

You have to pay market rates regardless of the equity equation.

This is true. If it is absolutely necessary to get something such as an employee or money, you will have to pay market value for them, even if it is not in line with what you can justify with the equity equation. If you can’t justify it, you shouldn’t do it, but sometimes you don’t have a choice. The other option is that you may be able to get money or employees for something well below the cost of what you could justify with the equation.

Consider the opportunity cost of spending shares on employees and investors.

Just because you can get an investment at terms that will make it beneficial for you, doesn’t mean it is the best use of those limited resources. For example, you give up 30% of the company for something that will double your company. What if you could double your business by only giving up 20%? Just because an option is good for you, it doesn’t mean it is the best.

Psychology Today had an article discussing Ten Politically Incorrect Truths About Human Nature. It poses some interesting ideas and brings up an an idea that could show a possible relation between entrepreneurs and criminals.

Criminologists have known about the “age-crime curve.” In every society at all historical times, the tendency to commit crimes and other risk-taking behavior rapidly increases in early adolescence, peaks in late adolescence and early adulthood, rapidly decreases throughout the 20s and 30s, and levels off in middle age…The relationship between age and productivity among male jazz musicians, male painters, male writers, and male scientists—which might be called the “age-genius curve”—is essentially the same as the age-crime curve. Their productivity—the expressions of their genius—quickly peaks in early adulthood, and then equally quickly declines throughout adulthood.

The likely reason that criminals, scientists, and some of the most successful entrepreneurs make their biggest mark in their younger years is a result of their risk tolerance. It may also be related to their naivety in doing things which more experienced (older) individuals would not. This doesn’t mean that age is the restricting factor, but the willingness of the individual to take these risks that can lead to great achievements.