2) What is the most broken thing about angel investing?
Communication is key. If you want people to do things, you must communicate in ways that facilitate the action. Make it easier for me as I am bandwidth constrained.
> What is the most broken thing about angel investing?
I haven't been doing this long enough to have a sense for that, which is surprising. I am frequently cranky about things that don't work well.
The entrepreneur had written ten paragraphs. I sent a "sounds interesting, send screenshots or a prototype" and they wrote ten more paragraphs. I didn't follow up.
However, smarter people than me invested, so what do I know?
I wish you'd do something bigger. You certainly have what it takes. I hope appointment reminder turns into that thing. (Also, ++ for using Twilio)
When I started delicious, I had no idea that it would someday be a company. Instead it was a thing I wanted to make. But it turned out to be very pregnant with possibility.
I'd like to see you do something that is similarly wide.
Does that make any sense?
I'm sitting at home at 3 PM on a Tuesday writing patches to the OSS project that spun out of the day job that spun out of the weeklong project which was supposed to, someday, buy me a video game. We never know what the future holds, right?
What video game?
* What do you give more importance? idea or team?
* You've had incredible dealflow recently, how are you getting into all these deals? (Foursquare, Square, StackOverflow, DailyBooth, Canv.as)
* Since you don't lead, if you run across an interesting startup, do you make introductions or only co-invest in deals that come from other people?
* Better location for a pre-funding consumer internet startup: NYC or Bay Area?
* Bootstrap or raise money? Any particular reasons to choose the former or latter?
I am trying to build intuition. So some of this is gut sense. Sometimes I look at deals and say, this is obvious. Sometimes I have to sell myself.
I look for new things that are in spaces that have a comfortable competitiveness climate.
> What do you give more importance? idea or team?
Both are important. See above.
> You've had incredible dealflow recently, how are you getting into all these deals?
Luck is a matter of being in the right place at the right time, so I take care to be everywhere. I know everyone. Foursquare: I knew Dennis from NYC. Square: I knew Jack from twitter. StackOverflow: I was on a panel with Joel once. Canvas: I suggested moot to TED and introduced myself at the conference. Dailybooth: Asked for an introduction to me.
> Since you don't lead
If I like the product, I introduce it to relevant people.
> Better location for a pre-funding internet startup
I'm fond of both NYC and Bay Area. I started Delicious in NYC.
> Bootstrap or raise money
Venture money is only useful in some situations - where capital will help grow the business. I also want to see something where I will conceivably get out someday; that's either acquisition or IPO. Do many privately held companies pay dividends?
It feels like Delicious could have been the start of something even larger than a bookmark service, it's my primary resource for finding specific content (eg: rails + tutorial, photo + howto, etc.) I'm aware that that is a fairly large technical barrier in terms of how search works, but I feel it proves the potential for something really, really awesome. A real social search engine if you like.
Ever thought about buying it back off Yahoo?
+ Delicious is lagging behind in mobile support.
+ Delicious could be taking more advantage of the conversation that people are having in their Notes section.
+ Delicious could be taking advantage of the links that are shared between users: help me find users that have similar but unique interests as I do. This would be true social networking on Delicious!
+ Delicious places priority on what is "Hot". This is not terribly useful since a lot of "Hot" links have already made the rounds on Twitter or in my Google Reader first.
+ Delicious could be taking advantage of links that are not yet popular but have a strong interest in category niches.
+ Delicious could be taking advantage of a user's top 10 tags: it's not an accurate assessment of a user's interest, but it gives me a quick assessment if I want to subscribe to their feed.
(I wish I could make another Delicious, but I'm not a programmer!)
Even if they aren't capable of evolving it, I wish Yahoo would at least make it fast enough that I don't cringe every time I use it.
(yes that was intentional)
Cold emails rarely turn into anything.
PS for the uninitiated, AMA = ask me anything
I don't understand b2b and am terrified of it.
Weatherbill was an earlier investment. I still wish I had put more in. I remember the exact line that convinced me: "You can upload your Quickbooks P&L and we'll calculate your exact exposure to the weather." I guess I like novel marketplaces more than I dislike b2b.
For Twilio, it was the quality documentation that convinced me.
Both companies have kick-ass CEO/founders.
1) Why do you find it harder to code these days? Does that bother you? It seems like you're still keeping up with a lot of python stuff from your delicious tagging.
2) Why hasn't anyone advanced the ball past delicious with bookmarking? I'm still a delicious nut, but I really want good search tied into it. Is there no business model or no real use to the data?
3) Do you believe in the Ron Conway style of angel investing? IE. invest in many interesting companies for better returns? Do you ever participate in follow-on rounds?
I don't know. Too many distractions and anxieties? There's a lot of noise in my head. Yes, it bothers me.
> Why hasn't anyone advanced the ball past delicious with bookmarking?
I don't know. I should restart Muxway (the delicious predecessory)
> Do you believe in the Ron Conway style of angel investing?
I don't know enough about Ron's model to make a judgement. All we know is that it generates more "buy" decisions. I think that having a larger portfolio is stronger. Sometimes I do participate in follow-on rounds.
I suspect that folks who have large revenue streams imminent would go to some effort not to dilute themselves.
How about this, has your wealth made you happier?
* What is the one piece of advice you would give to people who pitch their startups to you?
* How do you add value?
They come from all directions. One of my best investments came from a chance meeting with the now CEO at a party.
> What is the one piece of advice you would give to people who pitch their startups to you?
Hard to explain. I do a lot of this by gut sense. I look for:
- strong people doing things in interesting spaces
- belief but not inflexibility; religion is bad.
- an ability to roll with the punches: reactions are as important as planning
> How do you add value?
I am a product guy, so I look at the product and can evaluate it. Same thing I use to choose the investments, I guess. I am also reasonably well connected and will use that as asked.
Would you ever fund a person you believed in for that kind of exploratory work?
However, I never really had the idea of building businesses, just interesting things. I wanted to get attention (I got myself invited to Foo Camp before I did delicious, for example) from folks outside my industry, as I worked at an investment bank.
I still build some small things here and there. I find it much more difficult to program now, though.
Care to share any links?
I'm thinking of building an app to help manage my angel deal flow, of all things.
I've put money into a few things based on people's prior work, but generally the idea itself has to be interesting.
Do you do back channel reference checks on founders?
Had two liquidity events in last 2 years from advisory shares. Expecting an IPO in next year.
Most famous startup I passed on: Paypal, back when they were doing palmpilot stuff. ;)
Most famous startup I invested in: Napster, which went bankrupt
Best return: Giganet, acquired quickly by Emulex. Haven't heard of it? Could there be a connection? ;)
Present day: In the process of closing an angel round for my own new startup, mainly from friends I've known for a while who've built and sold off companies, plus a small number of friend of friends.
Ouch. I know the feeling.
Doesn't Emulex make connectors?
I would like to see some liquidity someday myself.
What's the startup?
We overlapped - I was at BofA Securities. My boss went on to Epoch Capital and then Schwab.
;) Yah, I also could have been in on Salesforce.com and a recent flip to MSFT if I'd pushed a little harder...
>Doesn't Emulex make connectors?
Wow, I haven't looked at Emulex in so many years. That was at beginning of the decade...
>I would like to see some liquidity someday myself.
It'll come... it's funny that period between deal announcement and closing and liquidity, particularly w/ restricted stock and such. And also the ones that have taken 10 years to become liquid ;)...
> What's the startup?
Fosdev, I'll drop you a note.
> We overlapped - I was at BofA Securities. My boss went on to Epoch Capital and then Schwab.
Hehe, cool, I was helping Schwab Inst. first, then BofA Global Markets Group.
Would you invest in a pure mobile play (i.e. Something you needed a specific type of phone for)?
Reason i'm asking is that I quite often hear "yeah but what about everyone who doesn't have an XXX".
I am also not fond of temporary opportunities. If you are doing X for Android because there's a successful X for iPhone and nobody has done it yet, then it's not a scaleable business.
It's scalable as long as you can keep finding new Xes indefinitely.
Lots of things that I pass on go on to get acquired. It often makes me feel stupid and doubt my strategy and decision-making.
I'm also not entirely sure that I'm actually any good at this.
I'm pretty clear where I work and what my burden of responsibility is. So entrepreneurs will end discussions when they learn where I work if I wasn't aware. Usually if there is a conflict issue it ends there.
I invest small amounts relative to my net worth and am unlikely to compromise my behavior for an investment. The E(v) of an investment, if you assume the 33% chance of a > 3x return is still not that big.
Although: Yahoo compliance forced me to pass on the first round of Twitter. Yet another reason I am annoyed at them.
Ouch. I would have thought you'd use a stronger word than "annoyed"!
Assuming I'm doing as well as he is (which I doubt) and that an exiting startup gets 10x the input, the formula suggests 25% or so.
This seems high. Also, startups are not independent bets. Who knows?
I've done 34-ish investments. One small exit. Two are doing very well. Two or three dead companies (sometimes, it is hard to tell.)
I guess that makes me a junior associate at best.
So that makes me subordinate to people who do these things; they are therefore my senior.
upshot: if he does well, in a couple years his typical investment size will be $20-$50K. Investment size is a proportion of bank.
Reading it inspired this: http://joshua.schachter.org/2008/09/amateur-economist.html
Curiously, I was a quant before I did delicious.
My network drops off very rapidly outside the Bay/NYC. So 1) I don't see as much stuff that way. 2) I'm less useful/valuable outside that area. 3) The companies will have a much tougher time outside that area.
2. You've said that you typically don't lead rounds and let others lead instead. What other angels do you respect the most?
3. Are there any deals that you regret passing on?
All are important.
> other angels
There's a lot of great angels out there that I like to learn from. Aydin Senkut has shown me a lot that I've liked lately.
> deals that you regret passing on
There are always surprises. I think it's important to compare my feelings at the time I passed to the current feelings to benchmark my intuition.
What I regret more is companies I did want to invest in but either flubbed or wasn't able to get into.
I got several offers of acquisition for delicious in the 250k-500k range, and felt that if I actually worked on it full-time it would be worth more.
I turned down eight or so acquisition offers before I took VC.
(Many have said this already, but thanks for starting this thread. Very insightful.)
At the time I got funding, I had 3u via an ISP (http://www.atlanticmetro.net/ now) in Telehouse. One of the servers I bought, and one was mailed to me out of the blue by Marc Andreessen.
* Was delicious boot strapped?
* How do you feel about a publishing co (a la O'Reilly or PeepCode) as an investment?
They're all my favorites. I try not to do the ones I hate.
The ones that seemed very obvious to me on first conversation were Etsy, Weatherbill, and Twilio.
> delicious bootstrapped
I worked on it for two years before raising funding. But I did raise VC.
> a publishing co
Feels like a long slog. I'm not fond of content as a business.
In my experience, companies raising less than 500k are making a huge mistake.
i.e., do you invest within your range based on your feelings about the investment, or just how oversubscribed the round is?
For me, a $10k investment and a $25k investment would take roughly the same amount of thought and time, so really it's just a 2.5x bigger payoff if you win.
An entrepreneur going this route is not making good trade-offs.
In my experience, most of these companies fail.
A better idea would be to send it to AngelList.
Assuming you failed the above, how do you deal with an investor who's being difficult or disruptive?
You have to talk to other entrepreneurs who took investment from the angel.
While any shareholder can cause problems, especially at that stage, a small percentage / non-board angel can't do TOO much damage, I think. But I've never really been in the situation. Ask grellas.
I don't invest enough dollars to have that right. I don't have enough purse to increase the dollars I invest.
More importantly, I do not have enough stroke within the community to do this kind of thing.
I also am probably not ready to be a fulltime investor any time soon.
1. You think you can make decent returns.
2. You like helping people.
3. You find it a great way to avoid getting bored.
I also like being near interesting projects.
2. Since you must be involved with a lot of startups, how much time, attention and guidance you are able to give to an individual startup?
A lot of them no longer need my help. Many don't use the time I do have available. I have plenty of time for my day job and even playing video games.
You are trying to make money. I am asking - when will you make the money and how much? If I put 25k in a business in 2008, when will I see a return and how much would that return be?
Or are you just doing it to be associated with these companies?
I think this pays vast dividends outside of dollars: I get connections, notoriety, experience, exposure, and so on. I know about a lot of what's going on in the valley right now, for example.
I expect it will be better than investing in venture funds, but not by much. (I do this too.)
Is a company that makes this known a turnoff for angels, as by doing so it admits it doesn't have 'everything quite worked out'?
Honestly, set yourself up to make some mistakes and learn from them. Advice is rarely that useful.
If you don't need venture capital, don't raise. It sets certain expectations and puts you on a specific path.
E.G., if I'm building a social web app, do you expect to just see a prototype with a few of the basic concepts? Or do you expect a first version that's already online and starting to get users?
Through friction the apple is polished, I think.
I feel bad for the Diaspora kids. They can't help but fail. Everyone will forget about it shortly, except for the people that gave money. I wish them the best of luck.
They've been able to get everything they should need for success - adequate funding, lots of press, users who want what they're going to build so badly that they're giving them money sight unseen.
How could there be a better situation for someone who wants to take on Facebook?
I think that no business or product exists at either extreme (delicious, for example, over-empowered people's need to collect things; video games are inadvertently good at improving reaction time etc) but I'm pretty sure anything that leans toward direct utility and is large is going to have a significant positive impact in the world. I think Google is a pretty shining example here.
The things I like to build tend toward the "direct utility" side of things. Hopefully they will be large...
A revolution in education is imminent. Better measurement, statistics, and analytics in the real world, better connectivity in the offline world.
This is something I wanted to do for sometime, Salman Khan's video just re-ignited the passion I had when I first thought of it (I still have the detailed ~10 page draft lying around somewhere). I am hoping to go all-out on this, not sure how to approach some of the non-technical problems but I am researching/working on it. One way or another I will find a way and make this happen. rápido.
Most startups do not update the non-board investors much.
I am on IM most of the time. There is a "Founders" section in my buddylist.
a year or two ago I threw out all my mismatched pairs of socks and bought all identical white socks. now I do not have to match and fold the socks when washing them. I just pile them into the drawer.
Want to be friends?
Looks like you've been beat, mate.
(Reilly used to be my boss in the 90s. Much later I asked him to be on the board of directors for delicious.)
1) How aggressive are you in getting deals done? Are you more like "lets have a chat, sign here" or more like "okay, call me if you ever need funding."?
2) I'm actually working on a site similar to Delicious, http://www.howl.com. Its not quite bookmarking, we call it link blogging. What do you make of the market? Thanks
Looks kinda neat. Feels tumblr-y. As an investor I avoid content-y stuff like this (how do you monetize? ads probably) but as a user and as a developer I like stuff like this.
Also, in my experience, startups are bad at fairly compensating their advisors. I'd agreed to seven or so advisories in the past and actually gotten paperwork for shares just a single time. One startup actually had me come in twice for advice and then later told me they decided not to have an advisory board.
What's a fair equity share for an advisor, btw?
This can vary widely, of course, for special cases, but something along these lines is probably the norm in the Valley. As you note, not much.
Hi grellas, I am a fan.
They offer no salary, but a 1k / month stipend, and a very fair commission structure for sales revenues I bring in.
They offered me 1.0 - 1.5 % in common stock equity that will vest (as will theirs) over a typical 4 yr / 1 yr cliff path.
I feel that the equity offered is too low, given that my joining is a risky investment for me financially, similar to theirs as founders. What do you think is the appropriate amount of equity to ask for?
My mother has met Moot... I should demand to meet his mom.
So it must have been 2004 and Stewart from Ludicorp wanted to show me this new "Flickr" thing they'd built, which was a sort of online flash chat thingy. I'd logged in and poked around, and said something to the effect of "this is neat, but I wonder if somebody's mother could use it." Stewart said to call mine and see what she thought, so I did.
A few minutes later, my mother comes into the chat room that Stewart and I are talking in. If I recall, nobody else is even logged into the system at the time.
"Mom, this is Stewart. Stewart, this is my mother."
Stewart says hello, she says hello, etc.
My mother says: "This is very nice, but I have one question."
Stewart: "What's that?"
My mother: "How is this going to make any money?"
Lots of bad entrepreneurs have problems that prevent me from actually seeing the pitch itself anyway.
I prefer to see prototypes, anyway. This keeps a LOT of crap out of the way.
Thanks for your time answering these questions.
- will only walk me through the prototype in person.
- won't even tell me what the product does without a meeting.
- doesn't know how to communicate (way too verbose often)
- doesn't have a clear pitch to deliver
I've seen all of these.
Stronger deals have no cap, so I am merely hopeful.
(also, do you talk to yourself often?)
I wanted to try to figure out of I was going to be a professional investor someday. I discovered that the hardest part for me is saying "no" a whole lot.
Yes, I do talk to myself.
My one non-dollar-denominated investment is also the sole acquisition from my portfolio.
Or do you mean numbers? Every deal is different.
Any other terms, or trends, you care to share?
(Roy, "truly junior" beginning angel in Boston)
I've noticed that both very hot and very cold deals are debt. Hot because they can demand it, and cold because they can't scrape a real round together.
What are some things I can be doing now to prepare myself for angel investing?