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Selling My Bootstrapped SaaS Business (indiehackers.com)
311 points by AlikhanPeleg on Oct 18, 2017 | hide | past | favorite | 120 comments

Hi folks. I'm the OP here. Hit me up if you have any questions.

Go to Conferences ... I only reached a critical mass of serious acquisition offers after attending my first Micro-Conf in Las Vegas.

Just curious, what types of activities did you do at MicroConf? Did you speak/present? Did you attend sessions (which ones)? Did you just talk to people and network? How did you plan to approach people at the conf? What worked, what didn't?

I once paid to attend an industry conference for a product I was working on, it was a complete waste of time because I basically did nothing, could not get out of my shell, and didn't know what to do. So any guidance you have here would be very valuable!

Didn't speak. Just walked and talked. I spent a lot of time at conferences in a previous job and no longer get massive anxiety from it. Two things that make going to conference better: 1) Build a reputation online before (blog, tweet, be transparent) (2) get a speaking slot if at all possible b/c then people come speak to you.

Would this work for a business that requires domain expertise?

I run an online lsat prep business. I sell video courses. Not a monthly SASS, but everything runs automatically. Students arrive at predictable times of the year and buy in predictable quantities.

But, to expand on it, you would need domain knowledge. That can be hired; I have an assistant who’s an lsat tutor who handles a lot of support.

There aren’t really any buyers within my niche. Existing lsat prep companies already have a course.

There’s also the issue that my personality is in the business. The videos feature me, and the informational materials are written in my own style, using the word “I”, etc.

So far I’ve been operating on the assumption that I can’t sell it at a reasonable value. But maybe that’s mistaken. Do you think non-lsat experts might want to buy a business like this?

There’s definitely some cost savings potential. “Programmer” is one of my larger expenses. A developer could optimize it with their own labour instead.

Do you think non-lsat experts might want to buy a business like this?

Most business owners are business owners because they enjoy the returns of the asset, not because they are themselves experts at every facet of maximizing those returns. Expertise can be bought; that is a major part of their responsibility. (When I expressed surprise at the existence of non-technical SaaS buyers someone reminded me that there are people who could not cook a burger who nonetheless buy McDonalds franchises.)

There’s also the issue that my personality is in the business. The videos feature me, and the informational materials are written in my own style, using the word “I”, etc.

This isn't ideal but isn't insurmountable. Is your personality in the business or is it the business? People have sold very personal brands before, but it's tricky to arrange at the lower end of the scale. To the extent that you appear in a video, well, someone has to appear in the video, and "founder" remains true regarding you even if it is an entirely emeritus position. Informational materials being written in your style is not a problem; style is one of the things they're buying, and they can either continue consciously adopting it or adjust to the styles of the people doing writing when you aren't, at their option.

For a more detailed opinion, chat up a broker; they'll be happy to tell you their opinion of whether going through the process is worth your time.

Thanks! Do you have a broker you recommend?

It’s probably worth thinking about this as I grow, because it would be nice to diversify in a year or two.

As for personality, it’s kind of a mix, but I think a purchaser could overcome it. It’s helpful that the site be run by me, but probably not integral.

Can you give an idea of the multiples of X (i.e. revenue, Ebitda, etc) that you did consider? You mentioned 6x(monthly-revenue) was bad. But can you discuss the spectrum of what looked good/interesting?

(not asking $$$ .. just multiples that were presented)

Can't talk about my deal (see below). At the time I started discussions (early 2017) I had SaaS brokers tell me the "market rate" for SaaS was about 3-3.5x annual SDE (see post for discussion of what SDE is).

Thanks, any brokers you can recommend?

FE are the leaders in this space. I've used them twice to sell companies, good experience with them. https://feinternational.com

Launched my brokerage recently and i would be very happy to talk with you http://pixelpaycheques.com/

Can we get a look at the due-diligence and hand-over list/sequence? I'd like to see what that entails.

Make sure you know what your metrics are so you can answer initial questions and separate business records/accounts from personal way ahead of sale.

I sold a business not too long ago.

Always wondered what happened to you. Followed your story a few years ago when you participated in Baremetrics/Open. Glad that you held on for a good sum and exit!

Thank you for sharing this. Can you answer how much you sold it for, and what your SDI actually was at the time of sale?

Sorry I can't, per the terms of the deal. The buyer actually made a very good argument for why. Essentially there is so little data out there that if I posted some rough deal terms it would dominate all future discussions they had "but you paid X for Storemapper and we're at least as Y" but they still wouldn't have the full context of the transaction. So that single data point would be both misleading and unhelpful for future acquisition discussions, which I think is pretty reasonable.

> Purposefully under-optimize

> For example, I really do not understand paid search advertising (Google Adwords, Facebook, etc) so I purposefully put almost no effort into it as a customer acquisition channel for Storemapper.

This article is awesome and super helpful, but that particular point seems like terrible advice. Surely it would be much better to hire a marketing/adwords contractor, and increase the value of your company by getting more customers.

I don't think I would want to purposefully leave any "room for improvement", just to make a startup more attractive to buyers who have some experience with ads and SEO. I'd prefer to do the best job I possibly can, and I'm sure people would be still interested in buying, as long as you have the customers and revenue.

In my experience, hiring a marketing/adwords contractor is the very easiest way to transfer cash out of your business and into somebody else's business, with no discernible value gained.

I'm sure there are some hotshot marketing/adwords contractors out there...and unicorns probably exist also.

The "problem" with SEO and adwords consultants is that the good ones would be working for the most lucrative verticals: insurance, consumer finance, medical lawsuits, etc.

If your small SaaS business can afford to hire them, then they aren't worth hiring.

You can say that about literally anything and have it be false. Simply because someone/some company is amazing at what they do, does not mean they are priced out of reach or otherwise unavailable.

Indeed. Paid advertising has been a busted flush for many years now.

I'm still not sure the theoretical consultants you've listed would be "good" as such. They'll just have a massive budget they can use to blow the competition away.

I'll rephrase it as: The "good ones" would be working in a completely different field where their talent actually provides some value to the world.

As someone who manages digital media for a living and has done so with very large sums of money with measurable revenue attached to that spend, I'd invite you to share what makes your experience so concrete as to enable you to attempt to discredit an entire industry with a wave of your hand.

I'll be the first to say that measuring the incremental impact of advertising is often very challenging for a variety of technical and business reasons. That does not mean it doesn't work.

there's a difference between correlation and causation, and if you can't measure/explain a direct cause-effect relationship then for technically oriented people your proposition loses credibility.

But that's my point. Often times you CAN very easily measure direct cause-effect relationships between ads and revenue. When you get into brand advertising territory it gets a bit murkier because of the data and modeling involved, but you can definitely determine this in many cases.

Where it doesn't work is when you have inexperienced people spending an amount insufficient to properly measure results, not implementing conversion tracking properly, using poor targeting, etc. Of course that's going to fail.

And I'll note that there are VERY technically-oriented people in the industry who seem to have no problem feeling confident that advertising works for them.

My problem is simply with people who have had a few bad experiences writing off an entire industry. All I'm asking is for a bit more evidence for such a sweeping accusation, which I think is more than a fair ask.

"The lady doth protest too much, methinks"

Don't underestimate the "Irrational" elements of a big transaction. The buyer needs to be able to tell themselves (or board or LPs) a narrative about how they are going to buy this business and then massively accelerate growth. Leaving some low hanging fruit can really help close the deal.

Can't speak for the OP, but when you own and run a profitable business that sustain financially your lifestyle and more, your focus is not automatically about growth anymore. As the OP says, it is often about reducing time spent. Hiring someone for SEO, managing her/him, making decisions, is a lot of extra work. I see the rationale for leaving that work to be done by the buyer, especially if you don't like doing it, and making the buyer feel good about their added value in the process.

Totally agree on the "room for improvement" comment. Potential buyers, any time you see things like "marketer/seo/salesman could totally increase business" take it with a grain of salt. Don't assume the seller is lazy, naive, wants to leave money on the table. Assume they are smart and they have done everything they can to make the business succeed and there is no reason why you will do better. If you know the market inside and out and you understand monetarily where they are missing the mark, then, by all means, go for it.

I agree his explanation of purposefully under-optimizing doesn't make sense, however let me try to rephrase it in a way I agree with:

Paying someone to do something for you is as an investment. If you have no understanding of what you're investing in, it's not strange to be reluctant to make the investment. Additionally, if you're doing this type of marketing, but doing it suboptimally, you're not only wasting money, but an investor might not see the room for improvement because they may not see that you're doing it badly. They see "this is how many users they're able to get while doing all this marketing". If you haven't tried this type of marketing at all and the investor knows how it works better than you, they may see more room for improvement.

I think he is just being too liberal with the term "optimize" and what he means is, do the things you understand, and avoid doing the things you don't understand badly if you don't have to urgently deal with them.

^ this is a fair re-phrasing that I'd agree with.

Maybe he just preferred having a healthy amount of money in the bank, and the multiple was worth it?

Having $500k - 1m brings decent peace of mind, even if it was a nice business.

Exactly as author mentions the risks and the focus in the article. Future, especially in IT and ecommerce, is unknown and next month some mamoth competitor or smart copycat can step into his market.

I believe Tyler refers to not wasting resources on acquisition channels that you don't have expertise on. That hurts the bottom line and profit margin at the end of the day if you try and fail at a lot of things but also may imply that the business "can't be grown" because the current owner "tried it all". If you are confident in outcome you should always try to maximize total revenue and MRR/ARR metrics.

Everyone has their own experiences and opinions about paid advertising. For some businesses, it has worked wonderfully; for others, marginally more than a money sink. From what I gathered, Tyler did try paid advertising but it didn't work out and organic growth proved to be enough for him.

Personally, I would rather leave money on the table than trouble myself with another marketing channel to make more money than I already super-happy with.

I buy bootstrapped businesses. Email in profile. Shoot me a message would be happy to discuss even if its just to chat. I don't ask a lot of questions, have numerous references, and I have been buying for the last 10 years.

... and what revenue multiple do you pay?

> ... and what revenue multiple do you pay?

I'm trying to figure out if you're just being a jerk here, or whether you are genuinely curious about a question with a wide range of acceptable answers. I hope it's the latter.

Market rates are typically something between 2x and 5x some sort of revenue or profit measure.

That said, the price can go over 5 if there is a big strategic advantage to be had.

Conversely, the multiplier can be measured in months if there are some red flags -- bad management, suspect financials (e.g, lots of charge backs, excessive debt, cash flow mismanagement, etc.), suspect marketing activities (e.g., janky backlink profiles), evidence of black hat / gray hat activity, publicity issues, etc. Sometimes folks just want to sell these to get away from them, and they are willing to offer the right price. Is offering a 12 month revenue/profit multiple or lower bad here? I would say potentially no.

Also note that some people are motivated to sell for some reason. If you've got cash on hand, they will sell for less.

Anyway, whether you intended to or not, this sounded like a snarky reply. Much has been written about markets for small companies, so blithely challenging someone on HN seems inappropriate.

On the other hand, if you do know someone who has an unconditional open offer to buy businesses at a specific multiple of revenue, please let me know. I can hook them up with as much as they want. I'm fairly certain that this is not the case, but I think it is prudent for me to ask.

No I am asking a genuine question. My experience is all buyers want to pay 1x to 1.5x of the after tax profit after some massive owner salary has been subtracted.

From a financial perspective it almost never makes sense to sell unless you have to get out today. If you have a good business that is earning good money then just run it out for cash. At worst take your best employee, give them 10% of the business, and let them run it.

Some prospects have that understanding of what is reasonable, just like some startups really think they can find experienced engineers in SFBA for $60k and 10 bps, but the actual buyers who successfully consummate transactions definitionally do so at market prices, and market prices for small SaaS apps are 3~3.5X SDE (approximately profit w/ no deduction for taxes or owner salary), with deviations above and below based on individual circumstances like you would expect for any complex sales.

I've done it twice. FEI (the broker I used, linked by others) was very effective at bouncing people with very unreasonable expectations of market prices; I felt like my time was not wasted with non-serious parties (relative to my prior expectations of how many there would be).

This hasn't been my experience at all - I'm sorry you haven't had better offers. If you haven't already, I suggest contacting the brokers mentioned on this page (FE International, Pixel Paycheques) and see if they can get you better deals

I am not really looking to sell, this is just my experience of approaches I have had. My favourite was the offer I got which came with a three year earn out that was half my expected profit over the timeframe. Really.

>>From a financial perspective it almost never makes sense to sell unless you have to get out today.

On the contrary, you should never wait to sell until you have to. That just puts you in a very weak position and ensures you'll be selling it for pennies on the dollar.

Only if the other side knows this :)

> between 2x and 5x some sort of revenue or profit measure

Sorry, but which is it? 2X to 5X revenue and 2X to 5X profit are wildly different numbers.

Take your pick.

My point was precisely that the market bears wildly different values.

As mentioned elsewhere, 3-3.5x of SDE is reasonable for a well-documented solid SaaS. If you read the article, even that can vary.

Sent you an email regarding an ecommerce site I have for sale.

Business aside, I'm interested in picking your brain about your line of work. Always fascinating to speak to people who are doing cool stuff. Keep up the good work.

Do you also buy small, 1 to 3 person businesses? If you do what kind of deals do you do with the funders, as you would need them to work for you?

Hello Hala - May have something suitable for you. Drop me a line - http://pixelpaycheques.com/

I have launched my brokerage recently. Working with some incredible businesses currently. Would be great to chat we may have something of interest to you http://pixelpaycheques.com/

I wanted to keep my first business as a life-style business, to fund other ventures, because the income is financially a much better deal than a sale... but also found that it just takes too much to run miltiple ventures (Elon Musk notwithstanding).

Really liked the "see an opportunity", of the business being worth more owned by them - the sale creates value in the world. Really, it's how a sale of anything, product/service, should be.

Unfortunately, getting a business into a saleable state, and getting a sale actually done, seem about as much work as creating a profitable (but not self-running) business in the first place. Conceptually analogous to Brooks' program vs. product.

> In a strategic acquisition, businesses can be purchased

Typo/something missing after that?

Excellent and very informative post. I'd love to see the things SureSwift needed for due diligence and their hand-over list - it would be a good checklist of things you need to have squared away to ensure a smooth transaction.

imho this article is a good illustration of how business get bought and not sold. The business has to be able to live on its own and be interesting to be bought. But that means you have less reason to sell

Whew... I can think of a long list of reasons to sell a business. Many sell simply because of life events - wanting to spend more time with family, travel, buy a new house, deal with personal health. Running a small business is a 24/7/365 job and you can't just take a month off because you have got a honeymoon or a newborn in the plans.

Accounting (consult your own accountant please0: when you make salary/profit from your small biz you get taxed at ordinary tax rate (up to 40% in the US) where is when you sell biz as assets you may be taxed at capital gain tax rate (0%-20%) which is a financial advantage - like you get paid 3-4 years ahead. Again, consult a professional on this.

You could have other ideas or projects you want to work on, but unable to because your business is your 100% priority and has been for too long.

You might not want to deal with hiring a team because that's the stage your business is at - too big for you to handle on your own or you don't want to work 60-hour weeks anymore.

I could just go on and on, but a combo of 2-3 of these will certainly make the thought of selling quite appealing to many.

I'm kinda wowed that something so rudimentary (the map doesn't even have clustering FFS!) can generate a "life changing" income.

Developed during a single flight? It shows. So the real question is, why the $$$$$ valuation?!

Shows how out of touch I am with the corporate world. I can't believe people pay monthly for this.

I work for a medium-sized business in an out-of-touch (technologically speaking) industry.

You would not believe the shit we pay for.

Were our company in need of a way to cross the street, we would almost certainly look for a vendor supported crosswalk, plus consultants to guide us through crossing the street the first few times, and training for our designated crosswalk guard.

And I'm not even convinced they're doing it wrong. People are expensive. Most the time Build vs Buy is a no-brainer for everything but your absolute core business, and even then you should wonder if custom software really will differentiate you from the rest of the market.

Honestly? I wish I had seen Storemapper a few months ago. We were in the middle of a website redesign and the board president decided he didn't like the map. He got the CEO involved who told the CIO who told... you get the idea. Storemapper would've been pure win that day.

Do you mind me asking which industry you work in? I would have sent you an email but couldn't find your details in your profile

Intermodal Transportation

If it saves more time than it costs, it's a good deal for everyone involved.

At $19/mo, even if it only took me day as a developer to create my own, I'd rather just buy the service for a year. I'll get a more polished version, I don't have to maintain it, and I can go do something more productive instead since I'm not actually in the business of creating store maps, I just needed the one. If you don't have in-house developers, like a retail operation might not have, the value proposition becomes even clearer.

Couldn't agree more with you. Many developers tend to think of their own time as free and often don't estimate the cost past initial building (like maintenance/upgrades/compatibility).

I am a former developer myself so certainly been there done that mistake myself.

I know right. Big thanks to patio11 for convincing me (via blog posts and tweets) that, yes, many businesses will pay quite a bit more than you think for things like a store locator

Is it just me, or is patio11 the most widely helpful and valuable person on the entire internet? Can hardly make it through a long HN thread without finding some reference to "patio11 wrote a great post on this topic that helped me immensely"

Thanks! That made my day. (I would have liked it regardless of the context but particularly nice to hear in the context of helping a business to a materially successful outcome.)

It's time you wrote a book (aka package your popular blog posts into an ebook) Patrick and made people pay $$ for your advice :-)

Would you rather:

Hire a developer with a salary, benefits, and tax to build this module plus project mgmt time for requirements building, testing, training, documentation, sustain, etc.

Pay $60/month and 1/10th of an FTE to plug it into existing assets and sustain it.

What would be the alternative if you can't implement it yourself? Pay a developer a hefty one time sum? And then probably all few years another developer again to update it? Thereby getting a product which isn't as feature rich as the Saas version? And probably increase the required administration effort for your website hosting. Doesn't sound like a good alternative, especially if you are an startup which might be not around next year anymore.

They have to. The functionality is table-stakes for any business selling a physical products in stores, and no site or store platform has the functionality built-in.

I implemented Storemapper for a few clients (indie sellers and major brands), and they absolutely loved it b/c it solved their exact problem and cost next to nothing.

'I could do this. Why would I pay for it?' only works for people with copious free time.

Or people who value their time at 0, which seems to be a lot of developers.

This is something that any business with multiple locations needs. Why reinvent the wheel if someone has already solved the problem? At $60/mo it's not even a blip on the budget, and almost surely far cheaper than having a developer build and maintain a one-off version.

I think many of the questions stem from "Why not just use Google Maps and its API directly"? You can embed it, place your own pins, and style it with your own CSS. The only features on the landing page apart from that are some kind of analytics and data import.

However, the analytics piece alone could be worth $60/mo if it provides something that Google maps doesn't, especially with regards to finding out when/where searches happen for your stores (conceivably getting the user's coordinates, and you already know the context for their search because they're on your site's store map). A large amount of searches in a particular location might mean it's a good store expansion location.

If anything, $60/month seems too cheap.

...the cash, from selling the business has built momentum for other projects like [...] angel investing,

I just knew that would be in there. Why do so many tech people seem to think that VC investment is what they want to be doing once they have spare cash? This isn't a personal critique of the OP, but it just seems so very common in general. I don't understand it.

I "invest" in new startups because I want to help the next generation. I put invest in quotation marks because I don't expect to make any money (I will be happy if I break even), but I do want to give back and create the environment that I never had access to. I know others feel the same.

Some of my investment is to empower people that I like. Some is just to help them over a temporary financial hurdle. Some is more like a gift than an expectation of a financial reward and, honestly, a loss is the expected outcome.

I'd also add something to the general topic. I never expected to sell my company and I think that actually helped. I drew a salary and kept my finances distinct from the legal entity that was the company. As it was I was the only owner, there were no investors to please, so profits went into growing and securing the business. Note: I consider sharing the profits with employees to be part of business growth and security.

That meant I had complete ownership and a healthy business, without much real debt. This was attractive and it was quite surprising, sort of, when the offer came in. It was only sort of surprising because there had been a few rumors about it.

So, I'm of the mind that the mentality drove the process and the process influenced the results. Of course, there is survivorship bias and I'm just a single data point.

Congrats on the sale! Very noble of you, big fan of your approach. Ultimately, my goal is to eventually do the very same (give good people their chance to flourish and create good business).

Have you seen any correlation to the "no pressure"/generous aspect of your investments to the success or failure of said investment? My feeling is that the lack of stress attached to the investment may make it easier for the founder to achieve their goals. No anxiety about failure to pay you back = no self fulfilling prophecy. Probably depends on the founder.

No, but I don't have any frame of reference other than this. I treat every investment as a potential total loss, at least in this area. So, I don't really pressure or tell people what to do. So far, it's barely profitable.

> I "invest" in new startups because I want to help the next generation

That sounds noble. But, concretely, you want to help people make SaaS products like Storemapper (mentioned in the article)? I don't want to sound demeaning, but is that really such a noble goal?

I am not trying to be noble, just trying to change things where I live for the better (I am not in SV, I am in Australia).

When I started there were zero angel investors and next to zero VCs. Things have got a lot better, but we still have a long way to go.

Helping others realize the wonders of financial independence so that they can experience more happiness by spending time with friends, helping others etc.

Sure he's not curing cancer but there is a tremendous amount of nobility in his future actions.

Look beneath the surface my friend :)

> Is that really such a noble goal?

That comes across as a pretty negative thing to say, the implication you're hinting at and not saying in a forthright manner.

Noble goal is an inherently subjective concept. Your definition of that, will vary from everyone else. It makes very little sense to challenge someone's actions on that basis.

> I know others feel the same.

This is the reason I would do it if I ever make FU money.

What are some startups you invested that you think will help the future generation?

Any startups that come to mind that have helped this generation?

I use the term "angel investing" pretty loosely here. Not implying picking startups on angelist, but more like small investments in other Micro-SaaS businesses. Still formulating a strategy for investing tbh as it's the first time in my life I've have real captial to deploy, but I feel like I have a better competitive advantage investing in what I know rather than securities

Whether you have an advantage or disadvantage depends on your goal.

If you want a series of potentially-fun lottery tickets in industries and teams you choose, you have an advantage.

If you want any return (and I mean any, as in, recovering any capital), you have 3 huge disadvantages: insufficient diversification[1], a lack of dealflow, particularly great deals, and inexperience evaluating and participating in other people’s startups. These are all surmountable, but doing so is an occupation.

If you don’t already read Matt Levine, the “Retail Traders” section of https://www.bloomberg.com/view/articles/2017-10-09/retail-vo... applies to picking a small quantity of individual startups too. The reason to do it is because it’s fun (and you’re comfortable losing all of the principal), not to earn average risk-adjusted returns.

[1]: Check out 500 Startups’ presentations and posts on how much diversification is required to expect average returns for the asset class. Here’s one: https://500.co/not-so-simple-math-on-venture-portfolio-size/

Hey, good luck to you. Again, it's nothing personal, and I don't mean to be insulting your choices, I just find it interesting that VC investment is so popular a choice for moneyed tech workers.

I am not a financial advisor, but generally speaking you should only be putting 5% of your net worth into high risk investments (i.e. angel investing). Some people have done the opposite (95% of net worth) and gotten extremely lucky on going all in (see Jason Calacanis's book Angel for example).

> I don't understand it.

I do. Angel investing is a status symbol in tech circles.


I believe this a great feature that create "tech hubs". It is the "give back to the community" of tech entrepreneurs.

It is not just a financial decision.

But there's plenty of ways to 'give back to the community' without being the one waving the chequebook. In particular, if you've got the spare time to work on other projects, you can do plenty to help out.

You always have the same amount of time, regardless of your net-worth, so the richer you are, the more valuable time becomes relative to a dollar.

I think a lot of us non-rich guys know this, too. When I was young and had no money, it was harder to give someone a significant amount of money than to spend my time helping them. So I would give my time. Today when someone asks me to help them with something I'm thinking "can I just give you money, hire someone to do it" unless it's something I actually enjoy doing. And I'm FAR from rich.

One of my least favorite things is when a family member asks me for help but they refuse to take money / let me pay for something. They think they're being fair by refusing money but they're actually being unfair because they're asking me for help but not letting me help them in the way that is easier for me, purely because they don't want to feel bad for having taken the money.

Some folks have more spare money than spare time.

If you've got the spare time, cool, if you've got the spare money, cool. What's the issue here?

I've no issue with angel investing. It does start to irk me when people talk about it as 'giving back to the community' though. That used to be called charity, not investment.

Ok I think that's a reasonable position to have.

However, giving back to a professional community seems like it would run on a different set of fundamentals to giving back to a social community.

Could one not equally apply the argument to non-monetary activities -- giving talks, running events, writing OSS software, etc? That's all stuff that normally falls under the mantle of giving back to the community, yet it often confers resume benefits.

What is it that makes it different?

I believe a "proper" angel investing implies that the investor do not only write checks. There is time commitment helping other founded. Successful entrepreneurs turned angel investors is the pinnacle of "smart money" I think

When you're busy with your new, own projects, time is in short supply. Are you seriously going to complain that people angel invest? It's of great benefit to founders.

"This isn't a personal critique of the OP, but it just seems so very common in general. I don't understand it."

You conveniently elided the preceding part and where he suggested devoting time instead of money. No matter your selective citation his tone was still that of a critique or complaint.

I think it's because before the sale you were on the other side of the table dreaming about how easy the VC life is (just spending some cash and letting you do the actual work).

How else would you invest your money? Index funds in a stock market whose price is going hockey stick?

With banks out of the business of loaning people money there are genuine opportunities out there where people can put money to work. I imagine he is not going to be gambling on ICOs but investing in profitable companies.

I'd invest in equities, commercial real estate, and residential real estate development.

Most tech companies looking for angel investment or VC money are just other versions of information selling (that is, information about people) or social interaction or both. They aren't worth "giving back" to, from either a tech perspective (from the perspective that they'll possibly advance technology) or from an investment perspective (they'll almost certainly perform worse than even conservative investment).

10% a year on a million is still (way) better than throwing 4x $25k at a random startup through angel investing.

Hell, with current interest rates, you might as well use some portfolio margin and borrow an extra million.

Are you saying you can expect 10%/year with your money in the stock market? No stockbroker will tell you that, it is more like 6%-8% over a 10 year time frame. And you have to have the courage to watch your balance drop 50% over a 1-2 year time span and still stay in.

My own accounts have earned over 11.5%/year, for the past 10 years. This was through the financial crisis, where I did see huge drops like you describe, held, and continued to invest.

Longer term 6 to 8% feels about right though.

S&P 500 ETF Trust gained 63.42%, last 10 years.

Vanguard 500 Index Fund, 130.56% since 2010.

And neither look like hockey sticks.

If you put some time into it and learn how to properly invest, yes.

If you made a million today, you probably want to just keep it in an account and wait until a 20%+ correction happens before buying in, though -- it's been quite while since the last significant drop.

Trying to time the market? Good luck with that.

All active investment, unless you're a market maker, is market timing.

> it is more like 6%-8% over a 10 year time frame

Uh, it's 6-8% compounded over what ever time frame. Which is actually still quite good and probably handily beats most angel investment returns.

Yeah, exactly. Profitable VC investment is often described as a numbers game, where you need to make maybe hundreds of investments to smooth out the inevitable numerous failures. 4x $250k angel investments is basically a long shot gamble. On the flip side, if you do spread your investments and invest in lots of companies, you as an individual aren't going to be able to have enough time to help or advise any one startup in a meaningful way.

How often do angels get screwed when VC's come in? Genuinly asking, not trying to make some point.

Sorry, I'm talking about VCs/angels as the same thing, and not trying to say anything about the investment time/stage/size/whatever.

I want to “invest” in the opportunity to sit back, write books and fly airplanes. Angel investing seems like its fraut with constant bombardment from bullshitters. Spending my days looking at decks and listening to the noise of how great someone’s revolutionary idea for delivering fresh made salads to Brooklyn hipsters is would drive me nuts.

Perhaps I’d take my money and go build schools in the Himalayas or something.

But to each his or her own!

"paying it forward" is part of the silicon valley culture, and as other markets mature they try to adopt that mentality as well.

without it, this is one of many aspects that will make it impossible for some hamlet in Bumbaf* Cheapsville to be "the next silicon valley"

I always thought "paying it forward" spoke of acts of charity, not investment (and to those who say that VCs don't expect any reward and invest solely through good spirit, perhaps they should then be making investments that don't give them the potential of huge paydays?)

Interestingly though, a read of "paying it forward" in wikipedia - https://en.wikipedia.org/wiki/Pay_it_forward - teaches me that the phrase can also be implemented in the contract law of loans. I never knew!

I think it's just a lot of fun to meet other entrepreneurs, and be involved in what they're building. Definitely more fun than putting your money into some index funds.

Seems a bit ironic that a successful bootstrapped business owner would want to do angel investing.

Appreciating the good discussion here around "angel investing" which I broadly agree with depending on how you define it. Just want to clarify that for me personally, I meant just investing in early-stage businesses in creative ways; not VC, moonshot, whatevers. In the run up to launching many failed businesses prior to Storemapper I accumulated nearly $60k in credit card debt, which functioned more or less like an angel investment from Chase et al. I think there are lots folks who could build a good business but don't have access to even that level of "capital" or don't want to take that kind of risk and might instead look for an "angel" investment. Maybe. Still early in formulating a strategy to be honest. (further reading if you're curious: https://tylertringas.com/debt-free/)

Both ourselves and our fellow bootstrap friends have eerily similar tales of CC debt as our first investors. $30k for a nearly profitable bootstrap founder is rocket fuel.

People go with what they know.

Makes sense to skew towards industry where one has acquired lots of information.

Because it's fun. You wouldn't want to do it if you had the money?

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