Posts Tagged ‘Angel investor’

Future of Angel Investing?

Saturday, February 27th, 2010
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Today I got a question about “International angel investing. Can it work?” – from Giandomenico that posted it in LinkedIn.

In his question he’s pondering about the angel investing in international level. The main point in the question is to compare it to more local investing and in what situations would international angel investing work.

My idea is that an international angel investment is frequently a co-investment with a local (and trusted) angel investor. Otherwise, international angel investment can happen if the amount of invested money is very small and limited for the investor and if both the investor and the entrepreneur are good at communicating through email and throughsoftwares like Skype, webex etc. But these are particular cases.

I think this is a very good question so I wanted to spend some time thinking about it, to answer properly. Here’s my answer to he’s question:

I think you pretty much got this right.

I also think it’s not so much of local or international than it is who knows who. Typically angel investments are referrals within a network. That network can be friends, friends of friends or some professional network and ultimately a professional angel investing network.

It just happens to be that there are more locally focused networks, since building any kind of international network in past have been much more difficult and costly.

So my answer for situation today, is that international angel investing happens where there are angels that have personal networks of friends that are internationally spread out.

How do I think this will change in the future?

1. Now that there are so much more effective tools that enable people to join networks that are international and find new friends online, this will start to increase.

2. When the next generation of angel investors grow from people commonly using facebook in their daily activities today, it’s very simple for them to also feel comfortable making investment decisions with their online (angel investing) friends, if they trust their opinions in other matters in their life as well.

3. When the costs related per investment comes down with more effective tools online and at the same time there is bigger pool of deal flow, that will enable new options.

Crowdfunding can also be fundingcrowd

If the concept for crowdfunding in fund raising side means;

- instead of looking for few people with plenty of money, choosing to find plenty of people with small money

Then for investing that can be translated to;

- instead of putting plenty of money to few startups, choosing to put little money to many startups.

From investors point of view this is a balance between how much they want to distribute their risk.

These are the reasons we are building Grow VC, to help enable this development for international angel investing. More deal flow to choose from, social network of like minded people to make new international friends, bring down the cost per deal and smaller investment to more startups.

We also believe, that in future by enabling more efficient tools it also makes sense to do smaller rounds more often to make it easier for startup to be agile and also limit the risk by investing into “momentum” and milestones based funding – milestone by milestone.

This all have possibility to make stuff more “real”, when the focus is more in the near future, rather than 3 years with hockey stick plan.

Last July my co-founder Jouko also wrote about this topic with the topic “invest globally or locally“. What’s your thoughts on this topic and how do you see this developing in the future?

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iPad and Apps Economy

Thursday, January 28th, 2010
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We all now know officially that Apple launched iPad. It is an interesting new concept between mobile phones and laptops. And definitely it will have and need a lot of applications to be successful. We saw already some games, books, and newspapers that are available.

iPadThe next step is to get developers to make much more apps. Paul Grim, a General Partner at venture capital firm SunBridge Partners, commented the apps business from the traditional VC point of view in Venturebeat’s article, An investor’s take on the iPad — how to parse the hype. In this article Paul Grim says:

“Although I do believe there will be many successful apps on the iPad, I don’t believe they are generally venture-backed material. As with most of the iPhone apps, this will be a hits-driven business with little capital intensity; most of the successes will likely be angel or self-funded.”

This is the same point Grow VC has emphasized many times (like yesterday). We have actually divided the mobile startups now into two main categories (there are of course much more segments inside these categories):

  1. Hardware and more demanding technical platform startups
  2. Application startups

The first category includes companies that have been funded by traditional VC’s. But many of those firms also need seed funding before a VC round. The second category is not really for the traditional VC’s. But it doesn’t mean that they are not good business opportunities. But the capital structure and risk profile is different from VC’s targets. They can start with small money, and it is not technology risk, but much more market risk, i.e. can they really get loyal users.

This is one reason, why new models for seed and startup funding are needed. And we believe Grow VC’s concepts, which we have now in beta and especially new ones we launch in this year, will offer a new way to fund these companies.

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Future of Venture Capital

Saturday, January 23rd, 2010
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Silhouettes representing healthy, overweight, ...

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Today I was reading one of my favorite VC blogs AVC by Fred Wilson about “The Venture Diet is Working“, where he says:

2010 will be an interesting year. If VC investments go back up to $25bn to $30bn per year, then the diet didn’t stick and we are back to an overfunded industry that will produce subpar returns on average.

If, on the other hand, the new normal is $15bn to $20bn per year, then the diet worked and we’ve scaled back the business to healthy levels.

This comment relates to he’s earlier post about the “Venture Capital Math Problem“, where he explains about the problem that – too much money will make the whole VC industry to under perform.

As this is one of the reasons we have started Grow VC, I wanted to point out that things are not the same everywhere. So here’s my take on the topic:

I think this is similar problem than it is with food. In some western countries there is too much food and problems that are associated with that, like obesity. Yet in many parts of the world, people are starving.

So if some markets in the world have too much money in VC, it does not mean there is too much money overall, it’s just wrongly distributed. I do understand that, there are also problems with having too much money per sector, so that nobody is getting good results, but that too is wrong distribution.

Early VC money should always be going towards new innovation and not to be “me too in the popular segment” – there are plenty of problems in the world for entrepreneurs to solve & VC’s to be successful.

If we think that “Four Years After Founding, Kiva Hits $100 Million In Microloans“, I feel that it’s a strong indication that entrepreneurship in all shape and sizes can be instrumental on reshaping our world for the better.

There is a big gap between what Kiva.org is doing and with these problems of having too much money in venture capital in some regions. For us this shows that there needs to be much better distribution, more transparency and more activity in this segment overall – and this is exactly where we are focusing our efforts.

Here’s my dialog with Fred, on the “Venture Capital Math problem” 8 months ago:

Me:

I think this just shows that money does not solve problems. The problem here is not too much money, but how it’s now distributed.

VC industry is starting to look like the newspaper industry ;) – better to wake up, the blogs are coming…

Fred:

What are the blogs of the VC business?Things like Y Combinator are great but they are feeding us even more opportunities so I see them as additive, Although I also see blogs as additive for the newspaper business if they’d just see themselves as curators and aggregators instead of content creators

Me:

I guess the closest thing to “blogs of VC industry” today are angel investors. But that’s for today. Also Y-combinator and the likes are great too and could be considered as “blogs of VC industry”. However their “next step” need to change away from just VC’s.

The fundamental change will become, when there are “platforms” for anyone to start a “blog for VC industry” and that’s what we are doing in www.growvc.com.

Overall, we feel that in long term the money will be spread to more potential start-ups and more of them will not go via IPO but just buy back of shares, mergers etc. with lower ROI. But that’s OK if the time for ROI is shorter and cost of management is lower.

So – be more direct, spread wider, lower the management cost, speed up the ROI cycle and you can accept lower ROI.

If you think about the structure of today, from where the VC money really comes from, you start to see the “big picture”. – basically it means that individuals like you and me pay for pensions funds etc. and these funds then invest to VC funds. VC’s then make investment decisions and “manage” the investments, all the way to take it public (hopefully). Basically just to sell it back to us…

When more people will start to understand this cycle because of more info and transparency online (if they are interested), people will not accept this structure. Because in the long run what matter is, if the companies in question sell what matters. And that is not a question of size.

Fred:

Got it
I hope this works
It would scale much better

Related to this topic, below is a very interesting speech given by Fred Wilson at talks@google. You need to spare an hour to look the whole video, but I feel it’s well worth it. Just have some popcorn & coke and relax.

What makes it interesting to me, is that those industries that are going to be disrupted by internet in the future, currently have same issues what Venture Capital does, yet for some reason those would not apply to VC industry.

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Additional value of the funder

Thursday, July 23rd, 2009
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Image by: TOKY Branding and DesignI have been reading this great blog “Both Sides of the Table” by Mark Suster, a 2x entrepreneur who, in his own words “has gone to the Dark Side of VC”.

I like his blog, because he’s working hard to build real understanding between investors and entrepreneurs. The better both can understand each other, the easier it is to work towards the deal and beyond.

In one of his lates post “Raising Angel Money” there is a great quote by Ron Conway, the legendary angel investor from Silicon Valley (invested in Google, Twitter, Digg etc. early-stage SV success stories).

“If I invest in a company I open my Rolodex for them.  I help them with business development introductions.  I introduce employees.  I give them credibility in the fund raising process.  Let’s say the company was worth $1 million when I met them and I’ve helped them with both my Rolodex and my cash and they can now raise a round of venture capital at a valuation of $6 million.  I would be hurting my own interests.  A $500,000 investment at a 30% discount to a $6 million round is still priced and more than $4 million and is certainly worth much less than my investing at a $1 million pre-money where I could own 33% of the company.”

This is one important point for new entrepreneur to think about. There is real value on thing beyond money that really can make a big difference. However like funders, as an entrepreneur you should also make your own due diligence on the funders, to make sure they really can deliver what they say. I also suggest you to read the rest of the post as well.

Have you had good or bad experiences with this part of the value? Share what you have learned in comments below.

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More capital entering the lower level of the startup funding ecosystem

Tuesday, May 19th, 2009
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Again this post in Funding post continues from the topic of serious bootstrapping trend. More start-ups being capital efficient (good thing for entrepreneurs) etc. This comment below highlights the current trend very well:

“I see a lot more capital entering the lower level of the ecosystem probably because… the opportunities for being capital efficient are actually more available now than they were before,” said Owen Davis, managing director of NYC Seed.”

More about the subject in the video below:

There is a reason why this is also looking more appealing for VC’s. The VC’s problem is well outlined in this post: The Venture Capital Match Problem, by Fred in Ask VC.

Below is my dialog with Fred (in comments):

Me:

I think this just shows that money does not solve problems. The problem here is not too much money, but how it’s now distributed.

VC industry is starting to look like the newspaper industry ;) – better to wake up, the blogs are coming…

Fred:

What are the blogs of the VC business?Things like Y Combinator are great but they are feeding us even more opportunities so I see them as additive, Although I also see blogs as additive for the newspaper business if they’d just see themselves as curators and aggregators instead of content creators

Me:

I guess the closest thing to “blogs of VC industry” today are angel investors. But that’s for today. Also Y-combinator and the likes are great too and could be considered as “blogs of VC industry”. However their “next step” need to change away from just VC’s.

The fundamental change will become, when there are “platforms” for anyone to start a “blog for VC industry” and that’s what we are doing in www.growvc.com.

Overall, we feel that in long term the money will be spread to more potential start-ups and more of them will not go via IPO but just buy back of shares, mergers etc. with lower ROI. But that’s OK if the time for ROI is shorter and cost of management is lower.

So – be more direct, spread wider, lower the management cost, speed up the ROI cycle and you can accept lower ROI.

If you think about the structure of today, from where the VC money really comes from, you start to see the “big picture”. – basically it means that individuals like you and me pay for pensions funds etc. and these funds then invest to VC funds. VC’s then make investment decisions and “manage” the investments, all the way to take it public (hopefully). Basically just to sell it back to us…

When more people will start to understand this cycle because of more info and transparency online (if they are interested), people will not accept this structure. Because in the long run what matter is, if the companies in question sell what matters. And that is not a question of size.

Fred:

Got it

I hope this works

It would scale much better

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What you need when pitching for funding

Thursday, May 14th, 2009
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First, the thing that will make many entrepreneurs happy – you don’t need a business plan, when you are looking for venture capital or angel funding.

The best value of any business plan is the process of creating it, not the ending result. It’s valuable for you and your team, not for investor. The value to your team comes from building your mutual understanding and understanding the overall structure & details the same way.

So you don’t need a business plan, then what do you need?

  1. access to pitch the right investor, right type of introduction is best
  2. really short few words quick pitch
  3. elevator pitch
  4. deck of selected details
  5. several pitching opportunities

Below is a great presentation by Nivi at venturehacks that every entrepreneur should be listening right about…. now!

Pitching Hacks at Stanford

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