Interesting Trends in Angel Investing

Interesting Trends in Angel Investing

“Tell me about your cap table?” I asked the Founder of an early stage startup. He was clearly passionate about his business, and had assembled a top-notch team to help him achieve his ambitious vision. But the grit and determination that had helped him overcome the challenges of his current and former startups seemed to falter a bit as he considered his response. He had a dirty cap table and he knew it. With some reservation he said, “Our initial angel investors own 60% of the company. I have 35%, and the rest is split up between the team.” He then went on to explain that their aggressive valuation was based on the growth since the last round of angel investment, in which the above-market revenue multiple the angels had chosen set the precedent. I soon found out that this team had struggled to raise money from the other venture capital firms with which we like to syndicate—because they, too, were dissuaded from the conditions that the angel investors had created: small runway, fragmented cap table, high valuation and little strategic support. He described with some frustration how he felt stuck, and that his ‘angels’ no longer fit the heavenly metaphor, but rather the situation felt more like hell. Compare and contrast this situation with a scenario that has become familiar because of it’s frequency within our portfolio of Peak Ventures-backed companies, in which an angel investor known to our team (and often an LP in our fund) introduces us to the founders of a company that he or she has backed (usually at an appropriate valuation for the...
Entrepreneurship a Long Slog?

Entrepreneurship a Long Slog?

I recently ran one of those races that peppers obstacles and fear-inducing challenges throughout the course. One of those was the Muddy Mile, a long slog through waist-deep mud. The pit was wide enough for several people abreast, which gave cause for some funny moments. While most of us runners kept to the highest ground possible—which meant that we formed into a slowly moving line that snaked its way through the muck, a few brave and impatient souls tried to skip the line by running along side us through the untested mud. Without fail every one of these hit a deep pocket and promptly vanished from view as the sludge completely engulfed them. But those of us who stayed with the impromptu team could see from the people ahead how deep the mud was at those spots, and thus chart a good course. Reflecting on this muddy run experience caused me to think about the doom and gloom that has been in recent media outlets. It seems that the press increasingly views entrepreneurship and business creation as a long slog through icky mud with unexpected pits. Spectacular drops in stock prices like LinkedIn and Tableau caused reverberations across high tech, and SaaS valuations in general have now dropped 57%. The word “unicorn” now has a mixed reputation. And the fund raising environment seems to be tougher. So shouldn’t an entrepreneur expect a long slog right now, a seemingly hopeless journey of bootstrapping and organic growth? A Muddy Mile with hidden pits that will swallow them whole? No. This is the best time to start a business and get into...
Aim High and Ride a Giant

Aim High and Ride a Giant

“If I have seen further it is by standing on the shoulders of giants.” – Sir Isaac Newton Recently visualcapitalist.com published a chart showing the 12 apps that have more than a billion monthly active users. The authors point out that these apps are clustered into three companies, that timelines are shrinking, and that mobile is driving rapid adoption. Cool! But what does this mean for all the rest of us? I think it means to aim high and ride a giant. Aim high means lift your sights. We entrepreneurs (and investors in such) of the world believe that wildly optimistic and seemingly impossible things can be achieved. Sometimes the only evidence we need to launch a dream is the knowledge that someone else has done it, too. So if you are developing an app, my question to you is ‘What is your goal?’ Specifically, how many concurrent users will you have? How about a billion. Is this unreasonable? 12 other companies have achieved it, so why can’t you? Sure, reality is hard, and we are more likely to be disappointed then successful—but if you aim for the moon, you’re likely to hit the mountain top; aim for the mountain top and you’re likely to hit the trees; aim for the trees and you’ll probably fall on your face. You’ll probably never hit the mountain top unless you aim at the moon, so aim high. Ride a giant means to make a gargantuan and growing business a winner because of what you do—and then let them carry you forward into the market. Look at the chart and notice that...