Troy Knauss Photo
Troy Knauss Photo

Troy Knauss buys, invests in, and consults with companies

As an accredited investor, Troy Knauss has built a diverse portfolio of angel-only backed deals with some successes, a few failures, and a whole lot of opportunities. In addition to these deals, Knauss has spent time growing companies and volunteering on boards that benefit the entrepreneurial ecosystem. His recent boards include Vice Chairman of the Angel Resource Institute, a spinout of the Kauffman Foundation, the Greensboro Partnership’s Entrepreneurship Connection, The Launch Place, and Wake Forest University’s Advisory Council for the Center of Entrepreneurship. According to Knauss, “There is no greater reward than helping a fellow entrepreneur realize his/her dream. It doesn’t matter if that dream is to simply start a company to build an income or to grow a high-value business with the ability to create major wealth creation when it is sold.” Knauss expects to continue to invest in 4-5 deals per year.

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It boasts around 200,000 registered investors, although not all will be active, with more than 70,000 people signing up this year.

Jasper Cuppaidge, co-founder of Camden Town Brewery, the maker of Hells Lager, secured £2.4m in growth capital from armchair investors

So far in 2015, Crowdcube’s investors have earned financial returns of around £600,000, the company claims, just 0.6pc of the amount invested.

It is too early for most of the platform’s investments to reach an exit, so the low figure reflects only the equity sale of E-Car Club to Europcar in July and multiple mini-bonds, including Eden Project and River Cottage, making their first interest payments to investors.

Over the past 12 months, more established businesses have begun using Crowdcube to raise finance, the company claimed.

The investment pots are also increasing in size with a dozen companies raising over £1m in the last year, including parking app Just Park, which raised £3.7m; Sugru, the maker of an adhesive putty, which secured £3.4m; and Camden Town Brewery, which raised £2.4m.

Sugru’s crowdfunding project also boasted the single largest investment on the site, with one private investor pledging £1m.

“Enabling people to invest in some of Britain’s brightest companies, alongside world-renowned venture capital firms and acclaimed angel investors, on Crowdcube is now commonplace,” said Darren Westlake, chief executive and co-founder of Crowdcube.

“Crowdfunding is now sitting alongside venture capital, angel investing and traditional debt financing as a mainstream channel for funding rather than an ‘alternative’.”

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Article source: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/11838598/Crowdcube-reaches-100m-funding-milestone.html

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(Photo: Mike Poresky/Flickr)(Photo: Mike Poresky/Flickr)

(Photo: Mike Poresky/Flickr)

I started angel investing almost by accident, which sounds strange to say. Who “accidentally” invests tens of thousands of dollars into highly speculative ventures? Well, I did.

A friend introduced me to Clayton Christopher who was raising money for his new liquor company Deep Eddy. Their first product, a sweet tea vodka, was amazing and he was an experienced entrepreneur, so I went in.

Investing was an exciting, interesting process. Then the company took off, and I got to tell everyone I know that I invested in that new vodka that everyone in Austin was drinking. Winning is the ultimate intoxicant, and from there, I was hooked.

I started investing in companies left and right. I became a huge cheerleader for angel investing. I wrote about how great it was, I recommended everyone do it, and helped a bunch of people start.

I was wrong.

I have completely quit angel investing, and I’m telling you to never start.

Be clear: Angel investing as an activity is great. When the right people do it the right way, great companies are created and everyone wins. I’m NOT reversing my position on the activity itself, only on who should be doing it.

By the end of this piece, my hope is that you will understand four things:

  1. Why I stopped actively angel investing
  2. Why you should never start angel investing
  3. Who should be doing angel investing
  4. What you should do instead (and how to invest if you must angel invest)

My Angel Investing Background

Tucker Max (Photo: Randy Stewart/Flickr)Tucker Max (Photo: Randy Stewart/Flickr)

Tucker Max (Photo: Randy Stewart/Flickr)

This will give you an idea of my angel experience. I’ve found that 80% of the writing about angel investing is total crap, written by inexperienced amateurs who have never done it. That’s not me.

From 2010 to 2014, I put 1.2 million dollars (of my own money) into ~80 companies. Thirty-six were direct investments. You can see some of my direct investments on my Angellist page. The rest was invested through two larger funds where I am an LP (ATX Seed Fund and Evolve VC), and one smaller fund I advise.

I’ve done pretty well with my investments. Emphasizing that no return is truly real until the money is in the bank, I can say that as a minimum, a 5x return on my 1.2 million is guaranteed. And because the internal rate of return on the two funds I am in is very good as of right now, a 20x return (or more) is very much in play over the next 6-8 years.

I also gained notoriety from my angel investing. I was written up in New York Magazine as a leader in the trend of celebrity angel investing. I wrote about some of my investments, and a series of posts I wrote about crowdfunding, both of which got a lot of attention.

Because of these posts (and other things) I had hundreds of companies ask me to invest, I spoke at conferences about crowdfunding and angel investing, I was asked to write for magazines and sit for on-camera interviews for a documentaries, and was even offered a role on a TV show about angel investing (that never ended up airing). I’m also a mentor at the best consumer products incubator in the nation, SKU.

This is not bragging. I am a small fish as far as angel investors go. I say this only to establish what very few who write about angel investing on the internet have: I have actual experience and credentials investing real money into real companies.

Why I Stopped Angel Investing
There are two reasons I personally stopped angel investing:

  1. There’s a dearth of good people to invest in
  2. Angel investing is a poor use of my time

1. There’s not enough good people
Lots of people talk about the start-up and tech world being in a bubble. This is just objectively not true. Yes, there is a ton of money chasing companies, and yes it is pushing prices up, but we aren’t close to a bubble. There are many ways to see this, but the big one is obvious: it’s never a bubble when everyone talks about it being a bubble.

There are also people who say the company ideas out there suck, and that start-ups aren’t solving big problems. This is nonsense. In fact, from where I sit, most of the cutting edge work being done in America to make the world better is coming FROM start-ups. None of it is coming from the Gawker writers talking about tech’s issues, that’s for sure.

Combine these two things—lots of money chasing start-ups, and start-ups working on big ideas—and that should be really good news, right? After all, that is the ENTIRE point of investment: allocating resources to the highest possible use.

So if there is enough money and lots of good ideas, where is the problem?

It’s the people.

What’s so great about entrepreneurship is that you don’t have to be from the “right” crowd to start a company—you can just do it, without anyone’s permission. But when you have a lot of money chasing all these great ideas, and you combine it with the fact that entrepreneurship has gotten sexy in the last few years and become the “in” thing for a certain crowd, what you end up with is a huge number of people starting companies who have no business at all doing that.

I don’t mean this as a social judgment, or to cast aspersions. One hundred years ago we might call these people charlatans or snake oil salesmen. But that’s not what’s going on here. Most of them are very sincere, and their ideas are great. What I mean when I say “they have no business starting a company” is that they cannot actually execute effectively in a start-up environment.

Ultimately that’s the only measure that matters: can you do the job? Over the past 18 months, I’ve probably looked at around 400 companies in many different areas. I’d say that 75% were solid ideas, and I’d say that over 50% were in potentially huge markets. But I’d estimate that only about 20% of the people starting those companies have the ability to actually do the job.

These are not random companies off the street. I’m talking about teams I’m seeing at Demo Days from major incubators, or outfits that have already raised big seed rounds, or start-ups that have gotten press. These are “validated” start-ups (at least validation as it is currently defined).

There is an anti-bubble in talented people—a black hole, and I’m not about to get sucked in past its event horizon.

And by “ability” I don’t mean “they have the right resume.” I mean far more basic things, like “they have no idea how to sell this product,” or “they have no idea what business they are even in.” Brad Feld captured it perfectly in this piece. I was having conversations like that one every day, the same as him, with inexperienced kids totally lost in all aspects of running a business.

I think this became a problem for two main reasons:

1. Bad education: There is not a well understood theory of going from a start-up to full company. There is a lot out there on how to come up with ideas and test them (e.g. The Lean Start-up), and the entire business school MBA edifice is great at teaching how to manage a company once it reaches scale with a market-validated product.

The problem is there’s very little effective information about going from tested idea to scalable company—what to do and how to do it. In essence, our informal educational system teach 0 to 1 pretty well, and our formal education teaches 10 to 1000 very well, but there is almost nothing about 1 to 10 (which is VASTLY different than the other two).

NOTE: First Round Capital is one of the few places I see creating amazing and informative content in this specific area of need.

(Photo: Paul Inkles/Flickr)(Photo: Paul Inkles/Flickr)

(Photo: Paul Inkles/Flickr)

2. Young = stupid: Most of the founders are young, and young people are inexperienced, which might be great for a lot of reasons (energy, enthusiasm, flexibility, no assumptions), but it almost automatically makes them stupid at entrepreneurship.

I was exceptionally stupid when I was young, so I speak from experience here, but without an experiential framework to fall back on, you have no way to understand and solve many of the hundreds of problems that come up when you start a company. The younger you are, the less experience you have, the harder this whole thing is.

This doesn’t mean young people can’t excel at entrepreneurship. Yes of course some young people can and do build companies and become amazing CEO’s. Please, do not point to Mark Zuckerberg and Evan Speigel as your rebuttal; they are by definition the exceptions that prove the rule. For every one of them, there are 50 founders who torpedo their previously hot company by making all the standard mistakes of youth. Ask any VC you know to tell you those war stories. They have way more of the bad than the good.

I have seen this play out firsthand in my own investments. I can think of two portfolio companies specifically, both of which have raised major rounds from big name VC funds, where I have to actively refrain from punching founders in their stubborn, arrogant faces.

Almost every decision they make is wrong, and the worst part is that I can see precisely how they reason themselves into the wrong decision, and I take pains to point out exactly where the reasoning is wrong, what will happen, and the right way to go.

Do they listen to me (or their other investors)? No. These two founders have done what Mark Zuckerberg said about Twitter, “They drove a clown car into a goldmine.” They’re young and arrogant and inexperienced, and their little bit of success went right to their heads, and so they think they know everything. I’m watching two amazing ideas that should grow into amazing companies get destroyed by the inexperience and arrogance of their young founders, and it drives me nuts.

Side Note: They are both young males, and young males are especially susceptible to this. I like investing in young female CEOs and older CEOs (either gender) MUCH more than younger males. In my experience, they listen to people, they don’t assume they know everything, and they make smart decisions based on good principles, not ego-driven impulses.

Studies bear out the wisdom of this preference: both women do better and experienced people do better at starting companies than young men, and the best VC on earth agrees:

TM1TM1

Which brings me back to my original point: there is so much money chasing so many good ideas, but there are very few founders who can effectively execute.

So why does this matter? Why does this make me stop angel investing?

Because the next 2000 and 2008 are inevitable. And it won’t be be pretty.

When that tide comes back in, a lot of of these companies are going to drown. Not because their ideas or businesses are bad, but because the founders have no idea how to run a company, and like Ben Horowitz says, you see who the real CEOs are in times of stress, not abundance.

There is an anti-bubble in talented people—a black hole, and I’m not about to get sucked in past its event horizon.

2. Angel investing is a poor use of my time (relative to other things)

Even though angel investing looks like this casual, easy and fun activity, make no mistake about it, if you want to avoid losing your shirt, you spend a LOT of time on it: finding deals, vetting companies you’re interested in, and then once you invest, working with them like hell to make them succeed.

Just one example: I invested in a custom dog toy company, PrideBites, and have probably spent at least 500 hours over two years learning about the dog toy space, the dog retail space, and the complexities of Chinese manufacturing and logistics (so I can better advise them). Not to mention, another 500+ hours I’ve spent with the team helping them through all the hundreds of issues that come up. [Yes, these are young guys, and yes they are inexperienced and stupid, but the difference is they listen, and they take direct instruction well, and they have rapidly gotten better, and their company is doing great because of how much they have personally grown and learned.]

That’s almost a full time job—and it’s only ONE company.

I did win at angel investing. Barely, and I did it with a ton of advantages you probably don’t have. And even I’m getting out, because I know so much of my success was luck.

Could I do this with all of the companies I angel invest in—spend my time helping the founders develop? Yes. And if I really vetted my founders well, and really spent time with them, then wouldn’t that solve my issue with investing in experienced founders?

Yes it would, that’s a very good observation, you’re right to call me out in it. In fact, that’s what a good angel SHOULD be doing.

But that’s also why I had to pull the plug on angel investing; to be truly good at it would take serious time, and that is not how I wanted to spend my time. This is one of the big principles of wealth building (and lifestyle design) that most people ignore:

You should spend the majority of your time on the highest valued use of your time, and delegate or outsource everything else.

You remember above where I said there are so many great ideas for companies, and so few people who can execute them? Well, I’m one of the people who can execute, who can take a company from 1 to 10 (at least for some ideas), so I had to decide which would be the better use of my time: angel investing, or building one of these great ideas into a company?

This was not an idle question for me. In fact, I was forced to make this decision quickly and under stress.

In 2014, a new business fell into my lap. Completely by accident, I figured out a way to turn book writing and publishing into a service, and one that was really effective for turning the knowledge and wisdom of professionals into a great book (in only 12 hours of their time). The company took off before we were ready—we did 200k in revenue in two months, without even marketing—and I found myself having to cancel meetings with the companies I’d invested in, work late into the night, and saw the time with my family suffer (time that I try to hold inviolate to business intrusions).

I had to make serious decisions about where I was going to spend my time, because I did not have enough for both worlds.

I did two things:

  1. I calculated the expected value of each path, i.e., how much money was I likely to make.
  2. I thought about which path was more important to me in non-financial terms.

I won’t deeply explain expected value (Wikipedia explains well), but essentially it’s a way to assign an actual dollar amount to various decisions, i.e., how much am I likely to make on each path? Some basic calculations showed that expected value of the start-up was higher (though not by much).

But that wasn’t the deciding factor. I have decent money, more than enough to not have to make decisions based on money only. For me, the deciding factor was asking myself:

“Why am I doing this? What really matters to me?”

What’s always mattered to me is working on something I enjoy that creates something new and positive for the world. Whether it was creating entertaining books or a new publishing service or a new way to write a book, the desire to turn nothing into something in a way that solves a real problem and creates real value has always motivated me.

That’s not what you do as an angel investor. What you do is help other people turn nothing into something.

Both paths are valid, but the second one is not a huge motivation for me personally. I’m sure the day will come when I am tired and want to just use my wealth and wisdom to help the next generation build the tools of the future. But I’m still young, and I still have my most productive business years in front of me. If I’m not going to spend it working on the hard and interesting problems, then what I am doing? Investing my money for what? To get rich on the labor of others, while I complain that there isn’t enough talent solving the hard problems? That would be seriously hypocritical.

Beyond that, I internalized some disturbing things about myself when I was angel investing.

(Photo: Disney, ABC Television Group/Flickr)(Photo: Disney, ABC Television Group/Flickr)

(Photo: Disney, ABC Television Group/Flickr)

There’s a reason that Shark Tank is the highest rated show on TV; people love the vicarious thrill of being able to sit in judgment of someone else asking you for something. It’s like a modern version of medieval serfs petitioning their lord. That is compelling spectacle, but let me tell you, it is even more compelling when it’s you they’re begging from.

Few people are willing to admit this about angel investing, but it’s clearly true, so I’ll say it:

Perhaps the biggest thrill in angel investing is that people flatter you and beg you for your resources, and this makes you feel powerful and respected.

Anyone who says that isn’t a draw of angel investing is lying. It drew me in (at least at the beginning). I would say that this is the motivation of the majority of the amateur angels I see out there too. They like how it makes them feel.

But the thing is, it’s a cheap thrill. You aren’t really doing the important work—the entrepreneur is the one doing the important work, not the investor.

It’s a false feeling of importance, and though it can be intoxicating at first, I quickly realized how hollow and unfulfilling it really was. I wanted to actually do important work, not just feel good about someone else doing work.

It’s a basic question we all have to ask ourselves—do you want to be in the arena, or are you OK on the sidelines?

Both are valid, but personally, I gotta be in the arena, competing, putting myself on the line. I can’t just watch.

Once I understood this, the decision to stop angel investing was pretty clear. This is such an important lesson, and so few people understand it, so please understand this if you don’t already:

The only thing you can’t replace is time. Deciding how you spend it is the most important decision in your life.

Why You Should Not Start Angel Investing
Those are my personal reasons I stopped angel investing. They may or may not apply to you. But even if they don’t, you should still NOT angel invest. Here’s why:

  1. The economics of angel investing work against all but a select few
  2. The structure of angel investing works against all but a select few

1. The economics of angel investing work against all but a select few

TM2TM2

If you do not understand that quote, then you should NEVER PUT ANY MONEY IN A START-UP, unless it’s money you are fine setting on fire and throwing out of a window, because that’s what you’re doing.

Peter Thiel gives a long explanation of power laws here, but Sam Altman explains it quickly:

“Everyone claims that they understand the power law in angel investing, but very few people practice it. I think this is because it’s hard to conceptualize the difference between a 3x and a 300x (or 3000x) return.

It’s common to make more money from your single best angel investment than all the rest put together. The consequence of this is that the real risk is missing out on that outstanding investment.

He continues on to explain what this means:

“Don’t try to get good deals on valuation and hope for these 20-30M exits because too many things go wrong…and if you look at people who have been really successful angel investors, they’re the ones that take bets on founders and ideas that they believe can be huge, and cheerfully lose their money a lot of the time.”

This means two very specific things. The only way to be a truly successful angel investor is to:

  1. Invest in a ton of start-ups, be cool with watching most fail, and,
  2. Have enough money to do both initial investments, and serious follow on round funding (at least pro rata, because tripling down on that one company that makes your whole portfolio is how you make pretty much all of your money)

You may think you understand this, but you probably don’t. Paul Graham explains more:

“In startups, the big winners are big to a degree that violates our expectations about variation. I don’t know whether these expectations are innate or learned, but whatever the cause, we are just not prepared for the 1000x variation in outcomes that one finds in startup investing.”

Because YC understands this well, they’ve structured their whole program to search for these companies, and explicitly pick companies based NOT on who is highly likely to be successful on a low level, but on who has a SHOT at being one of the mega winners. This means they are reducing their “win” rate so they can increase their “home run win” rate.

OK, fine, let’s say you understand power laws really well, and you have a ton of money, so you are willing and able to put five figures into 100 companies to ensure you hit that one massive Uber-like home run.

Well congrats, that’s just the table stakes to get in the game. You still have another major problem.

2. The structure of angel investing works against all but a select few

The other problem is that there are, at BEST, only a few of these massive home run companies formed each year. You think you can predict, out of the thousands of start-ups launched each year, which ones will be the winners?

A lot of people think they can. Almost all are wrong.

But here’s the most messed up part: even if you can reliably pick the winners with some degree of certainty, you’re still probably going to lose.

Why? Because you probably can’t get into the winners.

This is because the best companies (at least in Silicon Valley) tend to get identified early, and as a result, they have a lot of people trying to put money into them. And to even be able to put money in, you have to have a way in, which means one thing:

It almost always takes the right social connections to get into very early stage companies.

Let me be super clear about this: all the great deals I got into were because of my social network. That’s it. No other reason.

This is (basically) true for pretty much every other angel investor. You win because of your network.

This means that only a certain type of person can truly be successful angel investing. Here are some examples of the type of people who win consistently and win big at angel investing:

Paige Craig
Chris Sacca
Elizabeth Kraus
Kevin Colleran
Shervin Pishevar
Gary Vaynerchuk
Scott Cyan Bannister

What separates them from everyone else?

  1. They have a solid reputation built over a decade (or more) as great people who work hard for the companies they invest in,
  2. They have deep and vibrant networks in relevant start-up fields, built by doing a ton of things for other people (or because they are former founders or employees of tech companies, or both),
  3. They have the money to double and triple down on their picks, and wait a decade for them to pay out,
  4. AND they have something key that I’ve left out: they have the social clout to not get run over by VC’s and literally pushed out of an investment. Oh, sorry, even the big angels have to worry about that.

Do you have those things? Because the people you are competing against do.

Seriously, read this post just about what Chris Sacca does for his companies. Or read about all the things that Paige Craig did just to get in the first raise AirBnb ever did. Paige does this for dozens of companies, which is why Paige is such a sought after angel that the best companies go to him. [Full Disclosure: I know Paige well. He’s helped me so many times I could write a love letter about him.]

You probably can’t come close to doing what these people do as angels. If you can compete, well maybe you’re right. But realize that thousands of other people have read the same things you have, and are taking classes on this now.

You are not alone, and you are way behind, and it’s getting harder and harder to build the skills and networks necessary to compete, and more and more money is chasing fewer and fewer capable entrepreneurs.

In fact, if there’s a bubble anywhere, I think it’s in the number of angel investors.

I bet you saw the blog post the AirBnb CEO put up a few months ago, showing the seven rejection emails he got raising his first investment. I was forwarded this by a few people saying things like “I would have known this company was a hit, I should angel invest.” Maybe so.

But here’s what you aren’t seeing: That email was only sent a handful of people, all of whom were already established angels/VC’s. It wasn’t going wide. The best companies never do that. Unless you can establish yourself to be the type of person that Brian Chesky would think of to send that email to, you should probably not be angel investing.

That’s why I’m telling you to not angel invest. With the exception of a very specific type of person who, like Liam Neeson in Taken, “has a very specific set of skills” and makes this their full-time focus and goes all in, the entire structure and economics of angel investing works against you succeeding.

If You Must Angel Invest, How Do You Do It Right?
The best way to invest in start-ups is to be a Limited Partner in a VC fund that’s run by someone who can do this. You pay a 2% fee and 20% of the take, and for that, you’re buying all of those skills and connections. That’s what I exclusively do now (and that’s probably where the vast majority of my returns will come from, those funds I invested in).

But that is really dangerous too. Why? Because most VC funds LOSE MONEY.

You need to know who to even invest with, and then hope you pick the right fund. And to do that, you have to have the connections to get into them because the best funds can pick their LP’s…and you’re now back to the same networking problem we just talked about.

Is there any other way to invest in start-ups, and avoid at least most of these issues?

Right now, I can only see one effective method for an average person to get reliable and (relatively) safe access to high level angel deals:

Use Angellist Syndicates

screenshot-angel.co 2015-08-10 12-49-46screenshot-angel.co 2015-08-10 12-49-46

These are the safest, most reputable way for a small time, no connections investor to get into serious deals. Angellist is doing something pretty amazing here, and it doesn’t get the press that it should. This has real potential to change the start-up investing world for the better.

Most of the angels I linked above have a syndicate, and there are more listed here (Tim Ferriss and Naval Ravikant are two other good syndicates to be in). No, I get nothing if you join their syndicate, and yes, I also have a syndicate and I didn’t link it because I’ve never used it and I don’t recommend you join it.

If you want to allocate some portion of your portfolio to angel investments, this is probably your best option. But I would read EXTENSIVELY about this before doing it. The risks are real.

What About Equity Crowdfunding?
I used to think equity crowdfunding would be amazing. I was a huge cheerleader. And I still think it will be…someday.

But right now, it’s mostly a bad deal and I recommend that most people avoid equity crowdfunding.

There are a lot of reasons why this is true; I could tell you the story about how I got screwed out of what should have been an amazing exit because of a platform that failed to negotiate an adequate liquidity preference.

But I think this tweet storm (and story) by Jason Calacanis might be the best summary of the reason equity crowdfunding is very problematic right now:

TM3TM3

What he is describing is a basic pump dump scheme, and you are going to see a huge number of people scamming and getting scammed through equity crowdfunding in the near future.

The sad reality is that people are ALREADY getting screwed left and right in equity crowdfunding, and they don’t even realize it, and you don’t hear about it because it’s in NO ONE’S interest to tell you the truth.

Why?

Because everyone is making money—except the small investors using equity crowdfunding platforms.

Personally, I would avoid ALL equity crowdfunding for right now. Let other people take the risks, lose, get pissed, and eventually we will find equilibrium in the system.

Equity crowdfunding will be amazing and totally worth it someday, but not today.

Conclusion: Don’t Angel Invest To Generate Wealth, Build Companies Instead
I did win at angel investing. Barely, and I did it with a ton of advantages you probably don’t have. And even I’m getting out, because I know so much of my success was luck.

If you must invest in start-ups, then use Angellist syndicates.

If you really think you want to be an angel, do it full time and 100%, otherwise you’re setting yourself up to lose.

For most people, you’re better off spending your time and money learning skills and building the company yourself (or even better, join a great company stage early and help them on their journey, it’s safer and you can make a ton of money still).

The best opportunities out there for most people are in creating, not investing. Kevin Kelly said it best when he said we are only at the beginning of the incredible changes coming, and that most of the best ideas are still out there.

Find one and make it reality, like I am.

Tucker Max is the CEO of Book In A Box, and a #1 New York Times Best Selling Author.

Article source: http://observer.com/2015/08/why-i-stopped-angel-investing-and-you-should-never-start/

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Are you an entrepreneur looking for funding who needs a better understanding of how angels and angel groups operate?
Are you thinking of becoming an angel investor?
Do you simply need a better understanding of how the angel investing process works–beginning to end?
Join Rick Vaughn, Managing Director of Mid-America Angels for a peek behind the curtain of the investment process. Learn about typical angel investor characteristics and requirements, why angels are the best source of early stage capital, what angels want and need in an investment, how the investment process works, why it works best in a group setting and what it takes to be successful.

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Article source: http://www.startlandnews.com/event/the-angel-series-angel-investing-101-2/?instance_id=251482

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Since its launch in April 2011, the Pipeline Fellowship program has provided women of ethnic minorities with the tools they need to attain success in the fields of business and investment.

“There’s a difference between the net worth of Latino women and of white women, as well as a lack of networking possibilities and models to follow,” Natalia Oberti Noguera, founder and CEO of this angel investing bootcamp for women that offers six months of training, told EFE.

A study taken last year by the Center for Venture Research showed that in the United States, just 26 percent of angel investors are women, while only 8 percent of them are from ethnic minorities.

Since its founding, Pipeline Fellowship has provided more than 100 women from ethnic minorities with training and counseling by a team of mentors and experts like Lauren Maillian, founder and president of Luxury Marketing Branding, and Carol Curley, executive director of Golden Seeds.

The program urges participants to take the leap and start their own businesses, while teaching them how to spot investment opportunities and how and where to get financing for their projects.

To gain acceptance for the training program, candidates must fulfill requirements that include a passion of philanthropy and social change, interest in the group learning model and obtaining a certificate as an authorized investor.

Applications for the program beginning in the fall of this year will be accepted until Sept. 4.

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Article source: http://latino.foxnews.com/latino/money/2015/09/01/program-seeks-to-boost-number-latino-black-female-entrepreneurs/

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Since its launch in April 2011, the Pipeline Fellowship program has provided women of ethnic minorities with the tools they need to attain success in the fields of business and investment.

“There’s a difference between the net worth of Latino women and of white women, as well as a lack of networking possibilities and models to follow,” Natalia Oberti Noguera, founder and CEO of this angel investing bootcamp for women that offers six months of training, told EFE.

A study taken last year by the Center for Venture Research showed that in the United States, just 26 percent of angel investors are women, while only 8 percent of them are from ethnic minorities.

Since its founding, Pipeline Fellowship has provided more than 100 women from ethnic minorities with training and counseling by a team of mentors and experts like Lauren Maillian, founder and president of Luxury Marketing Branding, and Carol Curley, executive director of Golden Seeds.

The program urges participants to take the leap and start their own businesses, while teaching them how to spot investment opportunities and how and where to get financing for their projects.

To gain acceptance for the training program, candidates must fulfill requirements that include a passion of philanthropy and social change, interest in the group learning model and obtaining a certificate as an authorized investor.

Applications for the program beginning in the fall of this year will be accepted until Sept. 4. EFE

Article source: http://latino.foxnews.com/latino/news/2015/08/31/program-seeks-to-boost-number-women-entrepreneurs-from-ethnic-minorities/

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Despite the attention over the past year, the lack of diversity in tech — both in race and gender — has not markedly changed. Only 3 percent of tech CEOs are women, and just 15 percent of startups have at least one female founder.

Most agree that something needs to be done, but much of the attention is misplaced into a caricature. You see the issue raised on SNL and the other late-night shows — and then there is the hyperbole that penetrates into pop culture (see HBO’s Silicon Valley).

To be fair, programs have popped up to teach women how to code, while others drive awareness of the developer career path for adolescent teen girls. Even some VCs have developed funds for women or minority-owned startups — Golden Seeds and 500 Startups among them.

What’s missing in these solutions? The role of women as angel investors — not just founders or developers.

Women make up just 4 percent of venture capital partners. And though the University of New Hampshire’s Center for Venture Research said there are more than 50,000 female angel investors, my experience from raising $1.2 million in seed funding in Chicago suggests otherwise. I sought a female angel — but could not find her. I asked all of the contacts I met for a recommendation. They all said, “I’ll think about it,” but never got back to me. I do have one female investor, who I am thankful for, but even she backed us alongside her husband.

Women investors are important because they signal to women You belong here. In a study co-authored by MIT economist Esther Duflo, she saw that an increased presence and visibility of female politicians in local government raises the academic performance and career aspirations of young women in India. “[MM1] We think this is due to a role-model effect: Seeing women in charge persuaded parents and teens that women can run things, and increased their ambitions,” said Duflo, a co-founder of MIT’s Abdul Latif Jameel Poverty Action Lab.

To get more women in tech today, we need women investors — and we need them early in the process. That means female angel investors.

Progress is being made. Over the past decade, women have begun taking more leadership roles in business. As a result, women are excelling financially. The number of wealthy women in the U.S. is growing twice as fast as the number of wealthy men. And by the next generation (or perhaps sooner), more families will be supported by woman than men.

But more wealth will not automatically translate to more angel investors. Women tend to be more conservative investors that may even lack confidence, a critical element in becoming an angel.

That’s why groups like 37 Angels and Broadway Angels — groups of women angel investors who fund early stage startups regardless of the founder’s gender — are critical. 37 Angels, for example, requires its members to be active investors, making at least one $25,000 investment each year from the 35 to 50 companies it finalizes as candidates each year.

But as great as those networks are, they don’t do much to drive awareness of angel investing and teach women to make the leap from investing in stocks and mutual funds to investing in early stage startups. The Pipeline Fellowship is one group that is trying to make a difference with a six-month angel investing bootcamp. And in four years, Pipeline boasts more than 100 graduates — it’s a start, but not nearly enough to make a dent in the deficit of women angel investors.

We haven’t yet tapped into that next wave of female angels — the ones currently succeeding in Corporate America. If that happened, we would see more female founders.

Featured Image: umnola/Shutterstock

Article source: http://techcrunch.com/2015/08/31/the-real-unicorns-are-female-angel-investors/

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Korea-China joint press conference (Photo by Cheong Wa Dae)

Korea-China joint press conference (Photo by Cheong Wa Dae)
A company trying to start up in Asia may be intrigued by vibrant Vietnam, or may want to cash-in on a potential Indonesian gold mine or an expansive mobile market in the Philippines.

Those certainly sound like attractive adventures, but at the end of the day, if the goal is to make money Seoul and Beijing are the two best startup ecosystems in Asia, according to SparkLabs Global Ventures‘ annual Global Technology Trends Startup Hubs report.

It should be noted that SparkLabs Global Ventures advertises eight Korean companies on its portfolio and its sister company SparkLabs runs an accelerator based in Seoul.

Despite that, the Silicon Valley-based seed investment firm has a global reach.

Bernard Moon, SparkLabs Co-founder and Partner, told e27, “[The report] shows where the real centres of startup activity are. From creation to exit. Whether you are an entrepreneur or investor, that’s what you really have to consider; ‘If I start a company in Malaysia, am I actually going to get bought?’” (Sic)

The report takes eight categories and ranks each city accordingly. The sections are:

  • Engineering talent
  • Startup culture
  • Entrepreneurs/mentors
  • Technical infrastructure
  • Founding ecosystem and exits
  • Legal and policy infrastructure
  • Economic foundation
  • Government policies and programmes

The only Asian cities on the report are Beijing at seven and Seoul at number eight.

Why Beijing and Seoul?

Beijing and Seoul excel in their ability to produce unicorns. According to the report, Beijing has nine unicorns, while Seoul has six. That puts Beijing at fourth place behind Silicon Valley (69), New York City (16) and London (10). Seoul is tied with Stockholm for the fifth slot.

“We know and track exits globally, from the unicorns to exits of about US$50 million, US$100 million and US$500 million. And that is what investors also look for. In terms of how robust the startup ecosystem is we always ask, ‘Hey, who could buy this company?’” said Moon.

Also Read: What I learned when I gave up the ‘9 to 5’

He added, “From the 90s have there been companies like NHN (the Korean company Naver). Nexon was peak US$8 to US$9 billion (sic) (has since moved HQ to Tokyo). Even exits in the mid-2000s such as Gmarket that got bought by eBay for US$1.2 billion. So I mean there is this consistent track record from the first boom until now to justify it in Korea.”

For China, the number of successful fundraising rounds fell during the first half of 2015, but the deals were large, buoying the funding total above US$2 billion for the third-straight quarter. SparkLabs Global Ventures expects funding in China to keep growing.

“[China] is sort of like Silicon Valley four to five years ago where so many people wanted to do angel investing. Because of declining real estate, people with disposable incomes are putting money in other places like tech and early-stage investments like startups,” Moon said, before adding one note of caution. “But with the current market fluctuations, we could also see investors become more conservative.”

When asked if there were cities outside the list he sees as trending in a positive direction, Moon said he would include Shanghai.

Doubts about Singapore

The study disagrees with a report by data analytics company Compass placing Singapore’s in the top 10 global startup hub list (Seoul and Beijing do not make the top 20 in the Compass list).

The company says Singapore does not have a robust history of significant exits, a theory backed by data presented in another report by 500 Startups’ Director of Special Projects Arnaud Bonzom. According to the Bonzom report, Singaporean exits since 2006 totalled US$529.3 million with Viki being particularly expensive at US$200 million.

But those numbers are paltry when compared with the Korean backdoor IPO takeover of Daum by Kakao last October that was at the time worth US$3.3 billion in equity.

“We know that from looking at a lot of Singaporean deals that 1) There is a lack of Series A investors, and 2) There is definitely a lack of historical exists. We would never put Singapore in our top 10, maybe even top 20,” said Moon.

Also Read: Jakarta Transportation Agency seizes Uber ca

Still optimistic on Asia

On the whole, the firm is still bullish on the Asian market, despite the dominance of American tech ecosystems — especially Silicon Valley — and an appreciation for the Tel Aviv startup scene.

It cites growing innovations from China, excellent hardware engineers in Seoul and Taipei, and a market in Indonesia that has been catching the eyes of investors for awhile now.

SparksLabs’ list of top 10 global startup hubs is as follows:

1. Silicon Valley

2. New York City

3. London

4. Stockholm

5. Berlin

6. Tel Aviv

7. Beijing

8. Seoul

9. Los Angeles

10. Boston

Image Credit: Chong Wa Dae/Wikimedia

Article source: http://e27.co/think-singapore-is-the-best-startup-hub-in-asia-think-again-20150831/

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ABAN CAPE TOWN 31

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On 27 August the third session in a series of Angel Investor Bootcamps leading up to the ABAN Investor Summit at DEMO Africa was hosted in Cape Town. The Bootcamps are organised by the African Business Angel Network (ABAN) in partnership with VC4Africa, Intercontinental Trust and the LIONS Africa Partnership. The Cape Town edition was hosted together with the Silicon Cape Initiative.

VC4Africa

Alexandra Fraser, past-chairperson of Silicon Cape, welcomed an audience of angels, entrepreneurs and potential investors who were there to learn more, share experiences and to network with each other. “Angel investing is never just about the money” said Fraser. “It’s about bringing mentorship, experience, expertise and an established network of contacts to the relationship.”

Fraser introduced FNB Cape Provincial Head, Stephan Claassen who emphasised the need for entrepreneurial growth in South Africa. “South Africa needs entrepreneurship and FNB is committed to supporting entrepreneurial development,” said Claassen. He added:

We wanted to be part of creating this platform with Silicon Cape. We like innovative business. It’s an opportunity for us to attract new business and to invest in innovation. We have clients who are looking to invest so it’s relevant to our current clients’ needs.

ABAN’s objective is to promote a culture of early stage investing across Africa. “The concept behind our Masterclasses like this, is that we’re able to have conversations with, and learn from the local community,” said David van Dijk, ABAN’s co-founder and director. “We’ll take the lessons learned to an annual summit taking place on 23 September 2015 in Lagos, Nigeria”.

Read more: Lessons learned on building a pan-African network of angel investors

Van Dijk introduced keynote speaker, Selma Prodanovic, also known as the Business Angelina or Startup-Grand-Dame. Prodanovic is a co-founder of the Austrian Angel Investors Association, board member of the European Business Angels Network (EBAN), and founder of Brainswork. Prodanovic describes herself as an ‘absolutely passionate entrepreneur’.

“I believe entrepreneurs and startups are the ones who creating solutions to problems. And we need to help and support them,” Prodanovic said.

Having attended a panel discussion at the SA Innovation Summit earlier in the day, Prodanovic realised that many of the challenges that local South African entrepreneurs are facing are in fact, global issues, such as the need for education and infrastructure.

“But then, what are entrepreneurs? Entrepreneurs create what they want to create, against all odds and no matter what,” she said. “At the end of the day, if it was easy, then everybody would do it.”

“A business angel means more than just cash-in-cash-out investing. They’re bringing much more to a startup,” said Prodanovic.

She explained that business angels bring three types of capital to a venture. Financial capital (cash); social capital (a network of high-level contacts) and human capital (knowledge and experience).

Being a business angel is a fantastic thing to do. You’re able to enable entrepreneurs to follow and build their dreams. But it’s important to think about why you are a business angel. If for example you are in New York, you will say you’re in the exit business. It’s all about making money at the end of the day. But I totally disagree. The exit is a result, but not the main purpose. I think that business angels are in the business of creating great businesses.

Prodanovic urged the audience to think of themselves as potential business angels. “It’s not about investing huge amounts of money.”

ABAN CAPE TOWN 49

Also, Prodanovic would like to see more corporate CEOs becoming angel investors: “They have the expertise, the networks and relationships with international corporates, so they can facilitate international relations and open doors for startups, which makes it much easier for the startups to grow.”

She elaborated:

We need a diversity of business angels to be enable a diversity of startups. Globally, women are under-represented in the startup space. And we’ve got to change that. The Rising Tide is a global fund and training program created by 99 women angel investors with the objective of increasing women’s participation in angel investing and educating a new wave of angel investors. It’s not about investing as a female. It’s about having female investors, which in turn encourages more female founders to enter the start-up space.

Read more: 7 things you need to know about pitching to South African angel investors

Following the keynote, a panel discussion on angel investment took place. Facilitated by Fraser, it featured panellists Prodanovic and investors Daniel Guasco of Team Africa Ventures, Justin Stanford of 4Di Capital, Ernst Hertzog of Action Hero Ventures and Willem du Preez of Intercontinental Trust.

The panel agreed that it’s crucial that both angels and founders are aligned with similar values, expectations and a common end goal. That alignment needs to be outlined in the terms, because if there is not alignment, it can lead to expectations not being met, and that can cause a venture to derail. The panellists addressed the importance of encouraging corporate executives to become angel investors. “In my experience, there is a lot of capital available,” said Hertzog. He added:

But the problem is to get executives to donate their time. And that’s what you’re after. There’s no point making this type of investment if you’re not involved. They need to find the time to add value to their investment portfolio.

Stanford advises entrepreneurs to prioritise what they need from angels according to their strengths and to ask for targeted advice addressing specific queries, rather than to expect what he called an all-encompassing flow of feedback from the angels. He believes that one of the biggest errors you can make as an investor is to make decisions for the management team.

“You can make suggestions,” Hertzog said. “But management must always own the outcomes. Make sure you’re giving advice and not instruction.”

Angel investing is not about overnight success and is high-risk. It can take up to ten years to build a sustainable and successful venture and it usually requires a lot more investment than initially planned for.

“Investors need to be aware that the first cheque is never the last cheque. When you make an investment, you buy the obligation to put more money in,” said Stanford. “Usually it makes half the revenue and takes double the cost and double the time,” he said.

Prodanovic is committed to increasing the visibility of angel investing and start-ups and initiated the one million startups campaign to extend this awareness:

We’re still in the minority and we need to create awareness in the outside world. The majority of people do not realise the importance of startups in terms of the solutions they offer. Big corporates are no longer able to create jobs and are mostly not creating innovation, whereas entrepreneurs and startups are able to create and deliver innovation in a much faster turnaround time.

“The world needs to recognise that startups are an important part of the solution to our problems.” she said. “Anyone can become an angel investor. It’s the best way to make a better tomorrow.”


This article by Bettina Moss first appeared on VC4Africa, a Burn Media publishing partner. Photos by Hannes Thiart.

Article source: http://ventureburn.com/2015/08/lessons-learned-from-angel-investor-bootcamp-in-south-africa/

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After the latest round of funding from Alibaba, Foxconn and SoftBank, online marketplace Snapdeal is estimated to be valued at over $4 billion. If you had invested Rs 10 lakh in Snapdeal when it was founded in 2010, your investment would have grown to Rs 19.8 crore today. Had you invested in Flipkart in 2007, your investment would have swelled to Rs 30 crore. Investment of Rs 10 lakh in Olacabs in 2011 would be worth Rs 6.9 crore now. Having missed out on these Indian unicorns, are you now thinking of turning an angel investor? Think again.

For the ordinary retail investor, say experts, angel investing is far too risky. “Seven out of 10 ventures will die,” says Rajan Anandan, prominent angel investor and Managing Director, Google India. This means that there is a 70% chance of you losing your entire investment.

You might think that you have invested in another Flipkart or an Ola-in-themaking, but your hopes of 300% returns may get shattered if the company does not find venture capital (VC) funding. Not only would your investment fail to generate the expected return, you might find it hard to get your principal back.”An individual with a monthly expense of `30,000 can survive 25 years, at best, with a retirement corpus of Rs 3.50 crore.

Therefore, do not play around with your hard-earned money,” cautions Mumbaibased financial planner Suresh Sadagopan. Besides the high chance of losing your entire investment, the other major downside to investing in a startup is that your money gets locked indefinitely. It is an illiquid investment.

Unless VCs show an interest in the startup, you will find it exceedingly difficult to exit. Promoters, scouting for VC funding, won’t buy it back, and secondary sales—selling stake to other investors—are always a tough proposition. The opportunity cost of such an investment can be high for those with limited capital.

If you must

If, despite the risks, you still want to try out your luck, it’s best to be thorough in startup selection. You must be ready to do a lot of research— studying the business model, the possibility of success, the demand for the service being offered, gauging the quality of the management and the founders, among other things. Given the required effort, experts doubt that ordinary investors are up to it.

“Startups are diverse, it is very difficult for one person to understand so many businesses at one time. An average retail investor does not understand mutual funds, how will he understand startups?” asks Sadagopan.

Startup investing platforms such GREX, however, offer an alternative. GREX is a marketplace-of-sorts where investors and startups meet. People interested in investing in startups can get themselves registered on the platform for an annual fee of Rs 6,000. Startups, after being vetted by a panel of GREX experts— to ascertain their prospects—are then registered for an annual fee of Rs 10,000 on the platform. GREX-registered investors can choose to invest in a company of their choice, based on the updates they get from the registered companies. An investor may choose to exit by posting the price at which he bought the shares and the price at which he is willing to sell. Those registered on GREX can then take up the offer. “I believe GREX is solving the problems of individuals who can take the risk of investing in startups but weren’t able to find an opportunity to do so,” says Delhibased IT professional Vikas Kumar who invested around `15 lakh via GREX. Kumar has limited his startup exposure to less that 10% of his total investment portfolio.

Despite platforms such as GREX facilitating angel investors find quality startups, the investment risks are still quite high. And for those enthused by the idea of making a quick buck, the words of Nikesh Arora, President of Japanese telecom and Internet giant Softbank and a prominent startup investor, should serve as a warning: “There is a startup party on but most investors will wake up with a hangover.”

Article source: http://economictimes.indiatimes.com/small-biz/startups/why-angel-investing-may-not-work-for-retail-investors/articleshow/48719483.cms

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Since SparkLabs Global Ventures launched 20 months ago, we have made 50 investments across five continents. We have six partners, based in Silicon Valley, Seoul, Tel Aviv, Singapore, and London, which gives us a unique viewpoint on what is trending in terms of technology and innovation across the globe.

Last year, we began an annual analysis of the top global startup ecosystems in the world, and we’ve just completed our analysis for this year. Silicon Valley, New York City, London, Stockholm, Berlin, Tel Aviv, Beijing, Seoul, Los Angeles, and Boston won out.

To find this top 10, we looked at eight factors: Funding Ecosystem Exits, Engineering Talent, Active Mentoring, Technical Infrastructure, Startup Culture, Legal Policy Infrastructure, Economic Foundation, and Government Policies Programs. We aren’t releasing the specific category scores until later this year since we are expanding this list to at least 20 cities. But for the first time we are revealing the cumulative scores (out of a total possible 80 points) with specific rankings:

global hub rankings

Of the eight factors we considered to reach these scores, some are “soft” factors that are difficult to quantify but that have real consequences. Trust and chemistry between members of a founding team, for example, is very difficult to quantify, and yet breakdown of trust and chemistry is the cause for at least a quarter of all startup failures.

Probably the most important factor on this list is a soft factor — “active mentoring” or a “pay it forward” culture. This has been cited numerous times as the “secret sauce” of Silicon Valley and why its startup environment is so difficult to replicate. Even if you drive a few hours south to Los Angeles, the business culture is worlds apart. People tend to guard their contacts and rolodexes more than the free-sharing culture of Silicon Valley.

This is also a reason why we focused on urban ecosystems and cities, not countries, because the startup cultures between two cities in the same country can be night and day.

We included Legal Policy Infrastructure as a factor because basic steps, such as company formation, can be a huge barrier to entrepreneurship. In Greece, the entry cost to form a company is 60,000 euros ($68,000)! How can this not be a factor that impacts the country’s economic health since it has policies that greatly hinder startup formation and eventually job creation and growth? I would rate Athens a “1” on a scale of one through 10.

U.S. cities rated a 10 out of 10 on Legal Policy Infrastructure because of the ease of creating a company and the generous bankruptcy laws that are cited as a driver for entrepreneurship.

Seoul, South Korea rated 5 out of 10 since there are still laws that could hold a CEO personally liable if a company becomes bankrupt. There isn’t as clear of a separation between corporate liability and personal liability as in the U.S. We half jokingly commented to each other, while putting together the analysis, that if these laws were in the U.S., Silicon Valley might only have half the number of startups it currently does.

For Government Policies Programs, we gave London a 7 out of 10. The U.K. has programs to encourage angel investing, such as income tax relief of 30 percent for up to £1,000,000 per year (EIS program). In Seoul, our affiliated startup accelerator is part of a government matching program for venture capital funds where a $100,000 investment received a matching grant of $500,000. There are various other programs initiated by President Park’s “creative economy” initiative for South Korea, which is why we gave Seoul a 9 out of 10.

With this updated analysis, we wanted to show how many “unicorns” there are in each of these global startup hubs. Any city that doesn’t have any unicorns would have a hard time breaking our top 10.

This category’s ratings weren’t only about unicorns but also about the overall exit climate. What is the exit potential of a startup in that city? How many $50+ million exits did it see? How many $100+ million exits and $500+ million exits? Even though Tel Aviv (or even Israel overall) doesn’t have many unicorns (even historically and not just after our 2010 cutoff), it has had many exits over $100 million. We gave it 7 out of 10.

Also this category is not just about exits but the overall funding ecosystem. There might be great base for seed-stage investment activity, but many cities in the world lack Series A funding to create a robust startup ecosystem.

For this year’s analysis, we compared funding trends in North America, Asia, and Europe, and within U.S. metro areas. The overall venture capital activity at the top levels has been close between the U.S. and Asia, with Europe lagging behind.

The three largest rounds of Q2 2015 in North America have been:

  • Airbnb, $1.5 billion raised (San Francisco)
  • Wish, $500 million raised (San Francisco)
  • Snapchat, $337.6 million raised (Los Angeles)

The three largest rounds of Q2 2015 in Europe have been:

  • Spotify, $526 million raised (Stockholm)
  • One Web Solutions, $500 million raised (Mallow, Ireland)
  • Funding Circle, $150 million raised (London)

The three largest rounds of Q2 2015 in Asia have been:

  • Coupang, $1 billion raised (Seoul)
  • Red Star, $931 million raised (Shanghai)
  • Dianping, $850 million raised (Shanghai)

Even with a market downturn, we are excited about the continuing innovation and startup activity across the globe. A sharp downturn will have a stronger effect on the weaker startup ecosystems and those overloaded on consumer facing products, but the stronger ecosystems we believe will continue to produce “unicorns” and successful companies.

Bernard Moon is cofounder and General Partner at SparkLabs Global Ventures, a new global seed-stage fund, and cofounder of SparkLabs, a startup accelerator in Seoul, Korea. Follow him on Twitter

Article source: http://venturebeat.com/2015/08/29/the-10-hottest-startup-ecosystems-in-the-world/

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