Power Pitches

Reflections on Reviewing 30 Plans on Gust.com in a Day

I was never one of those people who rushed to get everything done early. I’m as likely as you are to put things off. So this morning I’m looking at 30 plans on Gust to be discussed this evening when we meet as the Willamette Angel Conference to take the first steps towards an investment decision in May. I started after dinner last night and I will have reviewed all 30 before I leave for the meeting in the late afternoon.

What does this mean if you’re one of the plans submitted? Here’s what I think this process means to the entrepreneur:

  1. My process and my procrastination is not unusual. A lot of investors are going to work like we do, using quick views not to select plans but to rule some out.
  2. I consider the information posted on Gust sufficient to rule out a plan. Implicitly that means it’s also enough to take an initial 30 plans down to 10, 12, or 15 we want to look at in more detail.
  3. I’m immediately grateful to the startups that help me with this by using the Gust feature of posting a short video to help me get acquainted. When it’s done well, it makes a good first impression. But a bad video doesn’t help, and I’m looking for the best investment, not the best video.
  4. The writing in (executive) summaries, descriptions and the overall business plan should not get in the way of the information.  I’m not critical of style unless it interferes. I want formatting to make it easy to read and find the information I want.
  5. I always want there to be a business plan available even if I’m not going to necessarily read it yet.
    • I’m definitely not going to start at the beginning of the plan and read to the end. But I want to have the plan available because I want to go from the general statements to specifics, so I’m likely to look for specific things in a plan.
    • What I look for depends on the plan itself, but to give you examples, I want to make sure a business-to-business startup understands the sales cycle and what receivables do to cash flow. And with a lot of plans I want to see the percentages in expenses. And with most I want to see founders’ salaries.
    • I’ll go into a plan quickly and I want to find what I’m looking for quickly and leave. Think of it like guerrilla plan reading. I’m going to be rating a startup lower if the information I want isn’t there or if I can’t find it.
  6. I say “yet” in point 5 above because although I’m comfortable eliminating a startup without reading its business plan, I will never invest in a startup without reading its plan. In our group we divide due diligence into teams and the team looking at a company will always read its plan well. Usually more than once.

 

I hope that my sharing here helps you if you’re on the other side of the table from me. If it makes you feel better, I started on your side of the table too.

 

Tim Berry , Founder, Palo Alto Software
March 28th, 2012 4

Invested Interests

The reality of returns on angel investment

Editor’s note: This was originally a question and answer on Quora, but the community response was so significant we decided to syndicate it on our blog.

Q: If I want to invest $5,000 as a new angel investor into a new company or companies as part of an angel syndicate, what chances do I have of making a profit in 5 years?

A: ”Very, very slim” to “almost negligible” if you’re talking about investing into one company, increasing to “slim” if the syndicate invests into a dozen or more companies.

I know I’m going to draw the ire of some of the angel crowd, most of the entrepreneurial crowd and all of the crowdfunding crowd with this response, so it’s important to back it up with an explanation, namely:

A majority of all new, angel-backed companies fail completely, so if you invest in only one company, the odds are that you will LOSE ALL YOUR MONEY, not just “not make a profit”. Read more

Invested Interests

5 Dysfunctions That Make Your Startup Unfundable

5 Dysfunctions That Make Your Startup UnfundableEvery investor I know can tell you at least one story about a great startup team that failed, even though it was well-funded and staffed with qualified and smart people. The reason almost always given is that the team didn’t work well together (dysfunctional). What does that really mean?

In my experience, genuine teamwork is hard to find, and even harder to predict in a new team. A lot of studies have been done on this, and most have focused on recognizing the symptoms of a dysfunctional team, rather than searching for personal attributes that will likely lead to a cohesive or high-performing team. So I don’t have any magic to prevent this problem. Read more

Power Pitches

Using your business plan

Business plans come in several flavors and you will need each of them to successfully raise money.  I’ll briefly describe the forms of your business plan, but more importantly, explain how to avoid common mistakes in using your plans. Read more

Bill Payne , Angel Investor , Frontier Angel Fund
March 22nd, 2012 5

Industry Experts

Blogger About Angel Investment: “Confused, Scared, and More Than a Little Ashamed”

Now there’s a great title for a blog post. Writing about angel investment, on his Portland-based Silicon Forest entrepreneurship etc. blog, Rick Turozcy titled his post: I’m confused, scared, and more than a little ashamed. Don’t even try to tell me that doesn’t make you curious. Rick’s a smart guy, very well known in Portland (OR), and his blog matters. So here’s his problem:

WTF Angel Oregon? This is one of your concept companies? Blanket Booster? Again… WTF?

Yes, it turns out that the Portland angel group called Angel Oregon (actually OEN Angel Oregon, where the OEN stands for Oregon Entrepreneurs Network) just announced an investment in a startup making a bar that goes on a bed to hold the blankets up so they don’t weigh down the feet. What’s the problem?

I’m struggling to grasp how a rail that holds your blanket off of your feet is a better investment than the hundreds of concept companies I’ve talked to in the past six months.

Rick likes high tech. He’s a techie, entrepreneur, and startup expert, deeply immersed in a local incubator. (And I get that, I’m a techie too. Look at my bio.)  He says this shows two problems:

  1. Angel investing in our region is decidedly weak in tech. And with good reason. Very few of the Angels in our region have a tech background. As such, they’re not very confident investing in tech. Angels invest in what they know. I get that.
  2. You didn’t even enter the race. You didn’t even have the confidence to take your awesome idea to Angel Oregon. That you didn’t feel like you had something worthy of investment. That you didn’t think your startup was worth submitting to a selection committee.

I like the way Rick writes. His point number two is golden. I hope it’s clear he’s talking to all the techie entrepreneurs in his incubator, on his blog, and working in Portland. You didn’t enter. Touche. Well said.

Posting here as a very active member of an Oregon angel investment group — not Angel Oregon, but one in Eugene and Corvallis, the Willamette Angel Conference (WAC), I’m not comfortable with Rick’s summary of Oregon angel investor tech background. Our group has 35 members and more than half of them have come out of software, web business, or computer hardware. We have two major universities in our two towns, and there’s a huge Hewlett Packard installation in Corvallis. We’ve made three investments so far, two of them software companies, one a clean-and-green personal product. I don’t think we’re weak on tech. But Rick’s talking about the group in Portland, 100 miles north.

Here’s part of the comment I left:

One thing I dearly love about business is that almost everything is a marketplace. Buying is voting, and investing is voting. And people are unpredictable. Self interest rules in these markets, and investors are spending their money. Some consider the good of the community, some care more than others about the environment, some want to change the world, most are comfortable with investments in industries they are familiar with, some care only about what gives them the best risk-return relationship. You wind those various factors up like a top or a wind-up doll, and you set them lose, and what happens is what happens. It’s beautiful.

That’s my answer to Rick’s worries. I’m not confused, I’m not scared, and I am not in even the slightest bit ashamed. Hooray for business.

Tim Berry , Founder, Palo Alto Software
March 21st, 2012 0

Fail Tales, Industry Experts

The Great Crowdfunding Train Wreck of 2013

The verb “to disrupt” in all its forms is rightly popular in the startup world.  To many entrepreneurs, few things are as personally satisfying (or as lucrative) as disrupting an entrenched, complacent, monopolistic, inefficient or stagnant market in ways that often empower consumers and producers alike.  Consumer Internet and mobile technology businesses continue to be rife with opportunities for disruption.

On March 8, 2012, the U.S. House of Representatives passed the JOBS Act, becoming the subject of much chatter at this year’s South by Southwest Interactive (SXSW) conference that began the following day.  This bill is the latest in a series of efforts and initiatives in recent years intended to disrupt the traditional methods and markets for investment in, and capitalization of, emerging growth businesses.  Boosters can be found all over the Web proclaiming a nascent crowdfunding revolution that will ensure prosperity for entrepreneurs and mom-and-pop investors alike. Read more

Invested Interests

How to Gauge Business Potential for Your Invention

I’m often approached by people who claim to have invented the next big thing, and ask me how much it’s worth, or complain that they can’t find an investor who will fund it. The honest answer is that ideas and new technologies are worth nothing, outside the context of a specific entrepreneur and a specific business plan that meets a market need for a fair price.

Invention is the process of creating a new technology. Business innovation is taking that technology and successfully bringing it to market in a way people want. There is a variation on an old quote that sums it up for me: “Invention is turning money into technology. Business innovation is turning technology into money.” Read more