Do most angel investors make money?

The reality is that results in angel investing tend to bifurcate:

“Professional” angel investors, who are investing calmly, steadily, relatively-rationally, over a long period of time and with a strong knowledge of both investment math and early stage realities, tend to not only make money, but do quite well: the average return for a comprehensive, well-managed angel portfolio is between 25% and 30% IRR.

On the other hand, the large majority of self-described “angel investors”, both domestically in the US and internationally, would not fall into this category. That is because they are either new to the field, not taking it seriously as a financial business, not in it for the long haul, or not willing to continue investing until they have a fully diversified investment portfolio. For those people, returns tend to be flat to mostly negative.

*original post can be found on Quora @ : *

10 Things That Make a Business Plan NOT Fundable

I really like Martin Zwilling’s post here yesterday, 10 things that make a business plan fundable. That made me think about this list, the opposite, things that make a plan not fundable. Before I start, though, I second Martin’s motion on the use of business plans:

People ask me if they really need ANY business plan, unless they are looking for an outside investor. In fact, a business plan is needed more by you than investors, as the blueprint for your company, team communication, and progress metrics. Things that make it investment-grade for outside investors will also benefit you, since you are the ultimate investor.

I liked all of Martin’s points in that post, but, since sometimes the other side of the coin is just as interesting, here’s my list of reasons why not. These are my 10 things that make business plans notfundable, in my assumed order of importance. Read more

Tim Berry , Founder, Palo Alto Software
August 7th, 2012

Is the J-curve a myth?

It very definitely exists, but under two specific constraints: (1) we need to be talking about ‘traditional’ venture funds, and (2) we need to limit the discussion to the top half/top quartile funds that actually make money.

(Below is an example of the traditional J-Curve)

The unbelievably seismic changes resulting from exponentially advancing technology mean that the ‘traditional’ venture world is rapidly giving way to a new world of micro-VC, “super angel”, early-stage seed funds, which have very different economics. With many of today’s web-based startups, a relatively small amount of funding up-front, combined with rapid development time, a non-existent IPO market for smaller companies, and an insatiable acquisition appetite from larger companies means that companies are both failing faster and exiting faster, by almost an order of magnitude, than was previously the case.  Because of this, the new breed of seed and early-stage funds are in many cases completely bypassing the down-swing of the J curve.

On the other hand, the sad fact is that the majority of traditional venture funds formed in the past decade have simply not made enough money to return a profit to their investors. In those cases, the down-swing of the J curve is very real, but they are missing the up-swing. This is because the lack of an IPO market means that unless they were fortunate enough to be in Facebook, Groupon, LinkedIn, Instagram or a couple of other mega-home-runs, they simply have not had enough large-scale positive exits to get back north of the baseline.

*original post can be found on Quora @ : *

Will the most successful crowdfunding portals be restricted to accredited investors?

This is an interesting question, and one to which no one really has an answer yet. To some extent it will depend on what the SEC decides to do with the regulations surrounding the whole subject, which they have until the end of the year to write.

My personal guess is that the early stage funding world will likely trifurcate (or even quadricate, if that’s a word) into several distinct groups. In each of the groups, there will probably be the usual breakdown of the industry leader, the significant #2, and the rest of the pack. At the moment, my guess is that it will shake out as follows (and I absolutely reserve my right to come back and edit this answer as things begin to play out, so that I’ll always be right! Read more

“Bored” of Directors Can Become Clash of Titans

Rhetoric has the power to engage or alienate, to enchant or disaffect.  Perhaps no better example exists than the term “Corporate Governance.”  Even the wonkiest law geeks like me find our eyes glazing over as soon as the term is mentioned.  Yet I’ve rarely seen entrepreneurs more fired up than when recounting war stories of startups whose founders had control of the company wrested from them, were forced to take financing or compensation deals on outrageously onerous terms, or worst of all, fired from their own companies.  Framed that way, “corporate governance” starts seeming a lot less dry and academic.  It’s probably no coincidence that one of the questions I get most often from founder is “How do I keep control of my company?” Read more

Antone Johnson , Founding Principal, Bottom Line Law Group
July 18th, 2012

Investors Don’t Know What They Want

Take a step back and be objective, and U.S. angel investors are hardly a diverse group. Not demographically diverse (sadly, we’re mostly older white men) but in opinions, preferences, and what we want in a deal, for sure.

I strongly recommend a quick tour of the ‘what investors want‘ collection of videos on this site. You’ll find 22 very short videos taken from interviews of some very thoughtful, successful, and influential investors. It’s a bit like an angel investor role call.

What reminded me of diversity was how I was struck yesterday by one of these in which one of the angel investors values certainty very highly. It’s s very short snippet, but the active quote is …  Read more

Tim Berry , Founder, Palo Alto Software
July 17th, 2012

Copywrong Again: Founding the Next Pinterest or Napster?

As I wrote in Part I of this post, many of the most creative and disruptive startup businesses in recent years have involved the use of intellectual property in innovative, non-traditional ways that defy easy categorization and stretch the boundaries of concepts such as the fair use doctrine in copyright. When presented with a product or service in development, we often have to admit that there is no clear precedent and look for the best analogous situation to assess legal risk.  Is Instapaper like collecting press clippings?  (If so, do you have to buy a copy of each paper first?)  Is pinning a photo or article on Pinterest more akin to showing someone an article in a magazine you’ve bought or actually making and handing them a copy?  Does using a friend’s name or photo in a Facebook “Sponsored Story” (e.g., “David S. Rose likes Gust. Click thumbs up to Like it too”) more closely resemble a personal recommendation by that friend to buy the product, or plastering the friend’s photo on the product packaging in stores?

Read more

Antone Johnson , Founding Principal, Bottom Line Law Group
July 3rd, 2012