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Each investor is different, but I personally think the ideal pitch is a big vision combined with a pragmatic plan for the first couple of years. If the vision i

Each investor is different, but I personally think the ideal pitch is a big vision combined with a pragmatic plan for the first couple of years. If the vision is not that big, then that won't excite most (Silicon Valley) investors. However, "big vision" is not the same as "crazy vision." A big vision could be "we're going to replace an old incumbent in a $5b industry." A crazy vision could be "we're going to build an amazing piece of technology that very few people think is possible." The crazy vision only works if you have a lot of credibility. One of the only personal examples I have of backing a crazy vision is with Rigetti Quantum Computing (a YC company). The founder, Chad Rigetti, set out to build a quantum computer from the ground up. This is an extremely ambitious goal, but when I spoke to a few Caltech quantum physicists, they said that Chad was one of the 2-3 best people in the world for building a QC. That was a very strong testimonial. On the planning side, I prefer pragmatic plans and start rolling my eyes if someone's plans sound completely unrealistic. I've seen so many pitch decks with a predicted revenue ramp up that looks like: "$500k sales this year, $4m next year, and $50m in year 3." I've been investing for five years and I've never personally seen a company ramp up that quickly. What I do want to see though is that if customer acquisition is slow/deliberate, then there's a good reason for that. Example of a good reason: "I'm working with 3 pilot customers for the next 6 months and focusing on learning and iteration and understanding exactly where their biggest pain points are. I'm intentionally not focused on getting new customers." Example of a poor reason: "I'm not good at sales but don't want to hire anyone because I think salespeople are overrated. I expect to get 3 pilot customers by myself in the next 6 months, and I think that should be enough to make investors happy." On an unrelated note, I'm happy to answer any other questions folks have. My background is that I was a sw engineer for 10 years, then moved to seed stage investing about 5 years ago.

ScottBurson 9y ago
Thanks, that really helps.
RHSman2 9y ago
Hi lpolovets, In the world of massive, multi 100 million exits where does a more 'humble' single digit Million exit's it with you and investors?
- zhoujianfu 9y ago
  I’m not lpolovets but I do angel invest and my take is the math really does only make sense if you get a few big hits... which would imply the only rational angel/VC strategy is only invest in ones with big potential (and diversify). And that’s what I try and do. That said, I have seen that a lot of small seed funds and new angel investors (most are new!) like to say that they’re happy with lots of small wins. I dunno if it’s just their way to show how they “think different” from the conventional wisdom (of “go big or go home”), or it’s just to seem more down to earth and approachable to not turn off potential deal flow, or just because they are really new and haven’t actually done the math (or are more risk-adverse than they probably should be in this line of work). But then, when push comes to shove, I haven’t seen any ACTUALLY invest when they honestly don’t believe it could be a $100M+ exit.
- lpolovets 9y ago
  TLDR: if you aim for 100x and achieve a 3x, that won't affect my fund much financially but I'll be very happy for you and your team. But if you initially aim for a 3x then I can't invest in the first place based on my portfolio model. For a good VC fund, a typical portfolio might look something like 30 investments -> 11 fail, 10 return 1x, 6 return 5x, 2 return 15x, and 1 returns 50x. That's a 4x return overall, but most of that return is concentrated in the top 10% of companies. So the investing model only works if a VC fund keeps swinging for the 50x return and occasionally succeeds. The way I would frame exits from my perspective is that I need to keep investing in companies with 50x potential so that hopefully at least one will reach that level during a fund's lifecycle. But along that path, a lot of companies will predictably exit for 5x or 1x or 0x. Those exits don't have a huge impact on my fund's financial returns, but the companies are still run by people who I like and believe in, and the ideas those people worked on are ones that we (and their employees) believed in. So if a company exits for 0x everyone is bummed on behalf of the founders and their team who went all-in. But if the founders aimed at 50x and came out with 2x I am very happy for them personally. I don't get upset at all that not every exit is a 50x because that would be like always betting on 17 in roulette and being upset every time a different number pops up. That's not how the statistical distribution works. What would bum me out is if someone is clearly on track for a 10x or 50x outcome, but then sells at 2x or 4x because that's good enough for them.
rasen58 9y ago
Did you make enough money as a regular sw engineer to put into seed investing or did you get your investing capital from somewhere else?
- lpolovets 9y ago
  You need to be accredited to angel invest in the US, which means $200k in annual solo income, $300k in joint income, or $1m in net worth. The net worth number is hard to hit, but the income levels are attainable if you work at a bigger company (Google, FB, etc). In my case, I got very lucky at my first job out of college by joining LinkedIn when it was ~15 people. That eventually gave me some capital to angel invest. But to start the seed fund I currently work at, I partnered up with several people who had venture investing experience and we ended up raising money from outside investors. FWIW, fundraising for (unknown/first-time) VCs is as much of a slog as for founders. If I recall correctly, it took us about 10 months to raise our fund, and we talked to 100s of investors in the process.

ScottBurson 9y ago

Thanks, that really helps.

RHSman2 9y ago

Hi lpolovets, In the world of massive, multi 100 million exits where does a more 'humble' single digit Million exit's it with you and investors?

zhoujianfu 9y ago
I’m not lpolovets but I do angel invest and my take is the math really does only make sense if you get a few big hits... which would imply the only rational angel/VC strategy is only invest in ones with big potential (and diversify). And that’s what I try and do. That said, I have seen that a lot of small seed funds and new angel investors (most are new!) like to say that they’re happy with lots of small wins. I dunno if it’s just their way to show how they “think different” from the conventional wisdom (of “go big or go home”), or it’s just to seem more down to earth and approachable to not turn off potential deal flow, or just because they are really new and haven’t actually done the math (or are more risk-adverse than they probably should be in this line of work). But then, when push comes to shove, I haven’t seen any ACTUALLY invest when they honestly don’t believe it could be a $100M+ exit.
lpolovets 9y ago
TLDR: if you aim for 100x and achieve a 3x, that won't affect my fund much financially but I'll be very happy for you and your team. But if you initially aim for a 3x then I can't invest in the first place based on my portfolio model. For a good VC fund, a typical portfolio might look something like 30 investments -> 11 fail, 10 return 1x, 6 return 5x, 2 return 15x, and 1 returns 50x. That's a 4x return overall, but most of that return is concentrated in the top 10% of companies. So the investing model only works if a VC fund keeps swinging for the 50x return and occasionally succeeds. The way I would frame exits from my perspective is that I need to keep investing in companies with 50x potential so that hopefully at least one will reach that level during a fund's lifecycle. But along that path, a lot of companies will predictably exit for 5x or 1x or 0x. Those exits don't have a huge impact on my fund's financial returns, but the companies are still run by people who I like and believe in, and the ideas those people worked on are ones that we (and their employees) believed in. So if a company exits for 0x everyone is bummed on behalf of the founders and their team who went all-in. But if the founders aimed at 50x and came out with 2x I am very happy for them personally. I don't get upset at all that not every exit is a 50x because that would be like always betting on 17 in roulette and being upset every time a different number pops up. That's not how the statistical distribution works. What would bum me out is if someone is clearly on track for a 10x or 50x outcome, but then sells at 2x or 4x because that's good enough for them.

rasen58 9y ago

Did you make enough money as a regular sw engineer to put into seed investing or did you get your investing capital from somewhere else?

lpolovets 9y ago
You need to be accredited to angel invest in the US, which means $200k in annual solo income, $300k in joint income, or $1m in net worth. The net worth number is hard to hit, but the income levels are attainable if you work at a bigger company (Google, FB, etc). In my case, I got very lucky at my first job out of college by joining LinkedIn when it was ~15 people. That eventually gave me some capital to angel invest. But to start the seed fund I currently work at, I partnered up with several people who had venture investing experience and we ended up raising money from outside investors. FWIW, fundraising for (unknown/first-time) VCs is as much of a slog as for founders. If I recall correctly, it took us about 10 months to raise our fund, and we talked to 100s of investors in the process.