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Ask HN: What do Angel Investors or Seed funds care about?
I have always thought about this situation. Lets say you are running a company that is on track to do $5M in revenue in next 2-3 years (based on solid patterns being bootstrapped for a while). It could be scaled further with a little bit of extra cash injection AND new support structure like investors who are experienced. Does it make sense for such company to try and find investors at this point ? Do investors exist for such companies or the only option is small business loans ? If in 10 years, this company could hit $15 Million in revenue, is that too small for angels/seed fund investors ? I know it is not worth it for larger investors or VCs but wonder what the options are for such companies.
- davismwfl 7y agoSo this is typically where high net worth individuals (HNI) come in, aka, angels but not your typical tech angel and not seed funds IMO. I would argue a very large unreported, under discussed part of funding for traditional businesses is done this way, but it doesn't have the sex appeal of tech angels and VC's so people don't hear about it and the press doesn't cover it. It is not rare to work with a HNI and they infuse you with say 50-500k for growth based on your business metrics. How they structure the deal can be very different, it can be anything from a "loan" with monthly payments starting usually after some number of months or it could be as ownership via shares or Units (for LLC's) and quarterly or annual distributions based upon an agreed to valuation. But there are almost an unlimited other numbers of ways this gets structured. Not everyone is looking for 10x returns, a lot of HNIs will invest as sort of a paying it forward (they want people to succeed), but don't be misled they are still looking for solid returns. An example, I did one of these deals with an HNI where for every sale we made they took a percentage of the sale. Until the principle was paid back it was a higher percentage but it lowered once principle was paid back and the return was capped at a total value/time whichever occurred first e.g. they could get up to 4x their investment back or it stopped 5 years after the principle was repaid whichever came first, they were also guaranteed a specific return if we sold before either of the triggers happened. This deal worked for both of us, because as we succeeded they got paid and they were incentivized to help us succeed because they could get the max value out sooner the faster we grew.
- ReD_CoDE 7y agoWe're in the mock-up stage and has started negotiation with on of well-known VCs in Silicon Valley So, based on our condition do you think which deal is good enough? We have a $1.5 trillion annual Total Addressable Market - TAM globally in smart cities market and we have chosen a company as our beachhead market strategy that has 1 million customers which if accepts our solution we will have $2.5 billion annual sales which would be between $250 million annual income We need around just 500K users to become a unicorn So what's the best strategy today for us in the pre-seed stage?
- askafriend 7y ago> We have a $1.5 trillion annual Total Addressable Market FWIW, anyone who throws out ridiculous TAMs when trying to sell their idea is an immediate red flag. It's a poor and over-used tactic.