5 ms·

Should you even be an investor?

46 points by ivankirigin 14y ago

ivankirigin 14y ago
I shared my post to a few folks who said they’d like to play the bracket with friends, like “startup madness”. I love the idea. In fact, when I started tracking W12, I asked some friends who had been to demo day to participate. It was just another tab in a spreadsheet. If you want to build something like this, here are two thoughts. First, tracking variable amounts making tracking time and valuation much more important. Here I’ve just assumed equal investments at demo day. Second, because it is fake money, to simulate a real deal flow, the amount of investments should be limited. 10 every 6 months sounds good.
richardjordan 14y ago
I think the key challenge to this method is one of your caveats. The challenge for a new investor isn't picking which of the best of the best you think would be good investments. It is making a return by picking from the second, third or fourth tier deals you can get into with no track record. There's a reason the angels we know if today were the guys we saw at every event for years building up that deal flow.
- ivankirigin 14y ago
  Agreed. The good news is that there are a few things you can do to make yourself more appealing relative to other investors. This is all based upon my experience on the other side of the table fundraising: decide quickly and decisively, be quick with your comms, and be nice. I think the handshake deal protocol will help those who want to be bold and act fast. Like I mentioned, these decisions were based on watching the pitches on stage, not even the follow up meetings. http://ycombinator.com/hdp.html http://ycombinator.com/hdp.html
  - richardjordan 14y ago
    Well good luck. I like that you're thinking it through. I've talked to so many "angels" who just made some money and decide they want to invest in startups so just spray and pray. I always hope that if I get a good exit at some point in the future I'd give back to the community by becoming an angel investor in a smart, considered way, like this.
imjk 14y ago
I don't think it's an accurate assessment of one's ability to be successful as an angel investor based on which ycombinator startups they would choose to hypothtically fund. Ycombinator startups already go through a thorough vetting process by some of the most experienced investors out there just to enter the class. I don't think a ycombinator class would be accurately representative of the type of deal-flow a typical rookie angel would encounter.
- ivankirigin 14y ago
  Why couldn't a rookie just go to demo day? Why does the method matter if the result is profit? Also, I didn't mention it here, but I'd be interested in tracking other accelerator demo days too. It would be fun to see the differences. Overall, the use of demo day is a convenience because this is just a hobby before I dive in.
ajju 14y ago
Good points Ivan. This is actually a really good exercise. Two considerations one can't take into account with virtual investing are: (1) Would the company be willing to take money from you? (They may already have raised, may not be willing to take the amount you are offering, may prefer to go with other investors) (2) What are the terms? Would they work for you?
- ivankirigin 14y ago
  1. Indeed. This is what I was trying to raise in one of the caveats. This is a bit like dating: sometimes there just isn't chemistry. You need to demonstrate value on top of money. 2. I presume as a small angel I wouldn't make the market here, I'd just participate. Sam Altman mentions this thinking here, and I agree http://blog.samaltman.com/upside-risk http://blog.samaltman.com/upside-risk . I'd pick the companies first and get in at whatever terms, obviously trying to get as much of the company as possible for my money.
  - ajju 14y ago
    Yes, my point regarding 2 was whether you would be willing to participate at the valuation/cap that they are raising at, unless you are completely price agnostic.
2pasc 14y ago
Ivan - I like the idea. One advice though - raising subsequent funds for a startup is great, but by no means this means liquidity as an investor. In your hypothetical case, you would have made money on SocialCam. But as many terms give you 2x your money if the Company sells without additional rounds after the angel round, I doubt you would have made much money. It's money, sure. Also - it happens that angels can exit some of their investment after a Series A or Series B, but I think this is the exception more than the norm.
- ivankirigin 14y ago
  Yeah, people don't talk much about it because of the clear signaling issues. One investor I talked to said something like "we haven't had many exits, but I've sold a hell of a lot of stock". Obviously it is hard to plot when I'd be in the black without knowing what "hell of a lot" means
chollida1 14y ago
Reid Hoffman did an excellent talk at Stanford where he said something similar. His main point was that most new investors make the mistake of thinking "this company would be successful if I was running it". That leads to investors meddling with CEO's as they have preconceived notions of how the company should be run.
wellboy 14y ago
Wow, somebody should make a game, where everybody could "invest" in companies. Basically it would just be copying Angellist and everybody would get $1M of play money in the beginning, then there would be a leaderboard of "investors", who made the most return on their startups. This could be an interesting reputation system and everybody would have equal chances.

46 points by ivankirigin 14y ago

I shared my post to a few folks who said they’d like to play the bracket with friends, like “startup madness”. I love the idea. In fact, when I started tracking W12, I asked some friends who had been to demo day to participate. It was just another tab in a spreadsheet. If you want to build something like this, here are two thoughts. First, tracking variable amounts making tracking time and valuation much more important. Here I’ve just assumed equal investments at demo day. Second, because it is fake money, to simulate a real deal flow, the amount of investments should be limited. 10 every 6 months sounds good.

richardjordan 14y ago

I think the key challenge to this method is one of your caveats. The challenge for a new investor isn't picking which of the best of the best you think would be good investments. It is making a return by picking from the second, third or fourth tier deals you can get into with no track record. There's a reason the angels we know if today were the guys we saw at every event for years building up that deal flow.

ivankirigin 14y ago
Agreed. The good news is that there are a few things you can do to make yourself more appealing relative to other investors. This is all based upon my experience on the other side of the table fundraising: decide quickly and decisively, be quick with your comms, and be nice. I think the handshake deal protocol will help those who want to be bold and act fast. Like I mentioned, these decisions were based on watching the pitches on stage, not even the follow up meetings. http://ycombinator.com/hdp.html http://ycombinator.com/hdp.html
- richardjordan 14y ago
  Well good luck. I like that you're thinking it through. I've talked to so many "angels" who just made some money and decide they want to invest in startups so just spray and pray. I always hope that if I get a good exit at some point in the future I'd give back to the community by becoming an angel investor in a smart, considered way, like this.

imjk 14y ago

I don't think it's an accurate assessment of one's ability to be successful as an angel investor based on which ycombinator startups they would choose to hypothtically fund. Ycombinator startups already go through a thorough vetting process by some of the most experienced investors out there just to enter the class. I don't think a ycombinator class would be accurately representative of the type of deal-flow a typical rookie angel would encounter.

ivankirigin 14y ago
Why couldn't a rookie just go to demo day? Why does the method matter if the result is profit? Also, I didn't mention it here, but I'd be interested in tracking other accelerator demo days too. It would be fun to see the differences. Overall, the use of demo day is a convenience because this is just a hobby before I dive in.

ajju 14y ago

Good points Ivan. This is actually a really good exercise. Two considerations one can't take into account with virtual investing are: (1) Would the company be willing to take money from you? (They may already have raised, may not be willing to take the amount you are offering, may prefer to go with other investors) (2) What are the terms? Would they work for you?

ivankirigin 14y ago
1. Indeed. This is what I was trying to raise in one of the caveats. This is a bit like dating: sometimes there just isn't chemistry. You need to demonstrate value on top of money. 2. I presume as a small angel I wouldn't make the market here, I'd just participate. Sam Altman mentions this thinking here, and I agree http://blog.samaltman.com/upside-risk http://blog.samaltman.com/upside-risk . I'd pick the companies first and get in at whatever terms, obviously trying to get as much of the company as possible for my money.
- ajju 14y ago
  Yes, my point regarding 2 was whether you would be willing to participate at the valuation/cap that they are raising at, unless you are completely price agnostic.

2pasc 14y ago

Ivan - I like the idea. One advice though - raising subsequent funds for a startup is great, but by no means this means liquidity as an investor. In your hypothetical case, you would have made money on SocialCam. But as many terms give you 2x your money if the Company sells without additional rounds after the angel round, I doubt you would have made much money. It's money, sure. Also - it happens that angels can exit some of their investment after a Series A or Series B, but I think this is the exception more than the norm.

ivankirigin 14y ago
Yeah, people don't talk much about it because of the clear signaling issues. One investor I talked to said something like "we haven't had many exits, but I've sold a hell of a lot of stock". Obviously it is hard to plot when I'd be in the black without knowing what "hell of a lot" means

chollida1 14y ago

Reid Hoffman did an excellent talk at Stanford where he said something similar. His main point was that most new investors make the mistake of thinking "this company would be successful if I was running it". That leads to investors meddling with CEO's as they have preconceived notions of how the company should be run.

wellboy 14y ago

Wow, somebody should make a game, where everybody could "invest" in companies. Basically it would just be copying Angellist and everybody would get $1M of play money in the beginning, then there would be a leaderboard of "investors", who made the most return on their startups. This could be an interesting reputation system and everybody would have equal chances.