8 ms·

Do You Know What an Angel Investor Is?

58 points by clarkm 12y ago

edoceo 12y ago
Boo popups
greenyoda 12y ago
"I have a degree in economics, an MBA from Berkeley, and over 30 years of business experience. Do you know what question I hear in Silicon Valley nearly every time I meet with potential investors for CalendarTree?" I would have supposed that Scott Adams has become quite wealthy from the Dilbert strip, his many books and all the spin-off merchandise (calendars, toys, etc.). Why would he need to look for outside investors to fund his app rather than just investing his own money? And if he's not willing to risk his own money to start his new business, what message does that send to potential investors?
- noahc 12y ago
  Investors understand risk management. It is possible he knows he needs 15MM to go for the home run, but doesn't want put in the 15MM himself and go bankrupt in the process. Investors allow him to shoot for the moon. Also, investors help with accountability, pushing through tough spots, connections, advice, etc. Investors also add credibility that 'rich white guy throws money at project' doesn't give.
  - greenyoda 12y ago
    Seems like you could write a shared calendar app for way less than $15M. And it's already in beta, so a lot of the development has been done already. I also wonder how much success he's going to get selling to enterprise customers. Any company with over 200 employees already has a calendar system (Outlook or some cloud equivalent).
    - adventured 12y ago
      Pretty sure the $15 million referred to a long-term bet, that takes years to get through the burning cash phase and into profitability. If you hire 20 people for the first year, that's going to cost three million dollars (if you're lucky) for everything all-in, without calculating potentially high customer acquisition costs early on. Writing the calendar app is the least expensive, least difficult and least time consuming part of building a large scale business around it. If you wanted to go big, and had three years to do it, you could easily burn through $10 or $15 million trying to get there before generating your first quarterly profit.
  - macspoofing 12y ago
    >Investors understand risk management. Heh. That's putting it mildly. Yes, he's hedging his bets. He has some Dilbert money he doesn't want to lose in case CalendarTree tanks. This is antithetical to a typical image of an entrepreneur who goes all in, and is a fanatical believer in the success of his or her product. A cynical angel may look at his start-up from that perspective.
tptacek 12y ago
I'm still not sure Scott Adams knows what an angel investor is. That, or I don't! As I understand it, the real difference between angels and VCs is that angels invest without locking down a valuation, and angels invest without demanding control. A VC round comes with a firm valuation and with a board seat.
- patio11 12y ago
  Angels sometimes invest in priced rounds. Convertible notes are a newer thing, and not yet 100% universal. The biggest difference, traditionally, is that angels invest their own money or that of buddies, and that VCs invest the money of LPs. This is a little weirder these days, as there are super-angels/micro-VCs/whatever-their-business-card-says where that starts to become a distinction without a difference.
  - tptacek 12y ago
    So the answer is, mostly, that I don't know what an angel is. :)
    - purringmeow 12y ago
      You do, it's just that the term is pretty encompassing :)
  - edanm 12y ago
    That's the difference that I think about re angel vs. VC. I think that outside of SV, this distinction is more valid, as the hybrid "we're a VC that wants to look/act like an angel" isn't as prevalent. Probably because the trend towards angels isn't as pervasive outside of SV. But I'm not really up-to-date on the inner workings of raising capital, so I could be wrong.
- skizm 12y ago
  > angels invest without locking down a valuation I mean, if you purchase a percentage of a company at a certain price, you have implicitly "locked down a valuation". Right?
diego 12y ago
Scott Adams is wrong. There are angel investors who invest in unproven companies, even at the concept stage. I'm one of them, and I prefer to invest in people. There are people who I'd invest in before even knowing what their companies plan to do.
- danielweber 12y ago
  Every Scott Adams post about CalendarTree makes me wonder if I'm reading marketing for CalendarTree.
  - macspoofing 12y ago
    You are, obviously. But isn't that the way tons of founders market their start-ups? That is, write blog posts, loosely (or slyly) related to the whatever product or company they are running?
  - forgottenpass 12y ago
    So just like any other post on hacker news by someone with a product? The "my experiences with product X as diving board for tangential point" is probably one of the less annoying positions on a scale that runs all the way from "pitching hard" to "cleverly designed to disguise relationship to the product." Don't get me wrong, a lot of them are incredibly gross to witness, but to me this one barely registers.
- AndrewKemendo 12y ago
  Is it perhaps the case that folks like you are so rare that you might as well not exist?
  - adventured 12y ago
    No, investing in people is extremely common in the business world. Some would argue in fact that it is the exception to invest in anything other than the people first (and the business / idea / product after that). A lot of what gets done in business, including investing, is who you know, reputation etc. That's how many great investment networks function in fact. That's a premise of investing into people first. If you want to get close to Ron Conway, you can't get near him without having a connection that basically vouches for you. That's all about investing into people and reputation extension.
andrew_null 12y ago
There's a few points which sound right in this essay, but I'm surprised he didn't discuss the more technical definition and its impact on the ecosystem: 1) an angel investor is someone who invests their own money 2) a venture capitalist invests out of a fund, which is mostly other peoples' money (OPM!) while taking a fee + economics from the fund (the famous "2 and 20" model) But that's not too useful, because what's important are the behaviors that come out of the situation. Because most angels are investing their own money, they usually don't have crazy amounts of capital to work with. Thus, they usually invest early so they can get a better percentage at a lower valuation. Many VCs also invest early, sometimes exclusively so with smaller funds, but they are often called "seed funds" to make that distinction. A fund which invests OPM is never called an "angel" regardless of what stage they invest at. And finally, big funds (managing 100s of millions of dollars) are what we think of usually as venture capital. (Funds that invest even larger amounts at higher valuations are often referred to as "late stage venture capital" or "growth capital." And there's more specialized terminology later stage since more specialized financial instruments can be brought into play - SPVs/debt/mezzanine/etc) Where Scott's essay rings true is that idea that investors of all classes are more risk averse these days- they prefer to see traction since the cost of building an app/website is rapidly decreasing. Thus, they are all behaviorally acting like "traction investors" rather than "idea investors" whereas in the past, traction investors purely consisted of the growth capital guys. This might be worse for the ecosystem since people want you to have everything built before taking in our first dollar of investment, but you could argue it means the ecosystem's $s are being allocated more efficiently also.
_ix 12y ago
...Who is Nikki Durbin?
- loisaidasam 12y ago
  Agreed, would be nice if the author used the correct name.
alexeisadeski3 12y ago
Every single real or perceived slight is a result of one's gender/color/orientation. We all know that white men are never slighted.
_lce0 12y ago
nice pun by the end.. I see what you did there ¬¬
danilocampos 12y ago
"If I had to guess, I'd say Silicon Valley would be among the easiest for women to penetrate" This is not an opinion grounded in any sort of reality. Attrition for women in technical roles is nearly double that of other industries. In finance, women make up around 20% of corporate boards. Not so in tech. Not by a long shot. This is Scott Adams saying "hey guys, here's some stuff I think but haven't really tested even a little bit."
- probably_wrong 12y ago
  > This is Scott Adams saying "hey guys, here's some stuff I think but haven't really tested even a little bit." For non-regular readers: that's exactly what Scott Adams' blog is about - throwing ideas into the wild and discussing them in the comments. It's a feature, not a bug. The problems come when people read it without knowing that, and assuming he's advocating for <issue>, while he's more of a "what do you think about this crazy thought?" kind of writer. Check this post[1] (specially the disclaimer) for an example. [1] http://dilbert.com/blog/entry/proof_almost_of_intelligent_design/ http://dilbert.com/blog/entry/proof_almost_of_intelligent_de...
  - danilocampos 12y ago
    That may be so, but I think it's not a little pernicious for someone with standing and reach to say "Hayyyyy, so, I'm sure everything's FINE" when everything is not at all fine. Sloppy and counterproductive.
- GFK_of_xmaspast 12y ago
  "This is not an opinion grounded in any sort of reality" Since when has that stopped him?
michaelochurch 12y ago
If I had to guess, I'd say Silicon Valley would be among the easiest for women to penetrate In the average relationship, the male is 4 years older than the female. That means that women (as a group, even if their individual dating patterns differ) have a "look-ahead" insight into which careers turn out well (medicine, law) and which promise the moon but fall flat (startups, academia). Among a group of 21-22 year-old college-senior women, at least a few have dated 24-27 year-old guys, so they know a lot more about the career landscape than the 21-year-old men, who've been dating 18- to 20-year-old women. That's why there are no women (except for hand-picked pretty tokens) playing the VC-funded game. They have the look-ahead information, and they're smart enough to see the VC-funded "tech world" as a fraud and not get involved. It's clueless men who get in, wreck their careers, and find themselves with no other options.
- a8da6b0c91d 12y ago
  This is the goofiest theory. By and large women are bad at career planning. Hordes of 23 year old women march off every year to get graduate degrees with zero payoff potential.
- nostrademons 12y ago
  Law is a terrible career these days. Talk to folks just getting out of law school about what their career prospects are like, don't talk to folks who are lawyers. The latter have already cleared numerous weed-out processes (getting into law school, getting through law school, getting a job after law school) that chew people up and spit them out. About 20-25% of T14 law students (and virtually none from lower-tier law schools) make it to BigLaw positions paying $160K/year. The rest become small-town attorneys, public defenders, assistants in the DA's office, or go to work for boutique law firms. These positions pay about $40-75K/year, barely more than a public schoolteacher, and yet they have law school loans to pay off. Even if you do get a BigLaw position, it involves being some partner's bitch for 7-10 years until (if) you make partner yourself. Medicine is a decent career if you get through it and can deal with the hours, but it also has a massive weed-out funnel. At my (top liberal-arts college) alma mater, the admissions department had a joke: "95% of you are pre-med. By graduation, about 2% of you will be pre-med." This is also why your main thesis, about women having an information advantage about the career world because of their relationship partners being older, doesn't hold. There is a strong selection bias in relationship partners. Lawyers find it much easier to find girlfriends than unemployed law-school graduates who went back to live with their parents. Anyone who uses their personal relationship choices as data on how the employed population as a whole functions is getting seriously biased data.
joshu 12y ago
No. Angels invest their own money. I assume that he can't get interest in his idea because folks are dubious about the idea, but are willing to be disproven ("come back when you have some traction")

58 points by clarkm 12y ago

Boo popups

"I have a degree in economics, an MBA from Berkeley, and over 30 years of business experience. Do you know what question I hear in Silicon Valley nearly every time I meet with potential investors for CalendarTree?" I would have supposed that Scott Adams has become quite wealthy from the Dilbert strip, his many books and all the spin-off merchandise (calendars, toys, etc.). Why would he need to look for outside investors to fund his app rather than just investing his own money? And if he's not willing to risk his own money to start his new business, what message does that send to potential investors?

noahc 12y ago
Investors understand risk management. It is possible he knows he needs 15MM to go for the home run, but doesn't want put in the 15MM himself and go bankrupt in the process. Investors allow him to shoot for the moon. Also, investors help with accountability, pushing through tough spots, connections, advice, etc. Investors also add credibility that 'rich white guy throws money at project' doesn't give.
- greenyoda 12y ago
  Seems like you could write a shared calendar app for way less than $15M. And it's already in beta, so a lot of the development has been done already. I also wonder how much success he's going to get selling to enterprise customers. Any company with over 200 employees already has a calendar system (Outlook or some cloud equivalent).
  - adventured 12y ago
    Pretty sure the $15 million referred to a long-term bet, that takes years to get through the burning cash phase and into profitability. If you hire 20 people for the first year, that's going to cost three million dollars (if you're lucky) for everything all-in, without calculating potentially high customer acquisition costs early on. Writing the calendar app is the least expensive, least difficult and least time consuming part of building a large scale business around it. If you wanted to go big, and had three years to do it, you could easily burn through $10 or $15 million trying to get there before generating your first quarterly profit.
- macspoofing 12y ago
  >Investors understand risk management. Heh. That's putting it mildly. Yes, he's hedging his bets. He has some Dilbert money he doesn't want to lose in case CalendarTree tanks. This is antithetical to a typical image of an entrepreneur who goes all in, and is a fanatical believer in the success of his or her product. A cynical angel may look at his start-up from that perspective.

tptacek 12y ago

I'm still not sure Scott Adams knows what an angel investor is. That, or I don't! As I understand it, the real difference between angels and VCs is that angels invest without locking down a valuation, and angels invest without demanding control. A VC round comes with a firm valuation and with a board seat.

patio11 12y ago
Angels sometimes invest in priced rounds. Convertible notes are a newer thing, and not yet 100% universal. The biggest difference, traditionally, is that angels invest their own money or that of buddies, and that VCs invest the money of LPs. This is a little weirder these days, as there are super-angels/micro-VCs/whatever-their-business-card-says where that starts to become a distinction without a difference.
- tptacek 12y ago
  So the answer is, mostly, that I don't know what an angel is. :)
  - purringmeow 12y ago
    You do, it's just that the term is pretty encompassing :)
- edanm 12y ago
  That's the difference that I think about re angel vs. VC. I think that outside of SV, this distinction is more valid, as the hybrid "we're a VC that wants to look/act like an angel" isn't as prevalent. Probably because the trend towards angels isn't as pervasive outside of SV. But I'm not really up-to-date on the inner workings of raising capital, so I could be wrong.
skizm 12y ago
> angels invest without locking down a valuation I mean, if you purchase a percentage of a company at a certain price, you have implicitly "locked down a valuation". Right?

diego 12y ago

Scott Adams is wrong. There are angel investors who invest in unproven companies, even at the concept stage. I'm one of them, and I prefer to invest in people. There are people who I'd invest in before even knowing what their companies plan to do.

danielweber 12y ago
Every Scott Adams post about CalendarTree makes me wonder if I'm reading marketing for CalendarTree.
- macspoofing 12y ago
  You are, obviously. But isn't that the way tons of founders market their start-ups? That is, write blog posts, loosely (or slyly) related to the whatever product or company they are running?
- forgottenpass 12y ago
  So just like any other post on hacker news by someone with a product? The "my experiences with product X as diving board for tangential point" is probably one of the less annoying positions on a scale that runs all the way from "pitching hard" to "cleverly designed to disguise relationship to the product." Don't get me wrong, a lot of them are incredibly gross to witness, but to me this one barely registers.
AndrewKemendo 12y ago
Is it perhaps the case that folks like you are so rare that you might as well not exist?
- adventured 12y ago
  No, investing in people is extremely common in the business world. Some would argue in fact that it is the exception to invest in anything other than the people first (and the business / idea / product after that). A lot of what gets done in business, including investing, is who you know, reputation etc. That's how many great investment networks function in fact. That's a premise of investing into people first. If you want to get close to Ron Conway, you can't get near him without having a connection that basically vouches for you. That's all about investing into people and reputation extension.

andrew_null 12y ago

There's a few points which sound right in this essay, but I'm surprised he didn't discuss the more technical definition and its impact on the ecosystem: 1) an angel investor is someone who invests their own money 2) a venture capitalist invests out of a fund, which is mostly other peoples' money (OPM!) while taking a fee + economics from the fund (the famous "2 and 20" model) But that's not too useful, because what's important are the behaviors that come out of the situation. Because most angels are investing their own money, they usually don't have crazy amounts of capital to work with. Thus, they usually invest early so they can get a better percentage at a lower valuation. Many VCs also invest early, sometimes exclusively so with smaller funds, but they are often called "seed funds" to make that distinction. A fund which invests OPM is never called an "angel" regardless of what stage they invest at. And finally, big funds (managing 100s of millions of dollars) are what we think of usually as venture capital. (Funds that invest even larger amounts at higher valuations are often referred to as "late stage venture capital" or "growth capital." And there's more specialized terminology later stage since more specialized financial instruments can be brought into play - SPVs/debt/mezzanine/etc) Where Scott's essay rings true is that idea that investors of all classes are more risk averse these days- they prefer to see traction since the cost of building an app/website is rapidly decreasing. Thus, they are all behaviorally acting like "traction investors" rather than "idea investors" whereas in the past, traction investors purely consisted of the growth capital guys. This might be worse for the ecosystem since people want you to have everything built before taking in our first dollar of investment, but you could argue it means the ecosystem's $s are being allocated more efficiently also.

_ix 12y ago

...Who is Nikki Durbin?

loisaidasam 12y ago
Agreed, would be nice if the author used the correct name.

alexeisadeski3 12y ago

Every single real or perceived slight is a result of one's gender/color/orientation. We all know that white men are never slighted.

_lce0 12y ago

nice pun by the end.. I see what you did there ¬¬

danilocampos 12y ago

"If I had to guess, I'd say Silicon Valley would be among the easiest for women to penetrate" This is not an opinion grounded in any sort of reality. Attrition for women in technical roles is nearly double that of other industries. In finance, women make up around 20% of corporate boards. Not so in tech. Not by a long shot. This is Scott Adams saying "hey guys, here's some stuff I think but haven't really tested even a little bit."

probably_wrong 12y ago
> This is Scott Adams saying "hey guys, here's some stuff I think but haven't really tested even a little bit." For non-regular readers: that's exactly what Scott Adams' blog is about - throwing ideas into the wild and discussing them in the comments. It's a feature, not a bug. The problems come when people read it without knowing that, and assuming he's advocating for <issue>, while he's more of a "what do you think about this crazy thought?" kind of writer. Check this post[1] (specially the disclaimer) for an example. [1] http://dilbert.com/blog/entry/proof_almost_of_intelligent_design/ http://dilbert.com/blog/entry/proof_almost_of_intelligent_de...
- danilocampos 12y ago
  That may be so, but I think it's not a little pernicious for someone with standing and reach to say "Hayyyyy, so, I'm sure everything's FINE" when everything is not at all fine. Sloppy and counterproductive.
GFK_of_xmaspast 12y ago
"This is not an opinion grounded in any sort of reality" Since when has that stopped him?

michaelochurch 12y ago

If I had to guess, I'd say Silicon Valley would be among the easiest for women to penetrate In the average relationship, the male is 4 years older than the female. That means that women (as a group, even if their individual dating patterns differ) have a "look-ahead" insight into which careers turn out well (medicine, law) and which promise the moon but fall flat (startups, academia). Among a group of 21-22 year-old college-senior women, at least a few have dated 24-27 year-old guys, so they know a lot more about the career landscape than the 21-year-old men, who've been dating 18- to 20-year-old women. That's why there are no women (except for hand-picked pretty tokens) playing the VC-funded game. They have the look-ahead information, and they're smart enough to see the VC-funded "tech world" as a fraud and not get involved. It's clueless men who get in, wreck their careers, and find themselves with no other options.

a8da6b0c91d 12y ago
This is the goofiest theory. By and large women are bad at career planning. Hordes of 23 year old women march off every year to get graduate degrees with zero payoff potential.
nostrademons 12y ago
Law is a terrible career these days. Talk to folks just getting out of law school about what their career prospects are like, don't talk to folks who are lawyers. The latter have already cleared numerous weed-out processes (getting into law school, getting through law school, getting a job after law school) that chew people up and spit them out. About 20-25% of T14 law students (and virtually none from lower-tier law schools) make it to BigLaw positions paying $160K/year. The rest become small-town attorneys, public defenders, assistants in the DA's office, or go to work for boutique law firms. These positions pay about $40-75K/year, barely more than a public schoolteacher, and yet they have law school loans to pay off. Even if you do get a BigLaw position, it involves being some partner's bitch for 7-10 years until (if) you make partner yourself. Medicine is a decent career if you get through it and can deal with the hours, but it also has a massive weed-out funnel. At my (top liberal-arts college) alma mater, the admissions department had a joke: "95% of you are pre-med. By graduation, about 2% of you will be pre-med." This is also why your main thesis, about women having an information advantage about the career world because of their relationship partners being older, doesn't hold. There is a strong selection bias in relationship partners. Lawyers find it much easier to find girlfriends than unemployed law-school graduates who went back to live with their parents. Anyone who uses their personal relationship choices as data on how the employed population as a whole functions is getting seriously biased data.

joshu 12y ago

No. Angels invest their own money. I assume that he can't get interest in his idea because folks are dubious about the idea, but are willing to be disproven ("come back when you have some traction")