Seattle angel investor says few investors add value (2016)

http://blog.capitalandgrowth.org/jon-staenberg/

by hayksaakian • 9 years ago

118 38 9 years ago

blog.capitalandgrowth.org

"Yeah, it pretty simple. If it is hard to raise money figure out how you don’t have to—get to profitability.

That discipline is healthy. There are very few companies that have the hyper-growth that allows them to forgo profitability in the short-term and everyone wrongly assumes those examples are the norm, whether it’s a Facebook or a YouTube."

I think more Silicon Valley CEOs need to internalize this. They may have heard it, but from the looks of it, they have not internalized it.

blazespin• 9 years ago

It depends on your team/product. Are they going to build, max, a 1B business? Sure, than 10x is fine. Do they have potential for a 10B - 100B business? Than 100x return makes sense, because land grab and consolidation will likely be an aspect of the business - which requires significant capital and therefore returns.

pieterhg• 9 years ago

As OP said, very few companies are in this realm. While many people assume this is the status-quo, it's not anymore.

yinso• 9 years ago

That’s what everyone says but how many 100x’s are there really? I’ve been doing this a long time and there just aren’t that many.
I don’t have the same pressures of a fund in liquidity, timing or the need for 100x returns. If I can consistently get 5x to 10x I’d take that all day long.

How many investors, angels, VCs or otherwise, focus on the 5x-10x return deals?

And are 5x-10x deals safer, meaning that more of a sure thing, than the 100x deals in terms of return? I.e. are VCs being rational by focusing on the 100x deals since 5x-10x deals aren't safer, or are they forgoing safer and better returns of the 5x-10x for the chance to become movers and shakers of the largest players?

a13n• 9 years ago

I've asked a VC this question before. They said that in theory going after 5-10x returns sounds great but in practice no successful VC firms use this strategy. They all make their money from the few who "return the fund".

mrep• 9 years ago

Well, I tend to think of VC's as investors who target insane growth companies so that kind of makes sense.

One of my good friends works in private equity and their investment targets are 100% focused on small banks who return an average of 2-5x.

Not quite the 5-10x returns but they have much higher success rates.

chicagogal• 9 years ago

I've heard the phrase "keep me updated" before ;) Perhaps they don't want to give honest feedback in case they later turn out to be wrong and want in?

rpedela• 9 years ago

That phrase is VC talk for no.

abalashov• 9 years ago

To the point of the sibling comment, I think "no, at this time" is more accurate.

kgilpin• 9 years ago

It's a fairly honest reply. It means "you're not there yet". It's far from Yes, but it's not No; and a future Yes is not likely but not impossible.

You could try asking for specific things that require improvement but I don't think you'll get a useful answer in most cases. You'll hear some words back but all they will mean is "I am not in love with your company".

Karrot_Kream• 9 years ago

I’ve been doing this long enough to know that the next big thing won’t happen as quickly as people expect. I am therefore willing to forgo those 100x returns and get 10x on things that are more certain and nearer term.

If only more founders thought like this too.

JumpCrisscross• 9 years ago

As always, it depends. If you're in a land-grab market with $100 billion potential and take the slow route, you'll be squeezed. If, on the other hand, you choose a market with a low ceiling, you'll likely be forced to finance with retained earnings and/or debt.

Retric• 9 years ago

'Market' is often very fluid. Large companies may be in government consulting, but as you scale down there is plenty of room for various specialties in that same 'Market'.

You find this all over the place as 800$ Aeron chairs and 40$ iKea chairs are both in the same and very different markets.

ouid• 9 years ago

Who considers 10x settling?

kornish3• 9 years ago

Institutions whose portfolio economics demand 1000x returns or bust.

And also some of the individuals (angels) investing alongside the above institutions.

sharkweek• 9 years ago

"I don't want to make a little bit of money every day... I want to make a fuckton of money all at once!"

https://www.youtube.com/watch?v=BzAdXyPYKQo

jkuria2• 9 years ago

Haha! Classic:

"If you show revenue, people will ask how much and it will never be enough. The company that was the 100x or the 1000x becomes the 2x dog.

But if you have no revenue you can say you are pre-revenue. You are a potential pure play. It is not about how much you earn. It is about how much you are worth.

And who is worth the most? Companies that lose money. Pinterest, Snapchat. Amazon has lost money every quarter for the last effing 25 years and that Bezos m*cker is the effing king"

AndrewKemendo5• 9 years ago

That's how pretty much every Angel invests. They want to exit at the B or C round, or have an acquisition in the mean time.

Angels and VCs are more often than not at odds because they have different economics they are playing for.

An angel puts in 250k? They would be thrilled with a 10M exit. Along comes a VC with a 5M A round and suddenly they need a 500M exit to feel like it was a success.

anon4728• 9 years ago

Money is plentiful.

The core, unscalable challenge is finding smart and motivated investors whom can add value.

For example, take Raj Parekh:

- nice guy

- hustler's hustler

- can act as anything from investor to sales to VP, without getting too bossy, just unblocks problems and moves forward

- knows the enteprise space

That's the ideal investor:

competent, helpful, humane, relentlessly resourceful and generally willing to roll up sleeves as an equal part of the team.

0xbear• 9 years ago

10x means much lower probability of failure in order to get any ROI at all. Failure, sadly, is a lot harder to avoid than founders and VCs would like. 100x means the overwhelming majority of investments can fail and you still make out like a bandit.

Seattle angel investor says few investors add value (2016)

Related Stories