Category Archives: Startup Investing
Part of the challenge is the enormous amount of ignorance surrounding this suddenly hot topic. There are thousands of companies that “the crowd” can fund without restriction, including Apple, Google and Facebook. These are “publicly tradable companies”, and what makes them so are the extensive rules surrounding disclosure, transparency, trading and other aspects of their corporate existence.
But since there
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There is a saying in the not-for-profit world that your board members should all fall into one or more of three categories in which they can deliver: Wealth, Work or Wisdom.
In my experience, those same qualities also apply to for-profit boards:
Wealth, as in investors who can write checks and help with fundraising in future rounds;
Work, as in
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The question is based on a misunderstanding of how venture capital investment works.
First of all, VC funds do not invest in ideas. What VCs invest in are operating companies that are ready (or almost ready) to scale. There are many wonderful ideas, all of which are not fundable. Only companies get funded.
Next, VCs don’t have an unlimited amount of money
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Precisely because seed stage investments in private startup companies are NOT Warren Buffet’s types of investments. Early venture and angel investments are much, much riskier than Buffett’s, with more than half of them typically failing completely and losing the entire investment. As such, the returns on an early stage portfolio typically come from only one or two investments out of
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Unfortunately, a private company in the US may not take investment money from “anyone”. The only people who are legally eligible to purchase an equity interest in a private company without a great deal of special paperwork are, as you noted, Accredited Investors. These are defined as a person with net assets of over $1 million (not including the value of his or her primary
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Most entrepreneurs struggle with financial projections, not wanting to commit to numbers they can’t deliver, and having no clue what investors might consider reasonable. However, making no projections, or non-credible projections will get your startup marked as unfundable. I recommend a simple set of guidelines, which work for at least 80% of the business domains I see.
Equally important, you
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A useful way to look at it is the difference between current value and potential value.
When an investor puts money into a company in exchange for an ownership stake, mathematics means that the amount of ownership the investor receives for the amount of the investment determines the “value” being assigned to the existing company before the investment.
As an example, let’s say
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The main one is simultaneously obvious and under-estimated in both directions: you are likely getting a bunch of small-ish investors at once. This might typically be anywhere from five to twenty-five investors each putting in somewhere between $10,00 and $100,000 (depending on the group.)
The good side is that you now have 5-25 smart, connected people rooting for you. If
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Because of the economic realities of angel investing, not greed.
The hard and unforgiving facts are that the majority of all angel-backed ventures fail completely, losing all the money of all the investors. Of the remaining investments, most will return either the same amount that was originally invested, or perhaps be a moderate success and return two or three times
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Does the company have a board of directors? Are there any investor representatives on it? If there is a “lead” Investor with whom you have a good relationship, you might try having him act as your front man. Otherwise, you might try sending ALL your investors something like this:
