Tag Archive | startup

Angel Investing – Fools Rush In Where Family Offices Dare To Tread (1)

Note: This post originally appeared as an article on FOCAPNET.FOCAPNET logo


Angel investing is hot… and not just because it’s so cool.

When for over a decade single-digit Venture Capital returns qualify as “top quartile”, seed stage investments have generated 27% ROI. (2)  So it is only natural that family offices and high net worth individuals are eager to get exposure to this sector.  The only problem is, they often don’t have the experience they need to do it right.

Here’s a typical family office startup story:

  1. A family office decides it wants to get into angel investing.
  2. One of the investment professionals goes to a few meetups and generally gets the word out that he is in the market for interesting startups.
  3. He starts getting pitched (directly, via LinkedIn, etc.) by a host of “investment advisors” representing “hot startups”.
  4. A few of these startups look pretty good so the family office invests.
  5. These investments fail miserably.
  6. The family office decides that startups are a “bad investment” and goes back to what it was investing in previously.

Hint: Step 3 is where things ran off the rails.  I’ll get back to that in a moment. 


Why family offices are ill-equipped for angel investing

The more sophisticated family offices employ investment professionals who have deep experience analyzing the strategies and returns of public equities, hedge funds, private equity funds, etc.  These are all well defined instruments, within generally limited investment universes, for which substantial data is available.  Even if you are considering seeding a hedge fund or committing to a newly minted PE/VC fund, you can still mine the principles’ track for a fair number of data points.  Furthermore, there are well-established channels for learning about new opportunities (e.g., “capital introduction” dinners) in these spaces.

Now reverse every single one of the above characteristics and you get angel investing.  Every halfway decent startup opportunity is unique, solving unmet needs in different industries – sometimes in industries that don’t even yet exist.  There are no registries or directories of startups, no associations to join.  And you can forget about data entirely with a pre-revenue company.  At best the founders have one or two reasonably successful prior ventures under their belts. (If they had a real home run under their belts, they wouldn’t need investors at all.)  Furthermore, the best way to find great startups to invest in is to know other great startups so if you aren’t already deep in that community, you’re already disadvantaged.

Unfortunately, most family offices don’t realize how fundamentally different early stage investing is from other alternative asset investments.  So they don’t see anything amiss when investment adviser brings them startups to invest in. (I told you I’d get back to step 3.)  They are used to meeting emerging hedge fund managers that way so why shouldn’t they find a great startup that way too?  Because the best startups are never, ever represented by an investment advisor.

Think about it.  VCs are the most networked people on the face of the earth.  VC present at panels or judge pitch events practically every week.  They meet dozens of entrepreneurs every week and know – and have often co-invested with – virtually every other VC in our area.  If a startup founder can’t network his way into a warm introduction to a VC or angel, how is he going to find customers or key strategic partners?  Is this advisor going to be holding his hand then too, after your check has cleared?  Plus, the very fact that the founder thinks he can waive his hand and simply have someone else take something this crucial to his business for him is huge red flag in and of itself.  So any startup that has an investment advisor fundraising for them is already automatically suspect.  In practice, the deals the family offices are being shown by these advisors are the hairy, old, over-shopped deals that every VC and halfway serious angel have already turned down.  It’s no wonder they fail miserably.

To be fair, to the untrained eye they don’t look that bad.  Perhaps they have a cool piece of ad tech that you are convinced will take agencies by storm.  You have to really know the industry to understand why agencies turned them down two years ago when they first tried shopping their solution around.  That fantastic social media marketing tool?  It’s so wonderful that five other companies are already doing it and they are all making better progress than the one you were pitched.  But if you aren’t seeing dozens of startups each month, there’s no way you could be expected to be on top of all these trends.


So what’s a family office to do? 

In theory, a family office could hire a seasoned angel investor to invest on their behalf.  But good luck finding one.  Many angels are running their own businesses and/or are entrepreneurs who had a large exit and have no interest in working for a family office.  Also, angel investing is a numbers game.  Most startups will fail, and many of the rest will be modest successes.  You have to invest in many, many startups to have a reasonable chance of 1 or 2 of your investments being a home run.  There’s a reason Dave McClure named his fund (now an accelerator as well) “500 Startups.”

Fortunately, there’s a better option:  Startup Accelerators.

Accelerators(3) are the boot camps of the startup ecosystem.  Companies accepted into top accelerators are the very best, earliest stage startups in the world.  The top accelerators typically get hundreds of applicants for just 10-15 spots.  Having just run the screening process for DreamIt NY’s summer 2014 program I can personally attest that this is no exaggeration.  The odds of getting into Harvard are slightly better than getting accepted into DreamIt.

Accelerators give the startups they accept a little cash ($20k-$40K on average), co-working space for the duration of the program (typically 3-4 months), and extensive mentoring, coaching, and introductions.  Finally, on “Demo Day” the startups graduate by pitching their business to an audience of hundreds of active angel investors hand-picked by their accelerator.  In exchange for all this, the accelerator gets equity in the startup (usually 6-8%) and the right to co-invest in the startup’s seed round.

From the perspective of the family office, accelerators can be the capital introduction dinners for startups.  Unlike the shady investment advisors discussed above, accelerators are personally invested in the startups they accept.  Accelerators do not get commissions on the fund they help their startups raise; they only profit when their portfolio companies have an exit so their incentives are aligned with the other angel investors.

But they are more than just a trusted recommendation from a fellow angel investor.  Accelerators like 500 Startups, DreamIt, TechStars, and Y Combinator invest in dozens of startups each year and can bring a structure and rigor to the investment process that few angel investors have.  Established accelerators bring unparalleled networks and reputation to the table enabling them to source the very best new companies out there.

Many accelerators are structured much like VC funds.  But there is one crucial difference: co-investment.  Even the most co-investment friendly VCs only make their portfolio investments available to LPs if they are unable or unwilling to invest their full pro rata.  If it’s a great portfolio company, the VC will continue to invest until it runs out of powder or starts bumping up against position caps.  And if the VC is able to but does not want to exercise its full pro rata, do you really want a bigger stake in that company?  In both cases, the VC eats first and the LPs get leftovers.

Accelerators on the other hand, rarely invest in more than a small fraction of the portfolio company’s seed round.  As I mentioned above, early stage investing is a numbers game so they reserve most of their investment capacity for new startups.  As a result, 75% or more of the round goes to new investors.

Think about that for a moment.  Here’s an entity that filters out 98% of the startups they see, takes the top 2% and gives them all the help a young company could ask for, and then willingly steps aside and lets any other angel or VC swoop in and invest in those elite new ventures.  No commissions, no membership fees.  Wow.

If all a family office did was go to the Demo Days of the top 4 or 5 accelerators and invest in the presenting startups, the filtering effect alone would give them a high quality portfolio of early stage investments, no additional effort required.

For the family offices who want to build their own experience base and startup network, there is an even better option: invest directly in the accelerator.  Accelerators typically give their LPs early access to their new class so LPs can track a startup’s progress over a longer period of time before deciding to invest and/or can invest before Demo Day and avoid the risk of missing out on the hottest prospects.  Furthermore, most accelerators will gladly explain their selection process, describe how they are assisting the startups, and introduce LPs to other members of the startup community.  This practical education is not something you can buy anywhere but you can get it for free simply by investing in something you already want to invest in.

Investing directly in a top accelerator also makes sense from an efficiency perspective.  Even investing the bare minimum $25K per startup (and some startups insist on $50K or $100K minimums), creating a portfolio of 100-200 startups would cost a family office $2.5M-$5M.  But this leaves no money for follow on investments.  As a rule of thumb, you want to set aside $1 for follow on investments for every $1 initially invested so getting that 100-200 startup portfolio actually means committing $5M-$10M to early stage investing.  In contrast, you could invest $1M (4) into the accelerator’s fund for the same portfolio of 100-200 startups, including follow on investments.  That comes out to just $5K-$10K per portfolio company.

So let’s re-write the family office story:

  1. A family office decides it wants to get into angel investing.
  2. It researches the accelerators in its area and invests in 1 or 2 of them.
  3. It spends the first few accelerator cycles learning the ropes and making connections.
  4. As it gains confidence, the family office invests directly in a few of the accelerated startups, effectively doubling-down on a few, high conviction plays.
  5. The diversified portfolio does well
  6. The family office makes disciplined, intelligent, efficient angel investing a formal part of its allocation strategy

Now how’s that for a happy ending?


(1) Just in case you were wondering, “For fools rush in where angels fear to tread” was first written by Alexander Pope in his poem An Essay on Criticism.

 (2) Right Side Capital analysis of eight large studies of historical angel investing returns in the US & UK (http://rightsidecapital.com/assets/documents/HistoricalAngelReturn.pdf

 (3) Sometimes called incubators, although incubators are more often shared co-working spaces with some additional services that are of value to startups.  Unlike accelerators who rigorously screen their applicants, incubators are generally open to all, space permitting, as long as they can pay the rent.

 (4) Many accelerators will allow family offices to invest as “individuals” rather than “institutions” enabling them to qualify for minimum investments of $500K or even as low as $250K, which comes out to as little as $1,250 per startup(!) 

100% of Nothing

“We are just not sure it’s worth 6% of our company.”

Accepting the position of Managing Director in charge of DreamIt’s NY startup accelerator meant a lot of things, two of which include:

  1. Meeting a lot of really, really interesting startups  🙂
  2. Far less time for blogging  😦

One recent experience cut right to the core of the accelerator experience and has been bothering me so much that I’m going to share it despite having far more pressing items to handle in the one week I have left before DreamIt NY Summer 2014 kicks off.

We receive hundreds upon hundreds of applications for the summer accelerator cycle and meet with (in person or via Skype) over 50 of them before winnowing them do to the 10-15 companies we accept into this program.  Despite the long odds – you are actually statistically more likely to get into Harvard than DreamIt! – you may be surprised to hear that not every company we extend an offer to ultimately accepts.  Most of the (small) handful of companies who decline do so because they want a few more months to work on their business before entering our program.  As DreamIt has accelerator programs every few months, our philosophy in these cases is generally, “We liked you now, we’ll love you even more after 3 months of further progress.”  So if I’m sad not to have them in DreamIt NY Summer 2014, my colleague Patrick FitzGerald will be thrilled to have them in DreamIt Philly Fall 2014.

One of the startups we accepted, opted to go into a different accelerator program.  We ‘win’ far more than we ‘lose’ but I won’t pretend this doesn’t happen from time to time.  I think they made a mistake, especially given the nature of their business and the industry they are in, but the other accelerator runs a good program as well.  So now I know how Harvard feels when a student they accepted goes to Yale instead.  This isn’t the situation that bothers me.

One startup we accepted signed the offer letter and we both began making plans for the summer.  Then I get a call from the founder to say she was having second thoughts.  Would we be able to find the right mentors for her startup?  Could we make useful industry connections?  By the end of the call she stated that her team felt that they would rather just continue working out of her parents’ basement than give up 6% of their company to an accelerator.

Let’s ignore the fact that these were all questions that should have been asked before signing our offer letter – ideally even before applying to an accelerator program – and focus on the core complaint: is an accelerator program worth 6% of our company?  For the answer to be Yes, a very simple equation has to hold true:

EV(startup+accelerator)*94% > EV(startup)*100%

In other words, is the Expected Value of 94% of your startup with the accelerator’s help worth more than the Expected Value of 100% of your startup without any help?

So how do we think about the Expected Value of a startup?  Let’s simply the problem with some hypothetical numbers.  Let’s assume that a “success” means that your startup sells for $100M and that the “odds” of success are 1:100 or 1% (note: I’m a huge fan of making the math easy).  In this case:

Expected Value = $100M * 1% = $1M

(hmm… I wonder if this is why so many priced seed rounds are at a $1M pre?)

So for the accelerator to be at least as good a deal as going it alone, the odds of success have to be high enough to get you to a $1M+ Expected Value despite giving up 6%.  Let’s whip out the calculator and solve for x:

94% * $100M * x% = $1M

x% = 1.064%

So, whether they understood this or not, what this startup was saying is, “We think your accelerator cannot increase our odds of success by even 7 one-hundredths of a percent.”  Wow.

Now there are a lot of new accelerators out there and I firmly believe that some (many?) of the newer ones with no track record of nurturing successful startups, no real network of experienced, well-connected mentors, no built-in audience of hundreds of active angel investors – these accelerators probably cannot move the needle when it comes to increasing a startup’s odds of success.  In fact, entering into a poorly regarded accelerator may even reduce the odds of success due to the negative signal.  But to think this about an accelerator with a six year history in five cities where over one third of our ‘graduates’ have collectively raised over $115M and who are now worth in aggregate over $410M, that’s mind boggling.

Now I like these entrepreneurs and I honestly and truly hope they succeed despite this decision but I fear that they have just made a horrible mistake.

Thanks for letting me get that off my chest.  Now back to work!



Angel Profile: Randy Adler

alleywatch-logoNote: Angel Profiles is a bi-weekly column appearing on AlleyWatch.  

Angel At A Glance-Randy Adler

Randy Adler is the Co-founder and Managing Partner of RK ADLER LLP.

Why do you angel invest?
I love the space.  I think it is the opportunity of a lifetime: a true land grab.  We are experiencing a transition from the old economy to the new economy in which all things become “tech.” This is a unique point in time.  It’s not just a “pop market” that – you ride and get out.  It’s not just a paper game.

Overall, I like to invest in companies that actually make gut sense.  Right now the most opportunities are in technology, especially B2B startups that are generating revenue by helping old brick and mortars transition to the new economy.

When and what was your first angel investment?  How did it turn out?
In tech, my first angel investment was in Lumier.  I co-invested alongside SV Angel, Founders Fund and some other notable investors.  The founder is a former Microsoft developer, a brilliant young guy named Cullen Dudas.  He was recruited at a young age – something like 13.  Basically, he created a new operating system to make Windows 8 look more like the old Windows and function better for people who are more familiar the traditional interface.

It’s doing ok so far.  Every new company has challenges and this one is no different. I’ve been taking more of an active role in this one in order to help them along.  This company has promise because of the high-quality talent, intellectual property and the high quality investors who are involved.

What investment do you most want to brag about and why?
I think I am most proud of my involvement with Vine, the 6-second video clip company that Twitter recently acquired.  I was part of the founding team as an advisor and was involved every step of the way from pre-formation through exit.  I am very proud of what Dom [Hoffmann], Rus [Yusupov], and Colin [Kroll] – the Vine co-founders – have built.

Any notable or amusing train wrecks?
There was a geo-location based company I invested in during the hype of the B2C, sexy-this-is-going-to-change-the-future, wave in 2011.  They were extremely well capitalized but they made a lot of cart-before-the-horse mistakes and their burn was very high.  It was a really good lesson to me.  Just because you have a company with a lot of money behind it, some great names, and everything else, doesn’t necessarily mean that it is going to be a hit.

There is another very similar story that was a fashion company.  Also extremely well capitalized, great VCs involved… and just completely mismanaged.  They had a lot of visionaries but were not great day-to-day operators.  How do you tell the person whose baby it is that they need to give up their baby?  It is a really tough transition.

Were there any companies that you wanted to invest in but couldn’t?
numberFire.  I love those guys.  I think they are brilliant.  They are an ER Accelerator company that I wanted to invest in before they were hot.  But I just did not pull the trigger in time.  For me, they are the one that got away.

Most humbling experience (relating to angel investing)?
It is a tossup between missing deals because I couldn’t pull the trigger fast enough – I like to take my time and I do more due diligence than some angels – and being passed over in favor of more “strategic” investors.  I definitely understand why a startup would want strategic investors and now that I have established more of a name for myself, it is less of an issue.

What do you like to see in a pitch?
I actually get nervous when a founder has an amazing pitch.  I think to myself, “What am I missing?  This is too good to be true.”  You get some tech guys who just do not pitch well and it does not mean it is a bad team or a bad startup.  I think it is up the investor to cull out the critical things.

A quality product and a great team means a lot more to me.  If the founders are working hard on product, I don’t expect them to be master presenters and memorize Guy Kawasaki’s 10/20/30 rule of PowerPoint.  At the stage I invest in, the companies generally do not have a marketing guy on the team… and if they did, I would be worried that their burn was too high.

What makes you better (e.g., more helpful, more valuable) than the average angel?
I understand that there is sometimes going to be bad news and that everyone makes mistakes.  It means I can help.

Also, I think I’m uniquely positioned as a Co-founder of one of NYC’s top law firms for startups.  I’m also really tuned into the startup community on both the east and west coast.

Pretend that it’s 2019 and complete this sentence, “[Technology X] is less than 5 years old and now I can’t imagine life without it.”
The next innovation will be something in the Google Glass realm – hardware based.  It will be something like smartphones but even more integrated into our lives, either wearable, embedded, or something that we swallow.

What’s the best way for entrepreneurs to reach out to you?
Through the Interwebs of course. J

They can contact me via email: randolph@rkadler.com. I’m also on LinkedIn and Twitter @RandolphAdler

If you are an active NY-area angel (or know someone who is) and would like to be profiled for AlleyWatch, please contact me here. 

Angel Profile: Mark Wachen

alleywatch-logoNote: Angel Profiles is a bi-weekly column appearing on AlleyWatch.  Here’s the original article.

Angel At A Glance-Mark Wachen

Mark Wachen is the Managing Director for DreamIt Ventures New York and the Managing Director and Founder of Upstage Ventures.

What got you into angel investing?
Mostly my experience with my own company, Optimost. [Acquired by Interwoven, which was in turn acquired Autonomy Corporation, which was bought by HP].  When I started that company, I raised some angel money.  The role that those initial angels played was instrumental to the company’s success.  The ability to contribute that same experience to other entrepreneurs to me is intrinsically valuable.  Also, I am a big booster of the New York tech scene, and one of the key reasons for its growth in recent years has been the much stronger group of angels and the early seed money that is now available.  It really helped ignite the whole thing.  Like Bruce Springsteen says, “You can’t start a fire without a spark.”  Angel investing is the spark that gets the whole thing going.

Certainly I hope there will be real economic returns from my angel investing but that’s not the only motivation.

What was your first angel investment and how did it turn out?
The first one was a company called Order Groove.  They are basically a subscription commerce platform allowing eCommerce sites to offer recurring orders-of-the-month club functionality to their websites.  I invested in 2009 and they are doing really well.  They just raised a Series B round and have clients like L’Oreal, Jockey, Johnson & Johnson, Grainger, and others.

It really resonated with me because they faced some of the same challenges I faced in the early days of Optimost.  Early on they faced the question, “Why can’t companies just build this themselves?”  What I’ve learned from my own experience is that, while probably anyone can build anything with enough time and resources, none of these big companies have the time or focus to do it.  So if you can provide a critically valuable service, they will gladly pay to have someone else provide it.

What investment do you most want to brag about?
(laughs) It’s hard to say who your favorite child is.  I guess I have to pat myself on the back that virtually all of my angel investments are still in business.  I consider that an accomplishment.

One that I think is particularly interesting is YouNow.  They are a next generation, interactive television platform.  There offer a huge variety of channels where people perform for a minute and the audience votes thumbs-up / thumbs-down.  If the performer gets enough votes, he gets another minute.

What’s exciting to me is that it seems like the logical progression of where interactive entertainment is going.  They are doing really well and now  have a large number of  channels going 24/7, with all kinds of interesting content.  And the fact that it is crowd-curated means that quality should just keep getting better.

Notable lessons learned?
I had one train wreck.  It’s still going but it’s a train wreck.  This was a movie deal.  I certainly learned the lesson “invest in what you know” because there was a lot about that particular industry that I wasn’t aware of.  And, at least in this particular case, the level of unprofessionalism and mismanagement was the kind of thing you read about (laughs) or see in movies.

What’s the main reason you see for startups you backed, either personally or through DreamIt Ventures, that should have hit but didn’t?
At least for early stage companies, the common theme is usually team dynamics – not that it is not a quality team but that the founders don’t get along with each other and that causes the whole thing to implode.  We as investors are constantly talking about how you need a well-balanced team with all these different skill sets and the side effect of this is that sometimes, in an effort to satisfy investors, it inadvertently leads to shotgun marriages, which are usually not a recipe for success.

Most humbling experience (relating to angel investing)?
The most humbling are the ones that get away, the ones that for whatever reason I decided not to invest in and that I kick myself for now.  One I can mention is Birch Box.  I met the women who run that right when they had the idea, before they graduated from Harvard Business School.  They were a really impressive team and had a really novel idea.  The challenge I had was that they were going after a category, women’s cosmetics, that I just didn’t have domain expertise in so I had a hard time wrapping my head around the market.  But they checked out really high in every other metric and they seem to be doing really well.

How has running DreamIt NYC affected your angel investing?
They complement each other really well.  My own angel investing, while in the grand scheme of things are certainly very early stage, within the spectrum of early stage, are not quite as early as DreamIt’s investments.  A company that is coming into DreamIt is probably too early for me.  I would probably think it needed more traction.  So it works out quite well.  If they are too early to me, they may be a great fit for DreamIt.

What’s the smartest thing someone you invested in did?
One of my investments is a company called Thumb [recently acquired by YPulse].  They basically provide real-time feedback on anything.  The speed is astounding, meaning that you post the question and within minutes you can have a hundred responses.

When I met with the CEO, Dan Kurani, early on, the product demo was the perfect example of actions speaking louder than words.  In the meeting, I asked questions on Thumb about random topics and within minutes answers started coming in.  Experiencing the product in real-time was just an incredible proof of concept.

What’s the dumbest thing entrepreneurs do?
The kind of continuous dumb mistake I see is companies reaching out to me without doing any homework at all.  Just because our names show up on a list of top angel investors does not mean we are going to be interested in what they have.  There is such an enormous difference between just reaching out via LinkedIn blindly versus providing a rationale for why you are specifically targeting me because of something in my background.

What makes you better, more helpful, more desirable, etc. to a startup than the average angel?
First of all, I’ve walked in their shoes because I was an entrepreneur myself, raised angel money, grew my company to 85 people, and exited.  On the flip side, as an investor and even prior to starting my company while I was at Sony, I sat on the side of the table with VCs and other professional investors.  So I think I bring a multi-dimensional perspective on what an entrepreneur might be thinking – what are the things that motivate and are important to an entrepreneur – as well as what’s important to an investor.

What kind of returns do you aim for and how do you track ROI?
I don’t have a precise mathematical model but I’d like to feel confident that there is a reasonable path to at least a 10x return.  My expectation is that it could be five years before I see a return.  I know it takes time.

I’ve only had one exit so far, Chai Labs [acquired by Facebook] and the rest are still in progress.

Pretend that it’s 2019 and complete this sentence, “[Technology X] is less than 5 years old and now I can’t imagine life without it.”
Self driving cars.  I expect this to become much more mainstream.  Even though it may be hard for people to wrap their heads around, the ability to make that time in the car productive is very valuable.  And the technology is already strong.

What’s the best way for entrepreneurs to reach out to you?
LinkedIn… but read my bio first!  You can also see my AngleList profile for more background.

If you are an active NY-area angel (or know someone who is) and would like to be profiled for AlleyWatch, please contact me here. 

Angel Profile: Monique Idlett-Mosley (with Erica Minnihan)

alleywatch-logoNote: Angel Profiles is a bi-weekly column appearing on AlleyWatch.  Here’s the original article.

Angel At A Glance-Monique Idlett-Mosley

Note: Monique Idlett-Mosley is Co-President of Mosley Music Group and the wife of Timbaland.  She was joined by Erica Minnihan, Executive Director at STAR Angel Network.  Unless otherwise noted, all responses are by Ms. Idlett-Mosley. 

What got you into angel investing?
We have a number of financial advisors who are extremely are great at what they do. They’ve brought some amazing opportunities to our door. However, I wanted to take more of a hands-on approach to expanding our portfolio and STAR Angel provides just that. It’s exciting to hear about things before everyone else does, to get in at an early stage where you can actually sit in the room when exciting, genuine ideas are being thrown around, and you feel a part of something.

That’s why STAR Angel Network is so important: it provides me with the opportunity to support new and innovative companies that are eager to make their mark on the world.

Tell me more about STAR Angel Network?
Erica:  We are based in several cities and cater to current and retired professional athletes and celebrities.  We launched in May 2012 and at this time, we have 50 members.  The STAR Angel Network grew out of an Executive MBA program that our parent company, STAR Industries, owned.  Monique was in their inaugural class.  My business partner, Michael Lythcott, realized that a lot of the students in the class were making private investments, but that there was a lack of discipline.  They were getting some dealflow, but they didn’t have an overall exposure to what was out there.  They were getting things referred in from friends, but did not have a holistic approach to evaluate several opportunities against each other.  The goal of STAR Angel Networks is to allow everyone to share dealflow; to allow everyone to participate in the investment analysis process; to have professional due diligence on each of the deals; and to get our members actively involved in the companies on boards, using their access and influence to help create value for our portfolio companies.  Lastly, we want to give our members portfolio diversification which some people don’t realize is so important when you are investing in this kind of high risk, high return asset class.

What was your first angel investment?
Bespoke Post was one of my first investments.  Bespoke comes up with these great boxes that house unique items that subscribers get to purchase before anyone else does. Often, people forget that men do like to shop and feel like they are finding out about something first. What I liked about this particular company was their idea: it was brilliant. In addition, they’re such a young company, and were profitable in their first year. When does that happen? Plus, I love the partners they have, especially Conde Nast, their image really aligns with our company principles.

Most humbling experience (relating to angel investing)?
I feel like, here we are, in this industry where we have all this experience and you almost feel like professionally you’ve reached your plateau.  Now, however, you come into a whole new world and realize you absolutely know nothing.  It’s such a humbling experience to get to learn all these new things, to be introduced to all these new sectors and new people, and to understand just how many amazing new ideas are out there.

What was the worst pitch you have seen so far?
Where they actually said something negative about their own company.  He clearly was not ready to present.  He didn’t know anything about his company.  Another guy was supposed to come and help him present – he really should not have gone on with that presentation. Some people get really nervous presenting in front of celebrities.  But some presenters come in, see these famous athletes, and they get a little star-struck, and nervous.  I think they might be intimidated.   But if you are the CEO of the company, you should be able to operate under any circumstance, to sell your vision to anyone.

What financial returns do you target for an angel investment?
I don’t want to lose anything (laughs).  I would rather have a company with small, steady growth but that stays around than have a one-hit wonder that looks like it’s doing great and then, all of a sudden, it’s gone.  That’s my worst fear.  STAR has a really good screening process so that before it even gets to us, we know we are seeing successful people who have great ideas and who have created profitable businesses.

We are comfortable with companies that we can invest in at a $3M-$5M valuation that we feel have a good chance of getting at least a $50M exit.  So we are usually looking for a 10x return on our money and hoping that the company can be sold within the next 3-7 years.

What makes you and your classmates different from the average angel?
What we hear in the pitches is that they really value the network.  There is a “Cool Factor” when it comes to associating with certain kinds of celebs – the ones who have 5M or 6M Facebook followers.  There are definitely additional benefits to engaging with current and former athletes, or with someone in the entertainment business.

Also, I think sometimes people are surprised by just how intelligent we really are, how engaged we really are, and how much we add value.  STAR brings in the best of the best professors to teach our classes – from Columbia, UCLA, GW.  Some of our professors have walked not knowing what to expect, but to their surprise, end up walking away saying that this has been the best MBA class they have ever taught. That says a lot.

Pretend that it’s 2019 and complete this sentence, “[Technology X] is less than 5 years old and now I can’t imagine life without it.”
One area I am very interested in is robotics.  Robots are still so corporate but will soon become a part of our everyday life, doing things we cannot. There’s so much potential there. It fascinates me.

What’s the best way for entrepreneurs to reach out to you?
Apply through the STAR Angel Network.

If you have questions, email Erica Minnihan here.

If you are an active NY-area angel (or know someone who is) and would like to be profiled for AlleyWatch, please contact me here 

Angel Profile: Angela Lee

alleywatch-logoNote: Angel Profiles is a bi-weekly column appearing on AlleyWatch.  Here’s the original article.

Angel At A Glance-Angela Lee REVISED

Why do you angel invest?
I love helping early stage entrepreneurs as I’m an educator at heart.  I’ve started several companies and like being able to share my experience to help other entrepreneurs.  I think there are way easier ways to make money so if that’s your only goal, you should not be angel investing.

What was your first angel investment?  How did it turn out?
It was a movie and something I felt very emotionally tied to.  It raised the profile of mental illness in the Asian American community and was a Sundance finalist.  When I heard about it, I said, “This is a movie that more people have to see.”  Even if I lose all of my money on this one, I’m still glad I invested.

What investment do you most want to brag about / why?
One that’s doing very well is Legends of Fighting.  It’s like Ultimate Fighting Championships (UFC), but in Hong Kong.  They just raised a $4M Series A on a $13M valuation.  They are on TV, selling broadcast rights.  I know nothing about the space, but my husband and I went to school with the two co-founders, and they are both really smart guys and one knows the MMA space very well.

What’s your biggest lesson learned?

I relied on other investors too much at the beginning. I would think, “This person seems smart” so I trusted their due diligence probably more than I should have. I have gotten pretty far down the process and have been within days of writing a check and something didn’t feel right in my gut but I kept saying, “But this guy is invested in it and he must know what he’s doing.” To be clear, it is less about those people not being smart and more about my needing to get my feet grounded as an investor before I understood what my investment style was.

People often say that there are three types of investors. You either invest in the team, the market, or the technology. I am a team investor, I care about the team first and foremost most so it doesn’t make sense for me to rely solely on someone who cares first and foremost about the market they are playing in. That’s what my gut was telling me. For instance, I heard great company pitch yesterday and several people whose opinion I trust are interested. And even though I think the company will make a lot of money, I didn’t feel a connection with the team so I won’t be pursuing it.

What’s the smartest thing someone pitching you (or who you invested in) said / did?
The entrepreneurs that I like most are the ones that I say “no” to and they a) ask for feedback and  b) three months later email me to show how they responded to the feedback.  They stayed on my radar because they realized that this is not in any way, shape, or form a short term transaction.  Maybe I missed their friends and family round; maybe I said no to their seed round, but guess what?  Maybe I can introduce them to a Series A investor.  That’s smart.  This is a long term game.

What’s the dumbest thing?
American Idol” reactions.  You know, the “I’m gonna be a huge star one day and you’ll be sorry” type responses.

You run 37 Angels, a community of women angel investors.  What’s the difference between men and women angels?
In general, I think women feel the need for a higher level of confidence before trying something new.  They feel they need to know more about something before jumping in and their appetites for ambiguity can be low.  This makes them less likely to go into angel investing and it’s why women angels have something of a reputation for taking a long time to pull the trigger.

At 37 Angels I try to a) increase this appetite for ambiguity, and b) help them do more effective due diligence, to get it down to five weeks instead of 5 months.  We show them that there are different levels of due diligence, what to do, what not to do, etc.

How will you know when 37 Angels has succeeded in its mission?
When what people remember about me is not that I am a woman angel investor but rather that I am a healthcare tech investor who has deep expertise in the pharma industry.   I’ll know I’ve succeeded when I walk into a room and people don’t automatically introduce me to the other woman in the room.

Pretend that it’s 2019 and complete this sentence, “[Technology X] is less than 5 years old and now I can’t imagine life without it.”
Seamless, real-time health monitoring for preventative medicine.

What’s the best way for entrepreneurs to reach out to you?
Please go to the Entrepreneurs section of 37angels.com.  You can also check out my Linkedin profile: @37angelsny.

If you are an active NY-area angel (or know someone who is) and would like to be profiled for AlleyWatch, please contact me here.

Angel Profile: John Ason

alleywatch-logoNote: Angel Profiles is a bi-weekly column appearing on AlleyWatch.  John’s profile went up a few weeks ago but I haven’t had a chance to post it here until now.  Here’s the original article.

Angel At A Glance-John Ason

What got you into angel investing?
I came out of AT&T Bell Labs, doing bleeding edge technology for 10 years, and then marketing and business management of large telecommunications projects sold overseas.  So when I left, this was a natural extension of what I was doing AT&T.  I made money in the stock market and apply the same discipline to angel investing: sell the losers and double down on the winners.  Getting out of an investment is very difficult for most angels when the company is no longer viable as opposed to putting more money into it.  I also play poker and most angels and entrepreneurs are good poker players.

What was your first angel investment?  How did it turn out?
It’s either Xlibris or TuckerToys, I can’t remember.  Xlibris, the first self publisher on the internet, sold about three years ago at a very nice profit.  TuckerToys makes the Phlatball – over 15M sold, mostly overseas.  TuckerToys produced a couple of great years of dividends and is still in existence.

What investment do you most want to brag about & why?
The two companies I am most famous for are Diapers.com and Bikini.com.  People used to make fun of me for investing in Diapers.com because we were selling diapers on the internet… until Amazon bought it for $545M.  And the really neat part was that I contributed absolutely zero to it, other than money and encouragement.  It was like watching a really good movie.  Marc and Vinit were super operational people and did not need any advice.

I like to mention Bikini.com because that humanizes me as an angel investor as opposed to those money hungry number crunching VCs.  I need to have some fun too!

Notable train wrecks and lessons learned?
I’m proud of some of my train wrecks because I learned things from them.  For example, MakeUsAnOffer was doing exceptionally well and then we got into some legal patent issues.  We were probably in the right but couldn’t survive the lawsuit.  Some things can’t be anticipated or planned for and you just don’t have the resources to handle.

Tell me about the startups that got away?
Never had one that got away. The closest I came to this was a company I wanted where a big VC did not want any other outside investors to get in.  Ultimately, I got in indirectly through a VC fund where I am a limited partner.  In most cases, the startups are just starving for cash; it’s almost always never the issue that it is so oversubscribed that you cannot get in.

Most humbling experience (relating to angel investing)?
Coming from Bell Labs, I assumed I could make anybody a good manager.  But you can’t.  At best you can influence them four or five degrees. You simply can’t make someone a good manager. That was my first humbling experience.

What impresses you about an entrepreneur?
I like someone who is clear, concise, compelling and elegant. I like to see an executive summary that fits on a single page with a lot of white space.  And I love an idea that I have never seen before.  Most ideas are retreads or rehashes.

Hotlist especially made an impression.  They had amassed a massive database on events that people had gone to, were going to, or would be going to and there is a lot of location based services one can offer having that information.  I had researched this area by doing due diligence on a few companies.  Hotlist just had everything buttoned down and I made my decision in 28 minutes.

What turns you off to an entrepreneur?
Whenever people use the word “conservative” or “next generation.”  I have a secret dictionary of these words which earn demerits and can disqualify the entrepreneur.  This is how I “gamify” my investment process.

What makes you different from the average angel?
I like to invest in only industries that I know nothing about and I generally “let the dogs run.”  I offer light overall guidance and try to introduce them to people who can help them.  I am not an invasive investor.

Also, I mentor a lot.  I have mentored companies which I did not invest in because they didn’t need the capital.  I do it pro bono, because most entrepreneurs are nice people and in return I learn from the experience. I currently mentor 10 to 15 companies like this.  They call me every four to six months for some advice or guidance and it’s usually a 15 to 20 minute session so it’s not a real time burner.

Recently, I’ve begun to mentor a number of international companies through Springboard and the Worldwide Investor Network.  I also mentor women entrepreneurs through Astia & Springboard as well as women angel investors within Pipeline FellowshipTopstone Angels, and 37angels.  I have funded 11 female-founded companies, five of women were foreign born.

What financial returns do you target for an angel investment?
I aim for 10x returns.  I say I want it within 3-5 years… although that’s never been achieved.

You have been angel investing for 17 years.  How has it changed since you first started?
There has been a dramatic change over the past two or three years.

  1. The costs of starting a company are close to zero.
  2. The cost of proving the market with landing pages – sign up for the beta, sign up for a newsletter, answer a survey, stuff like that – is also close to zero.  You can prove that there is a market without having a product.
  3. AngelList.  I used to do 1 to 2 deals a year, very painfully.  Finding a company was a big problem.  Now AngelList has close to 19,000 startups on it so finding startups is not an issue.  So is finding investors.  In the past I used to syndicate deals.  In my first 10 years, I knew everyone who invested with me intimately.  Now, I tell my founders to list the company on AngelList with me as an investor and they assemble the rest of the syndicate.  The majority of the other investors in my current deals are people I have never met.
  4. Accelerators like ERADreamIt and TechStars are producing large numbers of high quality, fundable companies.
  5. Super angels and micro VCs like John Frankel’s ff Ventures have a lot of cash for angel level companies, assisting in the fundraising process in a very positive way.
  6. Deal size.  The average round until about a few years ago was $250K-$275K.  It is now close to $650K.  Many of these companies will skip their A round.
  7. International.  The biggest response to my website comes from overseas asking me how they can invest in my companies and be angels in general.  I received four investments into my companies.  I have also received interest from foreign government organizations and universities on how to foster startup and angel ecosystems.  We are also seeing a large number of foreign companies seeking funding.

Pretend that it’s 2019 and complete this sentence, “[Technology X] is less than 5 years old and now I can’t imagine life without it.”
Brainwave chips.  There are several startups that let you control your computers with brainwaves and they are starting to get a little bit of traction.  They have various devices that go over your head and with this one can control a device that provides input to a computer.  As this industry matures miniaturization will occur that will lead to a brain chip.

Will they really implant these chips in their heads?
Why not?  I have a defibrillator.  I don’t want to carry one around so I had it implanted.  They could put it on sunglasses, but fashion will win out and they will ultimately be implants.

What’s the best way for entrepreneurs to reach out to you?
Email me at ason@comcast.net but read my website first!

Also, check me out on AngelListLinkedinTwitterPinterestSplingTip or Skip, & PRESSi.

If you are an active NY-area angel (or know someone who is) and would like to be profiled for AlleyWatch, please contact me here.