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What the best startup investors know that you don't
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Small Business & Entrepreneurship
After a year interviewing the best startup investors all over the world, Josh Maher published a best-selling book Startup Wealth How The Best Angel Investors Make Money In Startups (http://amzn.to/1NUAoz4). While learning what made them tick, Josh found financing innovation as a practice looks truly looks different in the private capital markets than it does within large organizations or public markets. Josh picks apart his findings around what startup investors look for when investing in teams
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What the best startup investors know that you don't
- Innovation, what the best startup investors know that you don’t
- @joshmaher | #StartupWealth | #NWANGELCONF
- 0 50 100 150 200 0 2000 4000 6000 8000 Fundraising (millions) Raised Post-Valuation @joshmaher | #StartupWealth | #NWANGELCONF
- Chris Stolte, Tableau’s Chief Development Officer and Co-founder Pat Hanrahan, Tableau’s Chief Scientist and Co- founder Christian Chabot, Tableau's Chief Executive Officer and Co-founder Seattle Time: 2003 – 2015 (exit in 10) Growth: 40,000% Employees: 3 -> 1947 @joshmaher | #StartupWealth | #NWANGELCONF
- Author Investor Community @joshmaher | #StartupWealth | #NWANGELCONF
- The Softwarization period (20th-21st centuries) Science & technology mashups Removal of intermediaries The Enlightenment period (18th century) Science & distribution mashups Investing re-born The Renaissance period (14th-16th centuries) Science & art mashups Creation of modern banking @joshmaher | #StartupWealth | #NWANGELCONF
- The cost to build a digital business drops inverse to Moore’s Law Software enables cutting out the middle man A culture of hackers inspires rethinking in every industryStarted With: 20-21st Century The PCs & The VCs Ending With: The Singularity Period? @joshmaher | #StartupWealth | #NWANGELCONF
- The Softwarization Man? Dan Shapiro • Consumer photo company – sold to Fox Broadcasting • Consumer buying comparison engine – sold to Google • Built a board game – licensed to ThinkFun • Wrote a book on being a CEO – published by O’Reilly • Built a replicator – @Glowforge – largest crowdfunding campaign EVER Investments Startups Jobs 22+ 3+ 70+ @joshmaher | #StartupWealth | #NWANGELCONF
- What are we short on again? Entrepreneurs: Sunny Gupta Jane Park Marcelo Calbucci Sarah Bird T.A. McCann Caitlin Cameron Jeremy Jach Liz Pearce Tom Douglas Innovators: Worldly SaaS talent Rocket ship builders Carbon fiber Power storage Wireless Power Mind <–> Mind Cancer, ebola, malaria Fashion hub Companies: Alibaba Cyanogen Kineta Palantir Snapchat SpaceX Booktrope Docusign @joshmaher | #StartupWealth | #NWANGELCONF
- Financing innovation w/angels $- $50,000 $100,000 $150,000 $200,000 $250,000 0 50 100 150 200 Deal Count Invested (thousands) @joshmaher | #StartupWealth | #NWANGELCONF
- Who else invests? 0 50 100 150 200 250 $- $5,000 $10,000 $15,000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Deal Count Invested (millions) @joshmaher | #StartupWealth | #NWANGELCONF
- Who else invests? 0 50 100 150 200 250 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 VC Corporate @joshmaher | #StartupWealth | #NWANGELCONF
- What do investors look for in a team? Builders Relation -ships Culture Appetite @joshmaher | #StartupWealth | #NWANGELCONF
- appetite “…This idea of vision investing versus metrics investing, if you’re really more comfortable with metrics investing then don’t do angel investing. The early stage really isn’t going to be good for you and you’re going to be driving the entrepreneurs for all the wrong reasons. They don’t have metrics until they’re well into their business. A pure metrics investor should try to participate more in A rounds, or something like that, or syndicate behind people that are vision investors.” – Bob Bozeman @joshmaher | #StartupWealth | #NWANGELCONF
- builders engineers scientists analysts testers writers designers managers “You really have to trust your gut instincts— ‘Are these people or is this a person I think has the ability to execute at scale?’ I think those are the two words that make a really good entrepreneur…” @gothamgal “…The other main thing is really going to be about the CEO; get a lot of blind reference checks on the CEO and really figure out whether they’re quality or not. We’ve all had a CEO flake out on us.” @cmirabile @joshmaher | #StartupWealth | #NWANGELCONF
- relationships partners investors customers salespeople advisors mentors providers advocates fans “…Know who you’re getting in bed with, whether it’s the entrepreneurs or your angels.” @GeoffEntress “…Angel investors should be promiscuous. You should do more rather than less investments. You should do more that are smaller.” @bfeld “If you don't have an inside edge in terms of relationships, or information, or access to people or deals or exits or an industry more than other people, you shouldn't be an angel.” @msuster @joshmaher | #StartupWealth | #NWANGELCONF
- culture @joshmaher | #StartupWealth | #NWANGELCONF scientific iterative authentic transparent fun competitive change the world improve the world fix one problem fix a many problems family oriented remote or in-person …[Don’t] invest in a vacuum, whether that vacuum is not understanding the larger ecosystem, terms, competitive landscape, and the market or simply not understanding the dynamics of angel investing.” @nickwyman
- @joshmaher | #StartupWealth | #NWANGELCONF Softwarization - The process of software development, applied broadly Angels investing consistently Think BIGGER Appetite, builders, relationships, culture More Learning 12/8 Entrepreneurs: How to create an effective fundraising strategy http://j.mp/20VzNlN Investors: Seattle Angel Fund Bootcamp -> http://j.mp/20VzUhb
- Where to find me? Follow me on twitter -> @joshmaher <-- Buy my book @ startupwealth.com “This should be required reading for all new angel investors. Josh captures the nuances that experienced investors only learn from decades of investing.” –Randy Williams, Founder & CEO Keiretsu Forum, The World’s Largest Angel Investor Network Subscribe to my newsletter for updates / http://joshmaher.net @joshmaher | #StartupWealth | #NWANGELCONF
Editor's Notes
- When we build companies, the model in our mind looks something like this… I want to tell you a little story A brilliant scientist, an inventor, and a businessperson walk into an elite university. The scientist says to the inventor, hey this school project could actually be a great business. See what I made? The inventor laughed and said that’s nothing, I invented modern computer visualization, haven’t you seen Toy Story? The business person overhears the conversation and walks over for a look, seeing a product like none he’s ever imagined before, he joins the scientist and inventor and spin a new company out of the university to change the world. Zillow Founded in 2004 24-Oct-2005 - The company raised $32 million of Series A venture funding from Benchmark Capital (Bill Gurley) and Technology Crossover Ventures (Jay Hoag) on October 24, 2005. Brad Gerstner, Craig Sherman and Barney Harford also participated in this round. 25-Jul-2006 - The company raised $25 million of Series B venture funding led by PAR Capital Management on July 25, 2006. Benchmark Capital and Technology Crossover Ventures also participated. 118 employees No word on valuation. This comes on the heels of a recent (and massive) distribution deal with Yahoo. Zillow, essentially a mashup of maps and historical real estate sales information, has now raised a whopping $57 million in capital. Other than supporting their 118 employees, it’s unclear what they plan to do with the money. John Cook has good information on Zillow’s recent stats, noting that in June the company had 2.1 million unique visitors, ranking 11th among real estate Web sites. 20-Sep-2007 - The company raised $30 million of Series C venture funding led by Legg Mason Capital Management on September 20, 2007. Benchmark Capital, Technology Crossover Ventures and PAR Capital also participated. 155 employees Pre-money Valuation: $370.00M Post Valuation: $400.00M 20-Jul-2011 The company raised $64.4 million in its initial public offering on NASDAQ Global Market under the ticker symbol Z on July 20, 2011. A total of 3,462,000 shares were sold at a price of $20 per share, making the total offering amount $69.24 million. After the offering, there was a total of 26,910,062 outstanding shares priced at $20 per share, putting the company's valuation at $538.2 million. The underwriters were granted an option to purchase up to an additional 519,300 shares from the company to cover over-allotments. Raised to Date: $87.00M** Total Invested Equity: $64.39M # of Shares: 3,462,000 Total Market Capital (End of Day): $962.57M Who sold on IPO? 1. Barney Harford Full 2. Benchmark Capital Fund 1: Benchmark Capital Partners V % Company Still Held: 14.90% 3. Bradley Gerstner Full 4. ClearBridge 5. Craig Sherman Full 6. PAR Capital Management % Company Still Held: 8.80% 7. Technology Crossover Ventures Fund 1: Technology Crossover Ventures V % Company Still Held: 24.80%
- If you were an early investor in this company and bought 1% around 2003, You’d invest around $165,000 If you kept your 1% stake, investing more at each subsequent round As you can see there were only two rounds That last bar is an IPO Let’s say you sold your shares as most investors in this company did at the IPO It’s ten years into the life of the company and investors need to return money to their LPs You’re $165,000 could be worth $17-18 Million – now the terms of all these investments aren’t exactly public so this is a guess If you were an angel investor and bought that 1% with no LPs to return money to you could hold much longer. Let’s say you held until now, that $165,000 is easily worth $67-68 Million Who said we can’t grow unicorns here in Seattle? Founded 2003 31-Aug-2004 - The company raised $5.09 million of Series A venture funding from New Enterprise Associates (Scott Sandell) on August 31, 2004, putting the company's pre-money valuation at $16.5 million. Pre-money Valuation: $16.50M Post Valuation: $21.59M % Acquired: 23.58% 08-Sep-2008 - The company raised $15.08 million of Series B financing from New Enterprise Associates on September 8, 2008, putting the pre-money valuation at $105.18 million. The company raised the funds to expand its development team and continue developing its data visualization and analytics products. Pre-money Valuation: $105.18M Post Valuation: $120.26M % Acquired: 12.54% 21-Oct-2010 - The Meritech Capital Partners acquired stake of company from New Enterprise Associate on October 21, 2010. 16-May-2013 - The company raised $144 million in its initial public offering on New York Stock Exchange under the ticker symbol DATA on May 16, 2013. Selling shareholders raised $92.3 million. The company offered 8,200,000 shares at $31 per share, making the total offering amount $254.2 million. After the offering, there was a total of 57,514,508 outstanding shares at $31 per share, putting the company's valuation at $1.8 billion. # of Employees: 834 # of Shares: 8,200,000 Total Market Capital (End of Day): $1.78B Seller/Exiter Name 1. Meritech Capital Partners Full Fund 1: Meritech Capital Partners III % Company Still Held: 6.61% 2. New Enterprise Associates Full Fund 1: New Enterprise Associates 11 % Company Still Held: 35.08%
- They’re not the only ones Isilon Concur Nanostring Tech Immune Design Zillow EagleView Trupanion Zulilly Big Fish Games Nile Blue Box Group Cobalt Group Symform Qpass Who’s next? Apptio Redfin Docusign Inrix LiquidPlanner Avvo Avalara Tune HasOffers
- Mission to inspire Seattle innovators and entrepreneurs to think bigger! We’re at a unique time in the world now, Marc Andreesen likes to say that software is eating the world I disagree – the process of writing software, the scientific approach to testing defined processes and then iterating on those processes has taken over every aspect of our lives I like to think of the time we’re in as the period of softwarization
- The Renaissance 14th-16th centuries: Science and art mashups – creation of modern banking Medici banking family Traders from the Middle ages creating companies Wealth funding art and innovation – printing press, DaVinci The Enlightenment 18th century: Broad access to scientific thinking – Investing re-born South Sea Bubble, Mississippi Company Bubble Adam Smith The Softwarization 21st century: Science and technology mashups – Removal of intermediaries Wisdom of crowds (Uber, LendingClub, AngelList, Kickstarter) LBOs, Tech Bubble, Lending Bubble, ETFs, JOBS Act Today we’re hacking food – Soylent, we’re hacking space flight, we’re hacking dieting, and we’re hacking software http://faculty.ucc.edu/egh-damerow/renaissance.htm http://www.italian-renaissance-art.com/Italian-renaissance.html http://www.flowofhistory.com/category/export/html/40 https://en.wikipedia.org/wiki/History_of_banking https://en.wikipedia.org/wiki/Italian_Renaissance https://voltairefoundation.wordpress.com/2014/05/15/the-trouble-with-money-crashes-recoinage-and-war-in-the-enlightenment/ https://en.wikipedia.org/wiki/Age_of_Enlightenment https://en.wikipedia.org/wiki/Contemporary_philosophy
- Began with Software enables cutting out the middle man The cost to build a digital business drops inverse to Moore’s Law A culture of hackers inspires rethinking in every industry Will end when
- Like DaVinci, our idealized Renaissance man – people in our culture of softwarization have idols too Meet Dan I met Dan in 2005 when he launched Ontela, four years later he sold Ontela to Photobucket. Turned around and built Sparkbuy in 2010… which he sold Google in a few months Then Dan goes nuts… creates one of the most successful crowdfunding campaigns for a board game – yeah Dan turned around and built a board game. Software startup, software startup, board game…. Then he wrote a book – you should buy it. Now he’s launched a freakin replicator! Well Glowforge is as close as we’ve come. Building a device where you can insert a photo and a piece of wood and out pops an etching of the photo on the wood is as close to a freakin replicaticator as we’ve come. But what is it about our appetite in the NorthWest that took Dan so long to come upon a really big idea? As we’ve seen there are a lot of amazingly big ideas being built right here in Seattle from the startups to innovators at larger corporations This is what living in the culture of softwarization looks like. Science has been brought into everyday life, we A/B test our coffee, we get user feedback on our clothing…. And facial expressions. The culture of softwarization isn’t gender or age specific – but it does dream BIG. Re-thinking every industry The culture of softwarization reaches everyone – Stay at home Mom’s are selling their crafts on Etsy, Stay at home Dad’s are selling their books on Amazon, Full time workers are driving people around on the weekends for cash or designing logos and websites in their spare time. We’re hacking the way we make food, the way we invest our money, and the way we practice philanthropy.
- Where are we today angel investing in the Northwest? Here’s a glimpse of the Seed and A rounds in the Northwest (including BC) over the last 12 months. A lot of the early stage investment data isn’t public so these are just a snapshot to get a sense for what’s happening 174 companies With the exception of Porch, the round sizes are lower on average than the bay area or the Northeast with Payfirma and GroupLend being the two larger ones here in Vancouver We only have one really active venture fund and a bunch of active angel groups and angel investors. Luckily we’re seeing venture partners from DFJ, a16z, and others open field offices up here. We’re also seeing a proliferation of MicroVCs from angel group sidecar funds to a growing number of people starting their own $5-10M venture fund Let’s see how we stack up against the other regions
- Where are we today angel investing in the Northwest? Here’s a glimpse of the Seed and A rounds in the Northwest (including BC) over the last 12 months. A lot of the early stage investment data isn’t public so these are just a snapshot to get a sense for what’s happening 174 companies With the exception of Porch, the round sizes are lower on average than the bay area or the Northeast with Payfirma and GroupLend being the two larger ones here in Vancouver We only have one really active venture fund and a bunch of active angel groups and angel investors. Luckily we’re seeing venture partners from DFJ, a16z, and others open field offices up here. We’re also seeing a proliferation of MicroVCs from angel group sidecar funds to a growing number of people starting their own $5-10M venture fund Let’s see how we stack up against the other regions
- Where are we today angel investing in the Northwest? Here’s a glimpse of the Seed and A rounds in the Northwest (including BC) over the last 12 months. A lot of the early stage investment data isn’t public so these are just a snapshot to get a sense for what’s happening 174 companies With the exception of Porch, the round sizes are lower on average than the bay area or the Northeast with Payfirma and GroupLend being the two larger ones here in Vancouver We only have one really active venture fund and a bunch of active angel groups and angel investors. Luckily we’re seeing venture partners from DFJ, a16z, and others open field offices up here. We’re also seeing a proliferation of MicroVCs from angel group sidecar funds to a growing number of people starting their own $5-10M venture fund Let’s see how we stack up against the other regions
- Builders (engineers, scientists, analysts) Every investor ranked the team as one of the most critical aspects Relationships (partners, investors, customers, and so on) Boss v Investor Every investor ranked relationships in the top three most important A way of planning and achieving milestones (lean, agile, and so on) Every investor ranked execution in the top three most important A vision/appetite – lifestyle, new category, disruptive, or change the fucking world? Startup investors get this and corporate managers don’t – this is due to principle agent problem Investors self-select to the vision/appetite they like; however, many managers are just doing their job.
- A vision/appetite – lifestyle, new category, disruptive, or change the fucking world? Startup investors get this and corporate managers don’t – this is due to principle agent problem Investors self-select to the vision/appetite they like; however, many managers are just doing their job.
- Boss v Investor Every investor ranked relationships in the top three most important
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