Moneyball: A Quantitative Approach to Angel Investing (Austin, TX - Aug 2012)

Paul Singh
Paul SinghFounder at Results Junkies
500.co/challenge                                         #moneyball4startups




   MONEYBALL STARTUPS                  +
                   IT’S NOT SPRAY AND PRAY. IT’S A PROCESS.



                                 PAUL SINGH

                                 500 Startups

            @paulsingh・paul@500startups.com・angel.co/paulsingh
500.co/challenge                                       #moneyball4startups




           GETTING TO KNOW




           500 STARTUPS      BECAUSE WE’RE KIND OF A BIG DEAL




                               PAUL SINGH

            @paulsingh・paul@500startups.com・angel.co/paulsingh
500.co/challenge                                   #moneyball4startups




     THE BIG OPPORTUNITY IN EARLY STAGE TECH INVESTING:




     API TO VENTURE CAPITAL
     & FUNCTIONAL EXPERTISE
     (FOR FOUNDERS. FOR INVESTORS. FOR GOVERNMENT.)
500.co/challenge   #moneyball4startups




     FOUNDERS:




     BUILD SOMETHING
     PEOPLE WANT
500.co/challenge   #moneyball4startups




     INVESTORS:




     WRITE CHECKS AND
     ADD VALUE
500.co/challenge   #moneyball4startups




     GOVERNMENT:




     MAKE LIFE EASY
     FOR INVESTORS &
     FOUNDERS
500.co/challenge                                #moneyball4startups




           “ VENTURE CAPITAL IS
                   OPEN TO ATTACK BY
                   DISRUPTIVE NEW
                   BUSINESS MODELS AND
                   TECHNOLOGY.
                   -- NAVAL RAVIKANT (@naval)
500.co/challenge               #moneyball4startups




           (R)EVOLUTION IN THINKING
500.co/challenge    #moneyball4startups




           EARLY STAGE
            STARTUPS
          HAVE CHANGED
500.co/challenge   #moneyball4startups




     WEB GETS BIGGER.
    WORLD GETS SMALLER.
500.co/challenge                                   #moneyball4startups




         CLOUD, OPEN SOURCE AND ONLINE DISTRIBUTION DRIVING




     STARTUP COSTS
    LOWER THAN EVERBUT SCALING STILL COSTS MONEY
500.co/challenge                                  #moneyball4startups




   TRACTION IS THE NEW
 INTELLECTUAL PROPERTY
 PLATFORMS (SEARCH, SOCIAL & MOBILE) PRIMARILY DRIVING THE CHANGE.
   NO LONGER “GOOD ENOUGH” TO DEPEND ON TECH DIFFERENTIATION.
500.co/challenge                             #moneyball4startups




             CAPITAL
          INCREASINGLY
          COMMODITIZED
                   RISE OF THE ANGELS, YO!
500.co/challenge        #moneyball4startups




              NEW REALITY:
             MONEY FOLLOWS
               FOUNDERS
500.co/challenge                                  #moneyball4startups




              SIGNALS ARE
              EVERYWHERE
      BIG DATA + OPEN SOURCE ANALYTICS = NEW TECHNIQUES FOR VC
500.co/challenge        #moneyball4startups




             WALL STREET
             BEAT US TO IT
500.co/challenge   #moneyball4startups
500.co/challenge                     #moneyball4startups




           “       UBS PROPRIETARY
                   SATELLITE PARKING LOT
                   FILL RATE ANALYSIS
                   POINTS TO AN
                   INTERESTING CADENCE
                   INTRA-QUARTER AND
                   POTENTIAL UPSIDE TO
                   OUR VIEW.
500.co/challenge                                 #moneyball4startups




             WALL STREET
             ISN’T ALONE
       THESE TECHNIQUES ALREADY USED TO UNDERWRITE IN-VITRO
         FERTILIZATION LENDING, PAYDAY LOANS, SUBPRIME AUTO
         LENDING, HOME/PERSONAL/AUTO INSURANCE AND MORE.
500.co/challenge     #moneyball4startups




     IT TURNS OUT,




    WE CAN DO IT, TOO   SURPRISE!
500.co/challenge                                  #moneyball4startups




          + “GUT” + TRUSTED MENTORS + MUCH, MUCH MORE DATA.
500.co/challenge                                  #moneyball4startups




                   SENTIMENT
                    ANALYSIS
       WHAT IS THE TEAM THINKING? WHAT DOES THE MARKET THINK?
                  WHAT DO MY PEERS/MENTORS THINK?
500.co/challenge                                    #moneyball4startups




           NEEDLE IN THE
            HAYSTACK
        REAL USE CASES: SIGNS THAT A FUNDING ROUND IS ABOUT TO
       OCCUR AND/OR SIGNS THAT A PRODUCT IS ABOUT TO EXPLODE.

         VERY HARD TO DO ACCURATELY BUT PAYOFF IS BIG & FAST.
500.co/challenge                                    #moneyball4startups




   FASTER PORTFOLIO
       TRENDS
          CURRENT SYSTEMS OF QUARTERLY/AD-HOC REPORTING IS
            BROKEN -- SELF REPORTED DATA IS OFTEN BIASED.

       THE RAW DATA IS THERE, THE SYSTEMS TO COLLECT IT AND THE
                ALGORITHMS TO ANALYZE IT ARE MISSING.
500.co/challenge                                      #moneyball4startups




          500 CHECKLIST
   Product solves a problem for a specific target customer
   Capital-efficient businesses - operational @ <$1M funding
   Primarily internet-based distribution - search, social, mobile, local
   Simple revenue models - transactions, subscriptions or affiliate
   Functional prototype before investment (or previous success)
   Small but measurable usage - some customers, early revenue
   Small but cross-functional team - engineer, design/UX, marketing
500.co/challenge   #moneyball4startups




        EARLY STAGE VC
         IS CHANGING
         HAS CHANGED
500.co/challenge                                  #moneyball4startups




  STATE OF THE ART IN EARLY
   STAGE INVESTING IS NOT
     VERY SOPHISTICATED
   AT THE EARLIEST STAGE, YOU HAVE LIMITED DATA TO MAKE DECISIONS
 WITH -- BETTER TO LOOK FOR DEAL FLOW VIA TRUSTED REFERRALS, USE A
  CHECKLIST, DECIDE YES/NO QUICKLY AND KEEP LEGAL/FINANCE SIMPLE.
500.co/challenge                                         #moneyball4startups




                   MONEYBALL
                   IT’S NOT SPRAY AND PRAY. IT’S A PROCESS.
500.co/challenge                                    #moneyball4startups




                       MY PRIMARY GOAL IS TO




                   BUY WINS
            NOT NECESSARILY BUYING INTO THE HOTTEST DEALS.

              FOCUS ON TEAM, EXECUTION, TRACTION & DATA.
              (STICK AROUND... I’M GOING TO SHOW YOU HOW)
500.co/challenge   #moneyball4startups




 INITIAL BET DESIGNED TO
  GIVE US MORE DATA FOR
     SUBSEQUENT BETS
500.co/challenge                                   #moneyball4startups




            QUANTITATIVE
             PORTFOLIO
             APPROACH
        BENEFITS: CONTROLLED RISK + OUTSIZED RETURN POTENTIAL
500.co/challenge                                                                 #moneyball4startups


                                   Monte Carlo Simulation of Angel Investing
                  5

                                   mean              median                 std dev
                3.75
Exit Multiple




                 2.5



                1.25



                  0
                       0   2   4   6   8   10   12    14   16     18   20   22    24   26   28   30
                                                     # of Deals
500.co/challenge                              #moneyball4startups
                   MODERN PORTFOLIO THEORY:




      RISK MITIGATION
         THROUGH
      DIVERSIFICATION
500.co/challenge   #moneyball4startups




      HIGH VOLUME
   INVESTING ALLOWS
  FOR HIGH ERROR RATE
500.co/challenge                                     #moneyball4startups




   TRACK IRR &
VALUATIONS WITHIN
 YOUR PORTFOLIO    AT LEAST YEARLY. RECOMMEND QUARTERLY.
500.co/challenge   #moneyball4startups




   CONTROLLED RISK:
   OUTSIZED RETURN
      POTENTIAL
500.co/challenge                                 #moneyball4startups




      PORTFOLIO IRR
     QUICKLY POSITIVE
   (WITH SMALLER EARLY EXITS AND PROMISING DEALS GETTING FUNDED)
500.co/challenge                                       #moneyball4startups




      EVEN “SMALLER”
      EXITS CAN MOVE
        THE NEEDLE DON’T FORGET: YOU CAN SELL POSITIONS TO
                   DOWNSTREAM OR SECONDARY BUYERS TOO.
500.co/challenge       #moneyball4startups




             LAW OF LARGE
             NUMBERS FTW!
500.co/challenge                                     #moneyball4startups




      INDIVIDUAL BETS
         ARE SMALL
                   MUCH EASIER TO RUN AN EXPERIMENT ON A
                    $50K INITIAL CHECK INSTEAD OF $250K+
500.co/challenge                                #moneyball4startups




                   BAD BETS
                   FAIL FAST
  SMALLER CHECK SIZES FORCE COMPANIES TO PROVE THEORIES FASTER.
  ALLOWING INVESTORS TO QUICKLY ITERATE OUR FORECASTING/FUNDING
     MODEL. FEWER “LIVING DEAD” AND QUICKER RETURN ON RESULTS.
500.co/challenge                                   #moneyball4startups




          FAILURE RATES
            ARE HIGH
   DIVERSITY OF HIGH VOLUME INVESTING ALLOWS FOR HIGH ERROR RATE.
  FUND IRR QUICKLY POSITIVE WITH SMALLER, EARLY EXITS AND PROMISING
                        DEALS GETTING FUNDED.

  DILIGENCE HAPPENS IN THE REAR VIEW MIRROR, NOT THE CRYSTAL BALL.
500.co/challenge                                                          #moneyball4startups




  ALLOCATE FOR FOLLOW-ONS
                           30% Capital - Initial Bets
                                        target 10-20 deals




                           70% Capital - Follow On
                             filter out failures, follow-on the top 20%




                   (...OR “HOW TO AVOID GETTING SQUASHED”)
500.co/challenge                                      #moneyball4startups




               DEAL TERMS
                   SO YOU FOUND A STARTUP YOU LOVE?
500.co/challenge    #moneyball4startups




         DEBT VS EQUITY
500.co/challenge                                 #moneyball4startups




CONVERTIBLE NOTES
 ARE OK (REALLY!)
       LOWER LEGAL FEES, LESS DOCS, QUICKER TO EXECUTE. WHEN
          CAPPED, THEY FUNCTION SIMILAR TO PRICED ROUNDS.
500.co/challenge                                  #moneyball4startups




    STANDARD DOCS
   ARE YOUR FRIENDS
         WHEN IN DOUBT, DO NOT INNOVATE IN FINANCE OR LEGAL
500.co/challenge                                    #moneyball4startups




               PRO RATA &
               INFO RIGHTS
           ALWAYS. ALWAYS. ALWAYS. ALWAYS. ALWAYS. (GET IT?)
500.co/challenge                                 #moneyball4startups




               FOCUS ON
              VALUATION &
               MULTIPLES
       OWNERSHIP % MATTERS MUCH LESS. FOCUS ON REQUIRED EXIT
         SIZE RATHER THAN SOME MYTHICAL OWNERSHIP TARGET.
500.co/challenge                                  #moneyball4startups




 IT’S HARD TO MAKE
      MONEY ON
 VALUATIONS > $5M
(PRO TIP: CONSIDER MIN. RETURN REQUIREMENTS FOR DOWNSIDE SCENARIOS)
500.co/challenge                                    #moneyball4startups




                         YOUR PRIMARY GOAL




   LET FOUNDERS GET
     BACK TO WORK
      THIS IS A LONG GAME: AVOID LOSING YOUR REPUTATION OVER 1%.
           WHEN IN DOUBT, LEAN TOWARDS THE ENTREPRENEUR.
500.co/challenge   #moneyball4startups




AVOID BOARD SEATS
500.co/challenge   #moneyball4startups




     MOST BOARDS
    PROVIDE MINIMAL
       VALUE-ADD
500.co/challenge                                   #moneyball4startups




   BEST DEALS USUALLY
     REQUIRE LIMITED
     BOARD SUPPORT
          SPEND YOUR TIME SOURCING NEW DEALS. LIMIT TIME ON
           SIDEWAYS DEALS. LET THE WINNERS KEEP ON WINNING
            (AND ANSWER YOUR PHONE WHEN THEY NEED YOU).
500.co/challenge   #moneyball4startups




DO NOT INNOVATE IN
 FINANCE OR LEGAL
500.co/challenge                                     #moneyball4startups




               INVESTING
             IS A PROCESS
         DABBLING IN INVESTING IS (AT BEST) GAMBLING. BETTER TO
          WALK AWAY OR PURSUE INVESTING NEARLY FULL TIME OR
                FIND SOMEONE TO MANAGE YOUR MONEY
500.co/challenge                                  #moneyball4startups




             BE AN ACTIVE
              INVESTOR
PORTFOLIO EFFECTS & THE LEAN STARTUP MOVEMENT ARE YOUR FRIENDS

YOU CAN EXPECT FAVORABLE WITH 10 DEALS BUT IT TAKES 20+ TO BE SAFE
500.co/challenge                                 #moneyball4startups




                   BE A SMART
                    INVESTOR
         FOCUS ON INFORMATION ASYMMETRY & PRICE/MULTIPLES.
500.co/challenge                      #moneyball4startups




           “       BY ITS NATURE, THE
                   INTERNET UNDERMINES
                   ANYONE WHOSE STATUS
                   DEPENDS ON
                   PRIVILEGED ACCESS TO
                   INFORMATION.
                   -- MICHAEL LEWIS
500.co/challenge                                   #moneyball4startups




     THE BIG OPPORTUNITY IN EARLY STAGE TECH INVESTING:




     API TO VENTURE CAPITAL
     & FUNCTIONAL EXPERTISE
     (FOR FOUNDERS. FOR INVESTORS. FOR GOVERNMENT.)
500.co/challenge   #moneyball4startups




    500.co/challenge
500.co/challenge                                         #moneyball4startups




   MONEYBALL STARTUPS                  +
                   IT’S NOT SPRAY AND PRAY. IT’S A PROCESS.



                                 PAUL SINGH

                                 500 Startups

            @paulsingh・paul@500startups.com・angel.co/paulsingh
1 of 62

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Moneyball: A Quantitative Approach to Angel Investing (Austin, TX - Aug 2012)

  • 1. 500.co/challenge #moneyball4startups MONEYBALL STARTUPS + IT’S NOT SPRAY AND PRAY. IT’S A PROCESS. PAUL SINGH 500 Startups @paulsingh・paul@500startups.com・angel.co/paulsingh
  • 2. 500.co/challenge #moneyball4startups GETTING TO KNOW 500 STARTUPS BECAUSE WE’RE KIND OF A BIG DEAL PAUL SINGH @paulsingh・paul@500startups.com・angel.co/paulsingh
  • 3. 500.co/challenge #moneyball4startups THE BIG OPPORTUNITY IN EARLY STAGE TECH INVESTING: API TO VENTURE CAPITAL & FUNCTIONAL EXPERTISE (FOR FOUNDERS. FOR INVESTORS. FOR GOVERNMENT.)
  • 4. 500.co/challenge #moneyball4startups FOUNDERS: BUILD SOMETHING PEOPLE WANT
  • 5. 500.co/challenge #moneyball4startups INVESTORS: WRITE CHECKS AND ADD VALUE
  • 6. 500.co/challenge #moneyball4startups GOVERNMENT: MAKE LIFE EASY FOR INVESTORS & FOUNDERS
  • 7. 500.co/challenge #moneyball4startups “ VENTURE CAPITAL IS OPEN TO ATTACK BY DISRUPTIVE NEW BUSINESS MODELS AND TECHNOLOGY. -- NAVAL RAVIKANT (@naval)
  • 8. 500.co/challenge #moneyball4startups (R)EVOLUTION IN THINKING
  • 9. 500.co/challenge #moneyball4startups EARLY STAGE STARTUPS HAVE CHANGED
  • 10. 500.co/challenge #moneyball4startups WEB GETS BIGGER. WORLD GETS SMALLER.
  • 11. 500.co/challenge #moneyball4startups CLOUD, OPEN SOURCE AND ONLINE DISTRIBUTION DRIVING STARTUP COSTS LOWER THAN EVERBUT SCALING STILL COSTS MONEY
  • 12. 500.co/challenge #moneyball4startups TRACTION IS THE NEW INTELLECTUAL PROPERTY PLATFORMS (SEARCH, SOCIAL & MOBILE) PRIMARILY DRIVING THE CHANGE. NO LONGER “GOOD ENOUGH” TO DEPEND ON TECH DIFFERENTIATION.
  • 13. 500.co/challenge #moneyball4startups CAPITAL INCREASINGLY COMMODITIZED RISE OF THE ANGELS, YO!
  • 14. 500.co/challenge #moneyball4startups NEW REALITY: MONEY FOLLOWS FOUNDERS
  • 15. 500.co/challenge #moneyball4startups SIGNALS ARE EVERYWHERE BIG DATA + OPEN SOURCE ANALYTICS = NEW TECHNIQUES FOR VC
  • 16. 500.co/challenge #moneyball4startups WALL STREET BEAT US TO IT
  • 17. 500.co/challenge #moneyball4startups
  • 18. 500.co/challenge #moneyball4startups “ UBS PROPRIETARY SATELLITE PARKING LOT FILL RATE ANALYSIS POINTS TO AN INTERESTING CADENCE INTRA-QUARTER AND POTENTIAL UPSIDE TO OUR VIEW.
  • 19. 500.co/challenge #moneyball4startups WALL STREET ISN’T ALONE THESE TECHNIQUES ALREADY USED TO UNDERWRITE IN-VITRO FERTILIZATION LENDING, PAYDAY LOANS, SUBPRIME AUTO LENDING, HOME/PERSONAL/AUTO INSURANCE AND MORE.
  • 20. 500.co/challenge #moneyball4startups IT TURNS OUT, WE CAN DO IT, TOO SURPRISE!
  • 21. 500.co/challenge #moneyball4startups + “GUT” + TRUSTED MENTORS + MUCH, MUCH MORE DATA.
  • 22. 500.co/challenge #moneyball4startups SENTIMENT ANALYSIS WHAT IS THE TEAM THINKING? WHAT DOES THE MARKET THINK? WHAT DO MY PEERS/MENTORS THINK?
  • 23. 500.co/challenge #moneyball4startups NEEDLE IN THE HAYSTACK REAL USE CASES: SIGNS THAT A FUNDING ROUND IS ABOUT TO OCCUR AND/OR SIGNS THAT A PRODUCT IS ABOUT TO EXPLODE. VERY HARD TO DO ACCURATELY BUT PAYOFF IS BIG & FAST.
  • 24. 500.co/challenge #moneyball4startups FASTER PORTFOLIO TRENDS CURRENT SYSTEMS OF QUARTERLY/AD-HOC REPORTING IS BROKEN -- SELF REPORTED DATA IS OFTEN BIASED. THE RAW DATA IS THERE, THE SYSTEMS TO COLLECT IT AND THE ALGORITHMS TO ANALYZE IT ARE MISSING.
  • 25. 500.co/challenge #moneyball4startups 500 CHECKLIST Product solves a problem for a specific target customer Capital-efficient businesses - operational @ <$1M funding Primarily internet-based distribution - search, social, mobile, local Simple revenue models - transactions, subscriptions or affiliate Functional prototype before investment (or previous success) Small but measurable usage - some customers, early revenue Small but cross-functional team - engineer, design/UX, marketing
  • 26. 500.co/challenge #moneyball4startups EARLY STAGE VC IS CHANGING HAS CHANGED
  • 27. 500.co/challenge #moneyball4startups STATE OF THE ART IN EARLY STAGE INVESTING IS NOT VERY SOPHISTICATED AT THE EARLIEST STAGE, YOU HAVE LIMITED DATA TO MAKE DECISIONS WITH -- BETTER TO LOOK FOR DEAL FLOW VIA TRUSTED REFERRALS, USE A CHECKLIST, DECIDE YES/NO QUICKLY AND KEEP LEGAL/FINANCE SIMPLE.
  • 28. 500.co/challenge #moneyball4startups MONEYBALL IT’S NOT SPRAY AND PRAY. IT’S A PROCESS.
  • 29. 500.co/challenge #moneyball4startups MY PRIMARY GOAL IS TO BUY WINS NOT NECESSARILY BUYING INTO THE HOTTEST DEALS. FOCUS ON TEAM, EXECUTION, TRACTION & DATA. (STICK AROUND... I’M GOING TO SHOW YOU HOW)
  • 30. 500.co/challenge #moneyball4startups INITIAL BET DESIGNED TO GIVE US MORE DATA FOR SUBSEQUENT BETS
  • 31. 500.co/challenge #moneyball4startups QUANTITATIVE PORTFOLIO APPROACH BENEFITS: CONTROLLED RISK + OUTSIZED RETURN POTENTIAL
  • 32. 500.co/challenge #moneyball4startups Monte Carlo Simulation of Angel Investing 5 mean median std dev 3.75 Exit Multiple 2.5 1.25 0 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 # of Deals
  • 33. 500.co/challenge #moneyball4startups MODERN PORTFOLIO THEORY: RISK MITIGATION THROUGH DIVERSIFICATION
  • 34. 500.co/challenge #moneyball4startups HIGH VOLUME INVESTING ALLOWS FOR HIGH ERROR RATE
  • 35. 500.co/challenge #moneyball4startups TRACK IRR & VALUATIONS WITHIN YOUR PORTFOLIO AT LEAST YEARLY. RECOMMEND QUARTERLY.
  • 36. 500.co/challenge #moneyball4startups CONTROLLED RISK: OUTSIZED RETURN POTENTIAL
  • 37. 500.co/challenge #moneyball4startups PORTFOLIO IRR QUICKLY POSITIVE (WITH SMALLER EARLY EXITS AND PROMISING DEALS GETTING FUNDED)
  • 38. 500.co/challenge #moneyball4startups EVEN “SMALLER” EXITS CAN MOVE THE NEEDLE DON’T FORGET: YOU CAN SELL POSITIONS TO DOWNSTREAM OR SECONDARY BUYERS TOO.
  • 39. 500.co/challenge #moneyball4startups LAW OF LARGE NUMBERS FTW!
  • 40. 500.co/challenge #moneyball4startups INDIVIDUAL BETS ARE SMALL MUCH EASIER TO RUN AN EXPERIMENT ON A $50K INITIAL CHECK INSTEAD OF $250K+
  • 41. 500.co/challenge #moneyball4startups BAD BETS FAIL FAST SMALLER CHECK SIZES FORCE COMPANIES TO PROVE THEORIES FASTER. ALLOWING INVESTORS TO QUICKLY ITERATE OUR FORECASTING/FUNDING MODEL. FEWER “LIVING DEAD” AND QUICKER RETURN ON RESULTS.
  • 42. 500.co/challenge #moneyball4startups FAILURE RATES ARE HIGH DIVERSITY OF HIGH VOLUME INVESTING ALLOWS FOR HIGH ERROR RATE. FUND IRR QUICKLY POSITIVE WITH SMALLER, EARLY EXITS AND PROMISING DEALS GETTING FUNDED. DILIGENCE HAPPENS IN THE REAR VIEW MIRROR, NOT THE CRYSTAL BALL.
  • 43. 500.co/challenge #moneyball4startups ALLOCATE FOR FOLLOW-ONS 30% Capital - Initial Bets target 10-20 deals 70% Capital - Follow On filter out failures, follow-on the top 20% (...OR “HOW TO AVOID GETTING SQUASHED”)
  • 44. 500.co/challenge #moneyball4startups DEAL TERMS SO YOU FOUND A STARTUP YOU LOVE?
  • 45. 500.co/challenge #moneyball4startups DEBT VS EQUITY
  • 46. 500.co/challenge #moneyball4startups CONVERTIBLE NOTES ARE OK (REALLY!) LOWER LEGAL FEES, LESS DOCS, QUICKER TO EXECUTE. WHEN CAPPED, THEY FUNCTION SIMILAR TO PRICED ROUNDS.
  • 47. 500.co/challenge #moneyball4startups STANDARD DOCS ARE YOUR FRIENDS WHEN IN DOUBT, DO NOT INNOVATE IN FINANCE OR LEGAL
  • 48. 500.co/challenge #moneyball4startups PRO RATA & INFO RIGHTS ALWAYS. ALWAYS. ALWAYS. ALWAYS. ALWAYS. (GET IT?)
  • 49. 500.co/challenge #moneyball4startups FOCUS ON VALUATION & MULTIPLES OWNERSHIP % MATTERS MUCH LESS. FOCUS ON REQUIRED EXIT SIZE RATHER THAN SOME MYTHICAL OWNERSHIP TARGET.
  • 50. 500.co/challenge #moneyball4startups IT’S HARD TO MAKE MONEY ON VALUATIONS > $5M (PRO TIP: CONSIDER MIN. RETURN REQUIREMENTS FOR DOWNSIDE SCENARIOS)
  • 51. 500.co/challenge #moneyball4startups YOUR PRIMARY GOAL LET FOUNDERS GET BACK TO WORK THIS IS A LONG GAME: AVOID LOSING YOUR REPUTATION OVER 1%. WHEN IN DOUBT, LEAN TOWARDS THE ENTREPRENEUR.
  • 52. 500.co/challenge #moneyball4startups AVOID BOARD SEATS
  • 53. 500.co/challenge #moneyball4startups MOST BOARDS PROVIDE MINIMAL VALUE-ADD
  • 54. 500.co/challenge #moneyball4startups BEST DEALS USUALLY REQUIRE LIMITED BOARD SUPPORT SPEND YOUR TIME SOURCING NEW DEALS. LIMIT TIME ON SIDEWAYS DEALS. LET THE WINNERS KEEP ON WINNING (AND ANSWER YOUR PHONE WHEN THEY NEED YOU).
  • 55. 500.co/challenge #moneyball4startups DO NOT INNOVATE IN FINANCE OR LEGAL
  • 56. 500.co/challenge #moneyball4startups INVESTING IS A PROCESS DABBLING IN INVESTING IS (AT BEST) GAMBLING. BETTER TO WALK AWAY OR PURSUE INVESTING NEARLY FULL TIME OR FIND SOMEONE TO MANAGE YOUR MONEY
  • 57. 500.co/challenge #moneyball4startups BE AN ACTIVE INVESTOR PORTFOLIO EFFECTS & THE LEAN STARTUP MOVEMENT ARE YOUR FRIENDS YOU CAN EXPECT FAVORABLE WITH 10 DEALS BUT IT TAKES 20+ TO BE SAFE
  • 58. 500.co/challenge #moneyball4startups BE A SMART INVESTOR FOCUS ON INFORMATION ASYMMETRY & PRICE/MULTIPLES.
  • 59. 500.co/challenge #moneyball4startups “ BY ITS NATURE, THE INTERNET UNDERMINES ANYONE WHOSE STATUS DEPENDS ON PRIVILEGED ACCESS TO INFORMATION. -- MICHAEL LEWIS
  • 60. 500.co/challenge #moneyball4startups THE BIG OPPORTUNITY IN EARLY STAGE TECH INVESTING: API TO VENTURE CAPITAL & FUNCTIONAL EXPERTISE (FOR FOUNDERS. FOR INVESTORS. FOR GOVERNMENT.)
  • 61. 500.co/challenge #moneyball4startups 500.co/challenge
  • 62. 500.co/challenge #moneyball4startups MONEYBALL STARTUPS + IT’S NOT SPRAY AND PRAY. IT’S A PROCESS. PAUL SINGH 500 Startups @paulsingh・paul@500startups.com・angel.co/paulsingh