The document discusses the differences in perspectives between entrepreneurs and angel investors regarding company valuations, markets, competition and exits. Entrepreneurs are typically optimistic and see only success, while angel investors are more pessimistic and cautious, focusing on potential problems and risks. These differing views can sometimes cause tensions, described as a "tug of war", in negotiations between entrepreneurs seeking funding and angel investors. The document provides advice to entrepreneurs to make reasonable assumptions, validate their ideas with customers, and address investor concerns regarding competition and realistic exit scenarios.

1. “Angel Investing Tug of War”
“Angel Investing Tug of War”
©2014 Tech Coast Angels

2. It’s a Difference,
In Philosophy…
“Angel Investing Tug of War”
©2014 Tech Coast Angels

3. Entrepreneurs typically only
anticipate success:
”We will win!”
“Angel Investing Tug of War”
©2014 Tech Coast Angels

4. Angel Investors typically only anticipate
problems:
”We Hope Rope Doesn’t
Break!”
“Angel Investing Tug of War”
©2014 Tech Coast Angels

5. The interaction between entrepreneurs and
early stage investors (angel investors or
venture capitalists) can sometimes be a game
of “Tug of War” when discussing areas like
company valuation, market, competition, exits
etc.
“Angel Investing Tug of War”
©2014 Tech Coast Angels

6. Valuation
“Angel Investing Tug of War”
©2014 Tech Coast Angels

7. Entrepreneurs are Extremely Optimistic
(One Could Say “Idealistic”):
 See high valuations of other Startups
 Value their idea/company highly
 Can see nothing but success ahead
“Angel Investing Tug of War”
©2014 Tech Coast Angels

8. Angel Investors are Extremely Pessimistic
(One Could Say “Realistic”):
 Most startups fail
 Many initial company valuations too high
 More likely to lose money than big return
“Angel Investing Tug of War”
©2014 Tech Coast Angels

9. Company Valuation
 Be reasonable given stage of company
 Will increase as future milestones met
 Heed investor’s pessimism (“reality”)
“Angel Investing Tug of War”
©2014 Tech Coast Angels

10. Market
“Angel Investing Tug of War”
©2014 Tech Coast Angels

11. Entrepreneurs See Simple Path to Success:
 “Only” have to get x% of $B market!
 Mentality: “Build It and They Will Come.”
 Getting funding from investors is hard…
“Angel Investing Tug of War”
©2014 Tech Coast Angels

12. Angel Investors See Long Road to Success:
 Need to prove market acceptance
 Selling product more difficult than building
“Build It, They Might Not Come.”
 Getting funding is easy part…
“Angel Investing Tug of War”
©2014 Tech Coast Angels

13. Perform Analysis of Market
Validate there is a customer & market
 Work numbers top-down & bottom-up
 Test market: find your customer first
 Would customer use product “for free”?
“Angel Investing Tug of War”
©2014 Tech Coast Angels

14. Competition
“Angel Investing Tug of War”
©2014 Tech Coast Angels

15. Many Entrepreneurs Say:
 There is no competition!
 Existing solutions are archaic, expensive
 Our product is “unique” for customer
“Angel Investing Tug of War”
©2014 Tech Coast Angels

16. Many Angel Investors Will Say:
 There’s always competition!
 If not direct competition, a “substitute”?
 How do you get customer to “switch”?
“Angel Investing Tug of War”
©2014 Tech Coast Angels

17. Create Competitive Selling Argument
 Identify “Switching Cost” for customers
 Identify product “substitutes”
 Need feature/price/performance factor
 Make buying decision easy calculation
“Angel Investing Tug of War”
©2014 Tech Coast Angels

18. Exit
“Angel Investing Tug of War”
©2014 Tech Coast Angels

19. Entrepreneurs Say:
 We’ll exit to M&A or IPO!
 It’ll take 3-5 years…
 …but it’ll be a huge return for investors!
“Angel Investing Tug of War”
©2014 Tech Coast Angels

20. Angel Investor’s Experience:
 IPO highly unlikely, scaling expensive
 Success will take 6-8 years (or more)…
 …but failure (loss) more likely!
“Angel Investing Tug of War”
©2014 Tech Coast Angels

21. Exits
 “EXIT” signs usually RED for a reason!
 Some investment exits outlive investors
 Exit plan should be reasonable & …
 …continually revisited (as part of
business)
“Angel Investing Tug of War”
©2014 Tech Coast Angels

22. Remember Both Sides of
“The Rope”…
Entrepreneur’s optimism (“idealism”)
Investor’s pessimism (“realism”)
…and try to meet somewhere in the
middle…
“Angel Investing Tug of War”
©2014 Tech Coast Angels

23. Who are the Tech Coast Angels?
Tech Coast Angels, www.techcoastangels.com, the largest angel investor
network in the United States, provides funding and guidance to more
early‐stage, high‐growth companies in Southern California than any other
investment group. Since its inception in 1997, TCA members have focused on
building valuable companies, personally invested more than $100M, and
helped portfolio companies attract more than $1B in additional capital, mostly
from venture capital firms.
TCA members give companies more than just capital; they also provide
counsel, mentoring and access to an extensive network of potential investors,
customers, strategic partners and management talent.
TCA has more than 300 members, including its venture capital affiliates, in five
networks in Los Angeles, Orange County, San Diego, Westlake/Santa Barbara
and the Inland Empire.
“Angel Investing Tug of War”
©2014 Tech Coast Angels