Editor’s Note: This post was originally published on Seattle 2.0, and imported to GeekWire as part of our acquisition of Seattle 2.0 and its archival content. For more background, see this post.
By Rebecca Lovell
Our screening committee met last night, and surveying their opinions on the market was like any exit poll…. a couple of pretty vocal camps, and plenty of undecideds. Top of mind was deal flow and dollars—up, down, or just different? Our angel investors placed their bets on the next 12 months of new investment activity (some said same as 2007, some said half of last year’s activity….one offered that it would be down 20% if Obama wins, another countered with a 20% increase if the D’s take office). What are the implications?
Dollars
The bar for new investment is higher (angels and VCs are understandably gun-shy) and exits are taking longer (see the PwC Moneytree report)….so it seems likely there will be a shift toward re-investing in existing portfolio companies. They may seem a safer bet, and given the extended timeframe to liquidity, could require additional capital infusions.
However, unless you’re looking to cash out your retirement account today, this could be a great time for bargain-shopping— the angel deals that we’re reviewing this month have been priced fairly attractively. Not to mention the good/bad news that angel investing can no longer be deemed the highest-risk element of your portfolio.
Deal flow
Entrepreneurs can be categorized in one of three groups:
(1) Those who simply have the entrepreneur gene, and will be attracted to the right startup in any economy. Consider Former Cleverset CEO Todd Humphrey, who left the $137M public company ATG (Cleverset’s acquirer ) to take the reins at Wishpot.
(2) Would-be entrepreneurs with stable day jobs, ever on the verge of making the leap to the startup.
(3) The newly unemployed who always wished they had the time to start their new venture and now have no excuse. I spoke at the Washington State Economic Development Commission’s retreat last week, where chair Eglis Milbergs reminded us that the Boeing layoffs of the 70s spurred unprecedented innovation and entrepreneurship.
We’ll likely still see plenty in the first category, ever more in the last, with a decrease in the second category (until or unless they move into the third bucket). I’ll echo my colleague Matt’s post and toast the scrappy, intrepid, highly motivated entrepreneurs as they work with investors to eventually lead us out of this slump. For other such cheerleading see the call to action by the Angel Capital Association’s John May, and for some tough love, check out this particularly passionate Bay Area entrepreneur’s blog (buyer beware: this post is PG-13 and puts to shame George Carlin’s diatribe on the FCC).
In the meantime, what does this mean for those of you in the game today? I’ll add the below take-aways to the existing chorus of advice.
It’s not 1998. Though below-the-knee skirts and faux fur are back, vapor-ware and skyrocketing valuations are not. Good ideas will get funded, but for the angel organization community, concept-phase deals will certainly not command top dollar. Transparency is more important than ever—the asymmetry of information between management and investor is now compounded by the lack of trust in just about every financial institution—so do yourselves a favor. If you expect to get funded, give your potential investors a peek under the covers and for the love of god don’t overstate customer traction or revenue. Enough said. For a few local groups who tend to get involved earlier than the larger membership groups, check out The Founders Co-Op (just raised $2.5M), Monster Venture Partners, or Atlas Accelerator to name a few. All the first date rules still apply.
Take off your engineer hat and act like an entrepreneur. Brilliant product engineers are a boon to our region, but if you’re trying to start a company, beware the occupational hazard of falling in love with your own code. Too many times have we met such perfectionists who develop their software in a vacuum, getting their website or service 95% of the way there before subjecting it to the inspection of outsiders. There’s no such thing as feature-complete if you haven’t talked to a real customer. Not your friends, not just high-priced focus groups, but real people. Launch early and often. Get your product out at to a private beta as soon as you have something ready to test, learn from the market, lather, rinse repeat.
