What’s it like inside the mind of an angel? I got to peer into that mysterious — yet all important world — as the moderator of TiE Seattle’s angel investment panel on Wednesday night.
Panelists included Chris DeVore of Founder’s Co-op; Dave Parker of Founder Institute; and Yi-Jian Ngo of the Alliance of Angels. It was a wide-ranging discussion, with some straight-talk from the panelists and tons of questions from the audience.
DeVore offered an inside view on what he wants in entrepreneurs, noting that he has a preference for “makers’ who tinker with ideas and whose “appetite to make magic with software” is irrepressible (even outside of normal business hours). It also doesn’t hurt if the entrepreneurs’ “ears work.”
“Often, you get people who are so in love with their own idea, their own stuff, that they can’t take feedback,” said DeVore, an early investor in companies such as Simply Measured, Urban Airship and Clipboard. “The most interesting conversations … are when disparate world views are colliding, and the creative output from that. You want people who are always sucking in new patterns, and trying them on in their world.”
Here are some selected excerpts from the talk:
Chris DeVore of Founder’s Co-op on why it’s a great time to be an entrepreneur:
“If you are a software entrepreneur, this is the absolute most fabulous time ever in history to do what you do. Because, it used to be that the people who had money actually wrote the rules, and you actually had to kowtow to them and play by the rules and they would load you up with all sorts of things like preference…. Anymore, because of Amazon across the street and a number of high-quality development frameworks, it doesn’t really take that much money to start a business. What it takes is talent and guts and will. So what’s happened is for people like me who want to help entrepreneurs be successful — yeah, we write checks and writing checks is a useful point of entry… — but the conversation is much more about what problem are you trying to solve and who is your team and how are you thinking about applying — not just capital — but all parts of your business to go do what you do…. There has never been a better time to be a software entrepreneur…. It is an incredibly exciting time for anybody who does what I do because the amount of talent that’s leaking out of big companies to do it has never been stronger. So, super fun times.”
Dave Parker of Founder Institute on how the dynamics of VC are changing:
“Everyone has sort of moved up market in the venture world, so there are very few venture funds in town and there are very few venture funds in town that lead (deals) especially for early-stage. So, if part of your ambition is that you are going to build a big company and go raise venture, I’d question one of your suppositions to start: Do you really need to go raise venture or is that some allure that you thought is kind of like dating the prom queen. Right? You know, you’ve asked a couple times, but it never happened. Venture capital in Seattle is a bit like that right now. There’s not that many people and they don’t lead and they’ve moved up market, so they want you to be pretty mature in what you deliver. So, before you even bother doing that — and that’s one of the reasons why the angel conversation is really interesting — now the question is VCs have moved up to look like private equity and the angels have moved up to look like VCs, what’s left?”
Yi-Jian Ngo of Alliance of Angels on rising valuations:
“Valuations have been going up substantially … and some investors have been hypnotized by the performance of certain companies in the public markets. And they are all desperate not to miss the next bus…. So, we have been getting companies in my group with no product, no revenue and they want valuations in the range of $20 million to $25 million. It is like Web 1.0 in 1999 all over again.”
Chris DeVore on valuations in Seattle compared to Silicon Valley:
“There definitely is price pressure, and I think in particularly we try hard when we are syndicating we look out of town a lot because in a lot of cases for a Seattle company to raise Seattle money, it can create a perception of: ‘Oh, that’s a local deal. And that’s not a deal that has national or international importance, and maybe it is just us talking to ourselves up here.’
So, when we try to get outside folks into our deals, often they are pleasantly surprised by the valuations in Seattle in comparison to the Valley, particularly folks who are coming out of Y Combinator or some of the hotter accelerator programs…. You get out of town investors saying things like: ‘Geez, it is only X. What a great deal’ And again nobody invests because it is a great deal, they invest because they believe in the team and the opportunity….
Optimizing too much around saving money on valuation or grinding on valuation is actually counterproductive. What you want to do is create the biggest bounce in the money you put to work. And one of the things I’d say about the Seattle market is that it has the reputation of being kind of grinders on valuation. ‘Oh geez, we can’t possibly pay that, oh my God.’ And what it turns out is you are limiting your upside… Be careful of the low valuation, because you might get what you pay for.”
Chris DeVore on when entrepreneurs should approach him:
“I really don’t want to get to know people who are still sitting in their cushy job … because if you don’t have enough conviction to quit your job, you are wasting my time. But, if you are in the fight, and you’ve actually gone out there and you’ve got a team and you are building stuff and you are doing customer development, and all of that great, crazy lean stuff, I want to know what you are up to.”
Dave Parker on the power of the team and why ‘pivots are painful:’
“The reason that team is so important is because your lame-ass idea is going to get pivoted a couple times, maybe more. So, if I back the team and not the idea, the ability for the team to go: ‘We had a hypothesis, it didn’t work, oh shit, we have to go find another hypothesis.’ And, it is by the way, an ‘Oh, shit’ moment. Because you are like: ‘Oh shit, everything we’ve been working for just it a wall.’ And that’s not an iteration, that’s a pivot. ‘We used to sell meat, we now sell cars.’ It is that wholesale of a change … and pivots are painful. And the reason you invest in the team is because you are going to have a pivot…. The idea that you think you are going to go do today for most of you … is not the idea you are going to finish with.”
Chris DeVore on why investors bring more than money to the table:
“Everyone’s money is green, right? Commitment comes with cash…. If you want fire-and-forget investors, go get investors somewhere else than where you live. But this is where your life is and your network is and you want people to lean in and do work, find people you can look in the eye and work with, whether they are angels or institutional (investors) or anyone else. Investing isn’t just about the money, it is about everything that comes after the money, the emotional commitment and the help.”
Chris DeVore on why they like to partner with Silicon Valley angels:
“I think there are great investors and great people here (in Seattle). But if you accept the premise that we are a lesser satellite of the sun, the only way to get the sun to feel like you are a smaller sun or like a red dwarf — or whatever the analogy is — is to get some money from that market up here.”
Dave Parker on the importance of pitching your business:
“You’ve got to go kiss a bunch of frogs. And find someone who is credible in your space, knows what you are doing, gets excited about what it is, and I think one of the biggest challenges, honestly, I need to be able to walk away and say: ‘Can Chris (DeVore) repeat my pitch.’ Because, and I’ve got to tell you, this is the war wound that has heeled over but the scar is still there. I flew to New York, had a meeting with Samantha Chen of Warburg Pincus and got done with the pitch and she walked me to the elevator and said: ‘Dave, I love your passion, love the market you are in, but I can’t explain your pitch to my partners, so I won’t.’ That was the most honest feedback I ever got, and it is the most honest feedback you need to get…. ”
Chris DeVore on telling the world about your ideas:
“To Dave’s point, your idea is not worth shit. It is what you do with it…. No one is going to steal your idea. It is your intellectual property and it is in your head, and you are the talent. This is a talent business. Get out there and mix it up with your idea, and you will find that the advocates will come to you organically. But if you go in a hole or a closet and then make something and come out and want to show the world, it is going to be a lot harder…. Get out and mix it up and talk to people. And be as transparent as you are comfortable being about what you are passionate about. Because it is not the idea, it is you as a human being and what moves you.”
Yi-Jian Ngo on what investors look for in startup teams:
“Building a company is really, really hard and you are going to go into the depths of depression. There are going to some really, really hard times. You may not survive those. So, being really passionate is a critical thing. This is not done by an investor asking you: ‘Excuse me, Mr. Entrepreneur, are you passionate?’ It is how you convey the idea, and the way in which you communicate and talk about your product with your customers. The other is the issue of coachability, and coachability doesn’t mean that the entrepreneurs does everything that the investor says, which is probably not a good thing. But another negative thing is if the entrepreneur is closed to all manners of feedback…. It really has to be a situation where the entrepreneur needs to know how to take advice, and selectively takes the pieces that are useful and combines those with his or her own vision and where they want to take the company.”
Dave Parker on being too early:
“My analogy from the big picture perspective, is look at this as a wave. Has the wave already crashed upon the shore, and is it too late. Or is the wave going to crash you upon the shore, and it is going to be too late…. But the most painful one is when you are way too early to market because as the entrepreneur, you believe the future as if it exists today, but you are just wrong, and the market hasn’t caught up to you yet. What you are doing is creating a brilliant idea that is going to make money for someone 10 years from now. And there are a lot of those. Classmates.com. We were too early.”
