Angels flee from startup investments

Angels flee from startup investments(nytimes.com)

47 points by amrithk 17 years ago | 16 comments

swombat 17 years ago |

"It’s getting tougher for companies to raise money, but I think the good ones are still getting it done," said Ron Conway.

I think that's key... certainly, some opportunities that were worth a shot when everyone was flush with cash are now untouchable, but angels, like all other wealthy individuals, are still looking for good business opportunities. Convincing them might be a bit harder and require a somewhat more "this start-up will make money, here's how" approach, but it should still work.

wensing 17 years ago | |

Absolutely.

I think it's for the best, because it has only reinforced our scrappy cockroach nature, but our 'looking for angel funding' was pretty much simultaneous with the meltdown, and things are definitely slower than they would have been had there not been said meltdown.

That said, we have been able to keep conversations going, and I believe it's because we have a number of viable business models in the works.

shafqat 17 years ago |

If you can demonstrate a well-considered revenue model (i.e. cash, not eyeballs), there is still plenty of money going around. We raised a seed round in October, and it was actually much easier than all the doom and gloom you read about angel money drying up. I think the key was ensuring there is real, hard cashflow opportunities.

tokenadult 17 years ago |

"For TwoSmartDogs, an Internet start-up in Los Angeles that was building an online hub for adult education classes, this sudden pullback was disastrous.

"In 2007, the company raised $715,000 in its first round of angel financing from eight investors. When the founders approached current and new investors for more capital in September, they were met with silence."

Why did investors think this

http://www.twosmartdogs.com/

was a good business opportunity in the first place?

ryanwaggoner 17 years ago | |

Actually, I think the basic idea has a lot of potential and could be a fine business. There's several different revenue models and the costs could be pretty low relative to a lot of other types of startups.

The bigger question is why they needed to raise $715k and still needed more.

tokenadult 17 years ago | | |

That was really the thrust of my question. Why was that amount of money to start up a good investment?

jacquesm 17 years ago | |

Education is a very large market, not sure what all that money was for, but obviously they did a very good job of selling the project.

The fact that they didn't manage to get a second round (and that's a fact that is now very well published) could be due to any number of reasons, such as missing critical goals that they've set in their original presentation and/or changes in the marketplace. It's hard to tell what the real cause is without asking the 8 angel investors involved.

Drawing far reaching conclusions ('angels flee from tech start-ups') from a single sample is not very solid science.

One possible reasons why angel investors are holding back is because of their stock portfolios taking a huge hit.

I also don't see not wanting to invest for a second round as 'pulling out', and I think the fact that all 8 responded unanimously says a lot more about 'twosmartdogs' (what a name) than it does about the investors.

They've had their shot, now they will either have to swim or sink. It's not different for the rest of us, with or without outside investors.

moe 17 years ago | |

Not all investors are smart. Maybe they were tricked with a really slick powerpoint presentation. With comic dogs and everything.

teej 17 years ago | | |

I've seen much less deserving people get much more money from prestigious and successful VC companies. Don't underestimate a great sales pitch.

webwright 17 years ago | |

teachstreet.com attracted funding from Madrona (a pretty solid VC firm) as well as Dave McClure, I think. Same thing, I suppose.

Bounce around craigslist for a bit and see how many people are buying and selling lessons. It's a big business.

aristus 17 years ago | | |

A good percentage of those are scams, eg: "Spanish tutor wanted." They advertise for some lessons from someone likely to be semi-desperate but with a bank account. Then they kite a check from a stolen bank account for twice the amount to the sucker, and ask them to pass the rest to the "nanny". The child of course never appears.. and they say "oh, keep the money." They play on greed and fear to rope the sucker into doing the most dangerous part of the fraud and to keep quiet later.

Seriously. Answer ten teacher wanted ads and 2-3 will be scams of some sort.

bigbang 17 years ago | |

Eventhough a minor point - thier homepage still says,

numair 17 years ago |

Most angels are such a bunch of pompous amateurs. If I was put in a position where I was broke and had to raise a small amount of money to start my bold new venture, I would get a minimum wage job and burn through my nights and weekends. The agony of the minimum wage job would give me real impetus to make the business work, and it would be far less ridiculous than constantly explaining business decisions to some guy who sold a company for $10m (or worse, inherited money) and now considers himself a "player."

Don't get me wrong, there are some wonderful angels out there -- for example, accomplished university professors (a secretly wonderful reason to go to college, even if you are career-obsessed and don't care for a liberal arts education or hooking up with confused 19 year olds), or successful veterans of the field in which you are operating (such as Aydin Senkut, referenced in that article, or our good friend pg) -- but on the whole, the "angel investor" industry is a total waste of time, and a total distraction.

Also, from what I hear from VC friends, some angels can make your Series A a real pain; they don't pay to play, and they get antsy about dilution. I'm sure pg would have more insight on this matter than I.

chris 17 years ago | |

that's just not a fair comparison. despite how you may feel about angel investors as a whole, working part time is not equal to working full time. you can accomplish a lot working nights and weekends, but it's generally difficult work, not nearly as productive, and does not have the same urgency -- it's very easy to take a few weeks off from a part-time endeavor, or just to stop working on it altogether.

we've also been very happy working with angels, but it might just be that we've been lucky enough to have great investors.

based on my experiences, i would highly recommend finding a way to work on your business full time as soon as you can.

rw 17 years ago |

Fine, if you have the choice.