Do You Want to be an Angel?

I think this is a fascinating topic in its own right. It provides some motivation for some one who wants to be an Angel (pun intended).

Here is the link to the study. I just reproduced the summary below:

The historical picture of angel group investor outcomes offers lessons in the practice of angel investing. These include:

Due diligence time – Investors experienced better returns in the deals where they exercised more due diligence. Sixty-five percent of the exits with below-average time spent on due diligence reported a return that was less than their original investment. Losses occurred in only 45 percent of the deals where investors did above-average due diligence.

Industry expertise – Analysis indicated that expertise has a material impact on angel investors’ returns. Returns were nearly double for investments in ventures where the investor had related industry expertise.

Participation – After an angel makes an investment, his or her participation in the venture – through mentoring, coaching, and financial monitoring – is significantly related to that venture’s returns, according to the study.

Follow-on investing – Deals where the angel investor made follow-on investments generated significantly lower returns. In ventures where follow-on investments were made, nearly 70 percent of the exits occurred at a loss. The study recommended additional research to determine the impact of other factors in these results.

I will add a couple of observations based on my own experience (mostly failures):

  • It is better to invest in times of steady or subdued activity than times of euphoria
  • It is better to do the due diligence yourself. If you don’t have the time to do it, hang on to your money
  • Don’t ever invest because some one you trust and made money as a VC or Angel invested
  • More angels with smaller amounts is in my opinion better than a few angels with larger amounts

Let me explain the last bullet. What you need from angels, more than money is help in building your startup. If each angel can turn into a micro-mentor, you will get a lot more help than just a check.

Some one once talked to me about the concept of micro-angels. C.K.Prahlad talked about it in his keynote at TES2008 as micro-investors. Imagine 100 investors putting in Rs. 10,000 (or $200) each in your company. Imagine that they are your unofficial PR team and some of them, even potential customers.

Relentless Predator Upon the Obsolete

…a combination of relentless predator upon the obsolete and benevolent solver of the world’s problems. As ways of making money go, that’s pretty good. Startups are often ruthless competitors, but they’re competing in a game won by making what people want.

This is such a cool way to think about startups. I like the image of the relentless predator – some one on the hunt, looking to obsolete wasteful ways of doing things, saving people tons of money and making a few bucks in the process.

So how are startup ideas born?

1. If you are lucky, you will find a list like this to start with. It can fire your imagination and set you thinking to make your own list or flesh out the ideas a bit more.

2. You can watch out for problems and suddenly a better way solve some of them may pop-up in your head.

3. You can watch trends, think a bit ahead and build a few experimental proto-types and see what happens (You may be taking a bit of a risk with this approach and may end up building a solution looking for a problem).

4. Find the gap in an emerging technology space and fill a tiny bit of it with your solution.

5. Leverage a new technology to do something that has not been done before.

6. Pick some great idea that is successful and radically improve the implementation (make it simpler, easier, faster, more scalable).

7. The best, in my opinion, is to scratch your own itch and find something, for which you are the first user and see whether it has one of the above characteristics (an added bonus).

In our own startups , we have tried a few of these approaches. There may be many more. As Paul Graham says:

Consider this list to end with a giant ellipsis.

Dreaming up ideas can become a (nice) habit, so I keep an idealog. Not every idea is a good one or fit for a startup. But ideas trigger ideas and you never know where they may lead.

LinkLog: Startups

This is a problem that faces everysuccesful startup – how do you go from small. Whether it is growing an organization or growing a product, how do you make sure that you do not become “soggy” as you grow?

The Elephant and the Ant: Why Companies Need Processes as they grow triggered by Seth Godin’s Soggy.A similar abstraction, on a very different subject-  software. How a beautiful software system becomes Frankenstein paints a vivid picture of what happens when you grow from small to big.

The success is in handling this change in size well.

Startups In the Center

There is no better way to express what is going on in Chennai (and India) than this graphic which Vijay was kind enough to share.

startups-in-the-center.jpg

There is new kind of euphoria here. I was at TiECON on Friday and Proto.in on Saturday. Very different approaches and very different styles. But they both had one thing in common – entrepreneurs at the center stage. Vijay said it better than I ever can:

Startups are the Center of this Universe.

The essential environment for startups to breath rich oxygen, is taking shape. As young, energetic, voluntary organization proto.in has a very bottom-up approach. I sensed the excitement and could feel the energy yesterday. It is very difficult not to get infected by the enthusiam and optimism. I walked out feeling a lot younger,  and my head buzzing with the infinite possibilities. Vijay’s Be That One Percent is still ringing in my ears.

The Definition of Work

The definition of work:

How to make some original contribution to the world, and in the process not to starve.

In this essay, How to Do What You Love, Paul Graham talks about challenges in finding work you love.

 To do something well you have to like it. That idea is not exactly novel. We’ve got it down to four words: “Do what you love.” But it’s not enough just to tell people that. Doing what you love is complicated.

I really enjoyed reading it. He comes up with some interesting tests. Here is one. “Would you continue to do this work even if you don’t get paid for doing it?”

Finding work you love is challenging. According to Paul, there are two routes:

the organic route: as you become more eminent, gradually to increase the parts of your job that you like at the expense of those you don’t.

the two-job route: to work at things you don’t like to get money to work on things you do.

I think there is one more:

reduce your money requirement route: reduce what you need to live on so that you can take a couple of years off and do what you like doing. I heard about a friend of a friend who moved to an island in Thailand and lives on $100 per week. He just does what he loves.

This is a great essay. Definitely worth a read. While you are at it, check out his other essays.