Tag Archives: launch

Guide to Angel Investing

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I’ve been dabbling in startup investing for a few years now. Nothing extraordinary, and I’ve definitely not made it a career, but I have developed a guide of sorts that I follow when making the final decision of whether or not to invest.

This is written from the viewpoint of a single angel investor. Here it is:

  1. Risk: Understand the high risk in angel investing. Mentally, assume you’ll write off all investments as soon as you make them. Invest only what you can afford to lose.
  1. Avoid life-support investing: If a company comes for funding, where the founder says/implies something to the extent of: “fund us or we’re going out of business” – usually gravitate to not investing. Life support investing is a bad idea (not to mention stressful!).

Lean towards companies that will survive regardless of whether or not you invest in them.

  1. Three companies come in for funding:

A – Entrepreneur has the best idea ever! They need funds to build the product.

B – Entrepreneur has the best product ever! They need funds to market.

C – Entrepreneur has a product which shows great traction. They need funds to                    scale.

Everything else equal, investing in C has the most promise.

  1. Follow-up investor: For the new investor, prefer being a follow up investor rather than leading rounds.
  1. Investment hierarchy: First invest in companies with great traction. If that does not exist in the options, then invest in those with great people, followed by those with a great product.
  1. Bet on people rather than product: Early stages, funding is a bet on people rather than product. Products can change more easily than people.
  1. Never invest in something you don’t understand: Doesn’t matter what it is, who is involved, who has invested or how well the market is going.
  1. Entrepreneurial grit matters: Invest in entrepreneurs who show they’ll simply never give up on the company – no matter what. Perseverance is crucial. When things get hard (and in startups they will!), you want someone who has the grit to stick through it to figure a way out.
  1. Scaling: Always think about how the company can scale. If scaling is expensive or hard, lean towards not investing.
  1. Avoid niches: Niche markets are starting points – but that’s it. The ultimate market cannot remain in a niche space. Successful companies need to scale.
  1. Viable business or science project?: Is the company capable of being a business or will it remain a technology/project? Not all technologies can become businesses.
  1. The Fence: If you’re on the fence about a company for a long time – defer the investment.
  1. Entrepreneur’s knowledge: The entrepreneur needs to know more about the space than you. If you seem to know more about his own space – that’s a red flag.
  1. First versions will suck: Products require several iterations of trials and failure to become great. The key is if the entrepreneur/team is unfazed by failure to keep at it despite the obstacles.
  1. What if Google/FB does it?: Assume the incumbent is always going to copy the entrepreneur if he does well. What is his strategy?
  1. Does the product create delight?: Do you feel delighted when you use the entrepreneur’s product or service? If not, at least do the customers absolutely love the product? Defer the investment until that is true.
  1. Simple enough for your mother: Can your mother use the entrepreneur’s product or service? Simplicity is key for widespread adoption.
  1. Failure is a learning process: Past failures > No failures.
  1. Return time period: Expect returns no less than 5-7 years.
  1. Differentiate between the decision and outcome: Decisions must be taken using all information available to you at that time. You can’t predict the future and hindsight is always 20/20. A bad outcome does not necessarily mean a bad decision and vice versa. Don’t beat yourself up too much over a bad outcome, and then again don’t let a good outcome go to your head.

Good luck! And as always, if you do discover the next Google or Facebook, do let me know! 😉

With that said, here is the obligatory legal disclaimer that goes with any investment advice – Please invest at your own risk! 

The reality behind “We got 70k users in 2 days of launch”

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For any startup, gaining traction depends on two things: 1) How many people are you bringing and 2) How many users getting engaged. The first one has a lot to do with marketing, while the second one has everything to do with the product.

How many people are you bringing?
Companies launch not over one day, but over a process that can last almost an entire month or maybe more. Phrases like “We got 70k users in 2 days of launch” often have a back-story behind them.

1) Instagram – For instagram, they had Jack Dorsey (founder of Twitter and about 2m followers) back them. So, when they launched, it was fairly easy for them to get their initial users since they needed to get people like Dorsey reach out to their network and the press picked it up pretty quickly.

2) LinkedIn – I was speaking to one of the co-founders of LinkedIn, who was VP of Marketing. He said that initially most of their users were PR based because in the early days, the product was not too viral. LinkedIn took its time to grow compared to other social networks.

3) SkyFire (funding: $41m to date) – Speaking to one of the founders, they launched when the iPhone had just launched and so were a very press friendly story. They also had closed their Series A which enabled them to invest aggressively in PR. So, a lot of their users were PR driven and then word of mouth referrals.

This is pretty interesting since mostly when you hear stories like “we had 70,000 users in 2 days of launch” – a lot of that is paid for or has significant help. It is very rarely viral just from the product.

The effectiveness of PR campaigns is often questioned since a lot of it depends on content, relevance and visibility. However, besides PR, there are other avenues like SEM, SEO, Social etc. which you can tap into for your initial influx of users.

How many people are getting engaged?
A key point is that after the initial influx of users is established, it is up to you to create a wonderful user experience with your product – create something that is useful and usable to have them stay and give referrals. Instagram grew virally after its initial influx because its users simply loved the product. Similarly, users gained significant value from having a LinkedIn profile, which enabled the network to grow further.

For this reason, before you invest in marketing, you need to keep gathering data, testing and failing in front of a smaller network, probably your own Facebook network till you figure out your product actually works. The product almost will never go viral if you only invite all your Facebook friends, though you will get some very solid data from them using it. Doing this will ensure that when you finally pay for the initial influx of users to come and “launch to the world”, you are better prepared.

Good Luck!