Tag Archives: angel

Batten Down The Hatches: Company CEO Advice

Posted on October 13, 2008 | Leave a comment

Over the past week I have seen a flurry of notes from Angels and VCs to their portfolio companies commenting on the recent economic instability.

The message echoed by all: Batten down the hatches! Review your budgets. Make the cuts you need to. You may not get another round of financing in the near future.

Two such groups that have sent out messages advising their portfolio CEOs of some of the steps they might take to weather the economic storm they are going to face for what many have estimated will be at least the next 18 months, are Sequoia Capital and angel investor Ron Conway.

Ron noted, in an article with TechCrunch, that the current situation is much like that in 2000. So much so, that he simply dug out the e-mails he sent then and circulated them again. The advice:

The down draft in the stock market sends us some obvious “signals” and we can’t help but mention them.

  1. If you are in a funding cycle, you should raise your funding as soon as possible and raise as much as possible.
  2. Many companies are ignoring certain VC leads we’ve provided in order to concentrate on the top tier only. While we have preached that in the past, this is no longer the case. Currently, top-tier VC bandwidth constraints, coupled with the market down draft, make it very important to take meetings with any VCs where you can get their attention. We have been working hard to open up this new bandwidth.
  3. You must aggressively examine and pursue M&A opportunities (unless you have over 12 months of cash reserves!) ro insure you have critical mass (including funding, customers, rolodex power, market share, cash, synergy, etc.).
  4. Be realistic on valuations – they will fall so be ready and willing to co-operate.
  5. Look for corporate partners to invest so you can raise more money. You should also consider a sale of your company to your corporate partners.
  6. If you are entering a funding cycle start raising money sooner rather than later.
  7. While it’s safe to say entrepreneurs have had negotiating leverage with the “down draft” in the market, the VC community will start exercising their leverage.

I highly advise you to read the full TechCrunch article that goes into much greater detail.

The second group whose advice I think it important to convey is Sequoia Capital. They sent around the slide deck that you can find at: Sequoia Capital on startups and the economic downturn

The most important piece of advice here, I think, is manage what you can control, including your spending, your growth assumptions, and your earnings assumptions.

Companies everywhere have a hard path ahead of them over the coming months (years?). Only those that can create real value, and reach breakeven by stretching their pennies razor thin will flourish in an environment such as this. Can do this? If not, it is time to learn quickly or risk being left in the ‘valley of death’.

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All Hype, No Hope?

Posted on April 25, 2008 | Leave a comment

Angel investors often see companies with technology that is, what is sometimes fondly referred to as, on the ‘bleeding edge’.

Bombarded with new technologies it is sometimes difficult to keep track of the trends in the market, what is hot, what is over-hyped, and what was obsolete before it even made it to market. In the ICT space this is especially true.

The Gartner Hype Cycle, I find, is rather useful in that it looks at technologies and charts those that ate hyped versus those that are overhyped versus those that are being widely adopted in the mainstream, something Angels have to judge on a regular basis.

Gartner Hype Cycle 2007

Of course this is an older version of the Hype Cycle, but I think it interesting. Though I have not found any studies that directly relate the speed at which a technology crosses ‘Trough of Disillusionment’ to the amount of capital it might take to cross the ‘Valley of Death’ I think the two would be highly correlated.

Just another thing for companies and Angel investors to think about as they conduct their due diligence.

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Age of the Angel Investor

Posted on April 8, 2008 | 1 Comment

Recently I raised Coase’s Theory of the Firm in discussion with Mark Kuznicki, Remarkk! Consulting, in an attempt to address the question: How do we determine if an organization or company should exist or not, and what should its size be? This conversation was specifically about the proliferation of non-profits, but, having revisited the theory I began to think about the theme of the NAO’s last Summit, Age of the Angel.

Simply put, Coase’s theory states that a firm is established to reduce transaction costs. That is, for example, costs associated with:

  • Search and information costs;
  • Bargaining costs; and
  • Policing and enforcement costs.

So what? What does this mean for Angels?
One of the great things about investing at this time is that, over the last two decades, the communication and transaction costs of high-potential companies (especially in the ICT and clean technology space) have decreased by an incredible margin. No longer are search and information costs the barrier to entry for high-potential innovative companies.

Because of the drastic drop of transaction costs over the past two decades the core of firms has decreased, with the periphery expanding. As such, the economic climate has become increasingly entrepreneur, and therefore Angel, friendly; enabling high-potential, nimble, entrepreneurial companies to bring new technologies to market with greater ease than ever before.

As these transactional barriers to company formation and execution have fallen away, more high-potential entrepreneurial companies have been emerging whose needs to get to market are much less than they have been in the past.

Web-based start-ups, for example, rather than needing a seed round of $2-million can now gain market traction, reach significant milestones, and generally develop their companies with much less financing. Examples such as Well.ca, AideRSS, or StandoutJobs illustrate this point.

Might companies still need higher amounts of finding? Certainly! The point here is that many can now reach more milestones with less cash than ever before, giving Angels a much more significant role to play in the commercialization of world-class Canadian technology.

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