Wednesday, October 24, 2007

Open4Business—What Angels Look for In Deals

CTAN held a panel recently at the Open4Business Conference to talk about what angels look for in a deal. We opened with a recent survey from the Angel Capital Association showing the number of deals is up by 50%, and the average number of members in an angel group has grown from 41 to 52 in first six months of this year. Finally, syndication of deals between angel groups is up dramatically as well. Last year, I attended the ACA conference in New York. There were 150 of attendees. This year, the same conference had over 300 attendees. Across the board, membership was up and deal flow was up.

Joining me on the panel were Bril Flint and Monty Myers of Eureka Software which has been in Austin for 25 years. Each gave their view of what makes for a good angel deal. Bril looks for a competitive advantage or a unique angle that can be protected. Monty talked about helping companies who had made the sale but needed to help to deliver the product.

We talked about the different types of angel investors. There’s the Marriage Partner – the one who will be there through thick and thin. There’s the Networker – the one who knows everyone and can help connect people into jobs or partnerships. Then there’s the Therapist who focuses on coaching the CEO. The key question he asks is, “so what keeps you up at night?”

Questions ranged from how to value a company to how many women are in the group. We gave some rough rules for the valuation question – if you have a cash flow you can calculate based on that. If you have an asset-based business you can use that as well. I like the 4-point rule. You get $1M for a complete and seasoned management team, $1M for a complete product that’s shipping, $1M for a raft of happy customers, and $1M for a filed patents providing sufficient protection to the business. It’s rough but makes for productive conversations.

It was clear that the number of women involved in angel investing is quite low and there should be more.

Best regards,
Hall T.

Monday, October 22, 2007

Social Networking Sites – Discussion with Matt Cohen of Large Small

I had a coffee with Matt Cohen this morning at Primo360 which has become my office away from the office. Actually, I enjoy their flavor of espresso. Matt and I discussed the Social Networking space and the phenomenal buyouts going on. There are many social networking startups in Austin so of course we see a growing number of deals from this space.

Matt believes that Facebook is the new AOL for the twentysomething generation. For those who don’t remember, AOL was started as a community site to connect with friends and family and there was plenty to do on the site. AOL later in life changed to an advertisement model and became just another “channel” on the web. Matt indicated that the twenty something generation and younger communicates either through Facebook or through text messaging. The email system that the older generation uses is too open. Anyone can send you an email message. This is validated by the spam filter on my email inbox which captures over 500 messages a day now. Facebook lets you control who sends you messages and who you communicate with. It’s a closed world in which the user has more control.
LinkedIn is a business networking site that let’s users select who they want to connect with. I have over 400 connections now, and over one million contacts only three degrees of separation away. The problem with LinkedIn is that aside from connecting, there’s not much else to do on the web site. How long do people really hang out at the LinkedIn site? It’s log in, take care of business, and log off.

A small eco-system will continue to spring up around these social networking sites. Investing in them is a zero or a one. You either hit it big or you lose it all. It’s those huge payoffs you read about in the news that keeps entrepreneurs pursing what I call the “high tech lottery.”

Best regards,
Hall T.