Do investors discriminate?

Monday, June 17, 2013 |

Whether it's men, women, minorities, married people, single people, everyone feels discriminated against when they get passed over on funding.  Some of it is due to the issues I outlined in "Whence, Angels" post from last week.  Some of this is very real.  Joanne Wilson a.k.a. Gotham Gal had a very insightful podcast on the subject.

I find from our - very limited - experience that we wound up with a distribution of investments that's roughly equivalent to population demographics.   Our deal flow pipeline is also distributed by gender and race along the lines of general population statistics.  It's nowhere near to being a statistically significant representative sample, but it's odd that our results are so different from what other folks are reporting.

Bottom Line:  Opinions here are welcome.

Stupid Shark Tank Tricks

Friday, June 14, 2013 |

ABC's Shark Tank is something that I watch on a regular basis.  But I confess:  I haven't bought a single product featured on Shark Tank.  I have seen very few products and ideas that I'd be interested in.  Fun to watch - but there's always a downside... Is it worth the marketing and PR exposure to have ABC own 5% of your company (or 2% royalties) to appear on the show?  Revenue is precious.  Exposure - especially when you're not ready for it - can lead to catastrophic success.  And most of the folks who appear on the program are nowhere near ready to manage the headaches that come with lack of "structural steel" in their companies to deal with the spotlight.

Bottom Line:  All in good fun or recipe for increased catastrophic success?

Whence, Angels?

Thursday, June 13, 2013 |

As you've read over past couple of years, we've started investing in a hybrid Angel/VC model.  Lots of risk, lots of upside, and lots of fun new things to learn.  Applying Capability Driven Methods to management from the start has been both fun and instructive.  We have received a lot of positive feedback, and our deal flow is not lacking.  And as you've seen in our work with Business and Enterprise Architecture, we're not shy about sharing our thoughts on the subject at hand.  So here's the first of several topics that we're thinking about:

Need for more Angel Investment

Statement 1:  Proportion of people who have W2 jobs has declined from ~70% of the workforce to just under 44% of the workforce between 1980 and 2012.  Read: There are roughly 35 MILLION more workers today who are on 1099 terms.  Some of them might be looking for capital.

Statement 2:  There are very few accredited investors who can serve as angels.

According to BusinessWeek, in 2008 there were:
  • 5 to 7.2 million US adults who were accredited investors
  • 528,000 to 756,000 accredited investors who made a friends-and-family or angel investment in the past 3 years
Under Dodd's finance bill, the second range would fall to 121,000 to 174,000.
And another data point:
Capgemini's 2011 World Wealth report states there were 3.4MM N. American residents in 2010 with investable assets of $1MM or more.  The report is available online but requires registration.
Statement 3:  Angels will rarely act as Angel Investors.  With the sheer volume of deal flow, people who have capital have the pick of the litter.  If they can put their money into a company with 3 years of history and $2M of annual revenues, rather than a company with a napkin and a dream, and get similar proportion of equity, why would you expect them to take a significantly higher risk?

Bottom line:  Access to capital is far more competitive today that it was even 10 years ago.  Will crowdfunding be a panacea?

Evolution of VC Models, Part 2

Tuesday, February 19, 2013 |

If there's one unassailable maxim in start up investing, it is that one invests in team first, everything else second.  One of the major points of vetting a potential team is whether they've been through the start up cycle before, with more credence given to teams that have that experience.  As we've been working on start up projects for the past couple of years, sometimes that held, and sometimes it didn't.

And last week I read this in HBR:  "New Research Suggests Start-Up Experience Doesn't Help Social Entrepreneurs".  While it only applies to B-Corps, it bears some re-thinking of our deeply held assumptions:

If these early tabulations are any indication, there is no systematic evidence that prior founding experience is translating into superior performance for social entrepreneurs. Their ventures don't have larger on-line followings, superior early-stage commercial performance, or greater social impact.

Are seed investors really leaving money on the table by clinging to old maxims that may not be true in the brave new start-up world?

Platform Building Thoughts

Tuesday, October 23, 2012 |

Ran across a post from someone who is pondering platform building.  As someone who has been building platforms for a while, I figured I should provide some feedback!

There are very few standards in this area.  Few can even agree on what a "platform" truly means.  OMG is doing some work around the cloud based platforms, but it's more about the cloud than it is about a platform.  With that in mind, a couple of thoughts:

Tenets of building a platform are very familiar to those of us who came out of SOA and BPM worlds.

  • First, encapsulation of each sub-capability of the overall platform with proper granularity to get to modifiability.  This addresses points 4 and 5.  
  • Second, build the "structural steel" into the platform - things like measurement, management, and security (to name a few) usually wind up being bolted on after the "minimum required functionality" is achieved.  In the world of platform thinking, they ARE an integral part of the minimum required functionality. 
  • Third, build to patterns of technology capabilities - not technology.  The only known known is that technology will change.  The modifiability of platforms becomes critical, as does the classification of technology capabilities.  
  • Fourth, build the platform one piece at a time.  The capability model of the platform should be (mostly) known up front.  The iterative approach can then be used to "fill" the pieces of the capability model as it evolves in response to market and regulatory pressures.  

Finally...  Platform building is a ride, from highs of the peaks (of inflated expectations) to the lows of the troughs (of disillusionment.)  Steady leadership is more than just important - it is a requirement.