The Pony’s Lucky Horseshoe

Jerry Neumann’s “Betting on the Ponies” is easily the single best thing I’ve read online in 2014. In it, Jerry thinks through how angel investing relates to unicorn hunting, plain old luck, high frequency investing, the importance of having a system and sticking to it, and much more. If you’re involved in early stage investing and you haven’t yet read it twice – please go and do that right now. It may be the best 15 minutes you’ve ever spent (in a professional capacity). Read the comments too.

I’ll wait right here. Then we’ll talk about whether my angel round investment in the (so far) super-unicorn Uber was in fact unicorn hunting or whether it was simply dumb luck. Or could it have been something in between?

Sim Simeonov (a long time Techstars mentor) has talked about luck in the past and also has a great follow-up to Jerry’s post. There is another key piece of advice here that I was given early and have certainly followed. Be consistent and don’t do just a few deals. Doing a few deals as an angel investor is a great way to increase the odds of losing. Luckily for me, Brad Feld gave me the same advice years earlier when I first started angel investing.

Guess what? Doing more deals increases your chances of getting lucky.

When I tossed $50k into the first angel round of Uber in 2009, it was only about the 20th investment I had ever made. To date, I’m an investor in more than 500 companies, mostly through Techstars and our related venture funds. I believe that I have invested in at least five companies which have a strong chance to turn out to be billion dollar “unicorns”.

But here’s the most interesting part. While I think I’m in five such companies, I can only identify two of them (three if I squint) sitting here right now as I write this. I can name several others that have a legitimate shot at it. And because of the large number of companies at play, I’m actually quite confident that there is at least one that will emerge “out of nowhere.”

Luck is a part of this game. And a long game it is.

In Jerry’s post, he says:

These are the two main VC strategies: (1) have a reputation of being the go-to investor in a certain type of company so you get first shot at investing in companies that are more likely to be unicorns; and (2) invest in enough companies that you have a decent probability of being an investor in the next unicorn.

later he says..

If you up that [the number of companies you can invest in] to 500 companies, your odds [of finding a unicorn] are 27%-28%. That would cost $17.5 million.

and

If either of these strategies is available to you, read no further, just keep doing what you’re doing.

Because of Techstars that second strategy is available to me and I will certainly keep doing what I am doing even though I have already invested in over 500 companies.

Back to Uber. I met Ryan Graves when he was relocating by driving across the country to become the first full time employee and original GM of Uber.

People ask me all the time if I knew Uber was special the moment I invested. Was it an obvious unicorn? Heck no. They didn’t have a single car on the road yet. It felt just as exciting as other companies that I invested in around the same time that went on to fail. I invested my usual amount, with my usual offers of help, and used my usual approach.

Ryan and I only met because he had heard of Techstars and thought it was cool, so he stopped in Boulder to check it out. Now let’s think about luck here for a second. If I had still been living in Florida (where I was born) I would not have been in Ryan’s path on that particular drive. If I had been on a business trip that day he found himself in Boulder, I would not have met Ryan. If Ryan had been in a bigger hurry he might not have stopped to check out Techstars. If I was not open to randomness, I might not have set up a quick conversation with Ryan that day. After all, I had no idea who he was back then. Further, Ryan himself would never have even heard of Uber had he not noticed one particular tweet on one particular day.

Luck is not a reason that impossibly good things happen. It’s a pre-requisite!

You can see this in the honest stories of any successful entrepreneur. If you are being regaled by the story of a founder who sold his company for enormous amounts of money, and they tell you only stories of skill while they pretend that luck had nothing to do with their success, then you are talking to a very lucky liar indeed.


In the spirit of Jerry’s original post as well as Sim’s thoughts on this subject, I wanted to submit a few additional considerations for the aspiring angel investor or early stage investor. On some level we should simply factor luck out of our equations for how to be a better angel investor. Just as we tell founders we work with, let’s focus only on what we can control. In my view, you must be open to randomness, work tirelessly to assist every entrepreneur you invest in, focus on consistent high velocity investing (shots on goal), build a quality filter that does not involve your crystal ball, all the while constructing a method of detection of the very best companies so you can continue to invest in them.

Easy, right? Good luck. ;-)

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Announcing Boulder Open Angel Forum #2 – August 4, 2010

I’m excited to announce that Open Angel Forum is back in Boulder on the night of August 4th at 7PM.

The Open Angel Forum (OAF) is dedicated to providing entrepreneurs with free and open access to the angel investors that they need. We are firmly committed to fighting against “pay-to-pitch” schemes.

The first open angel forum in Colorado was back in February of this year, and it was a big hit. You can read the reactions of the companies that presented here, here, here, here, here or here. Several of them attracted new funding from that event.

Open Angel Forum is different and special. Only 20 or so angels are allowed, and each of them must have made at least 4 angel investments in the last 12 months in order to attend. Because of this, the event is very high quality and we don’t waste the entrepreneurs time. Also, the presenting companies are part of the entire social event – we basically just have dinner together and get to know each other. Last time, the event attracted several out of state angel investors, including Dave McClure, Andy Sack, and Jason Calacanis.

This time, I’ve scheduled Open Angel Forum on the eve of TechStars Demo Day, which will be held the next morning. My hope is that with both events back to back, we’ll attract even more out of state investors to attend one or both events. If you’d also like to attend the TechStars demo event the morning of August 5th, drop me a note. The eleven brand new TechStars companies which will be presenting on August 5 are not eligible to present at Open Angel Forum on August 4th – so you’ll need to attend the event the next morning if you want to see those companies.

To apply to attend Open Angel Forum as an angel investor (remember – you must have made at least 4 angel investments in the last year), go here. If you don’t apply, you will not receive an invitation.

The Open Angel Forum is sponsored nationally by SVB Accelerator and Symantec. If you’re a service provider and would like to attend the event and have dinner with the companies and angel investors, you can purchase a sponsor ticket (there are only 5 such seats available in order to keep the event small – that’s part of the magic). You will be supporting our ability to provide free and open access to angel investors for entrepreneurs by doing so.

And, most importantly, If you’d like to apply to have your company present for angel investment at Open Angel Forum Colorado #2 (OAFCO2) on August 4th, please apply here. Earlier applications will receive more consideration. The deadline to apply is July 26, 2010 at 8:00PM mountain time.

I’ve included some FAQs below:

Q. What types of angels/companies should attend/present at OAFCO?
A. The angel makeup so far seems to be about 80% software/IT/web and 20% other stuff. So we’ll likely shoot for 4 companies doing software/IT/web stuff and 1 doing something else. So any type of company should apply, but particularly software/web/IT companies.

Q. I’d like to become an angel investor, but I don’t meet the requirement of having made 3 investments of note in the past 12 months. May I attend?
A. Please apply, and I’ll put you on the waiting list. This is not a networking event or a “learn how to angel invest” event. OAF exists to help entrepreneurs reach very active angels and as such we’ll opt for a smaller crowd of top notch / active angels. If we have a seat or two left, we’ll allow less experienced angels in based on how many deals they’ve done in the past.

Q. I’m just really interested in this, but I’m not an angel and my company isn’t pitching. May I attend?
A. Yes, but you’ll have to buy a sponsor ticket. There are only 5 of these tickets available at the moment.

Q. I’m a service provider locally and I’d like to support what you’re doing. May I attend?
A. Yes, this is exactly why we have sponsor tickets available. The event is free to the angels and free to the entrepreneurs. It’s supported by those who buy tickets.

Q. What’s the format?
A. The entrepreneurs and investors have dinner together, and each company makes a 5 minute presentation and 5-10 minutes of Q&A from the investors follow. Presenters must take at least one sip of beer (or their favorite beverage) during their presentation. It’s informal and fun, and there’s plenty of time for interaction between the companies and investors.

Q. Where will this be held, and when?
A. It will be downtown in Boulder. I’d tell you more, but I don’t know yet. It will be from 7pm-930pm on August 4th.

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Beers with Brad (Feld, that is)

BoulderBeerHeatRave 012 plus_sign brad-cropped

 
KGNU is having a Beers with Brad (Feld) event, a benefit for KGNU at the Twisted Pine brewery (in the brewery itself, not the tasting room!) on Feb. 18th – 6-8 pm. It’s the first BWB event in Boulder in a very long time. If you like beer, and you like Brad, you should go.

The details are available at http://beerswithbrad.eventbrite.com/, or twitter @beerswithbrad.

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Open Angel Forum – Colorado bound!

By now, I’m sure most of you have read about the ongoing debate about charging entrepreneurs to pitch. I’ve tried to put together a chronology of links about this, but I’m sure I’ve missed some great ones. You had:

As with many things, it’s easy to bitch. So when I heard that Jason Calacanis was attempting to actually do something about it, my ears perked up. I started following his new concept, the Open Angel Forum. By email, I somehow got myself invited and I flew to LA yesterday for the inaugural Open Angel Forum. It was held at a beautiful home with one of the angels playing host (thanks Matt!). It was a great event and both the angels and entrepreneurs seemed to really love it.

Jason describes the Open Angel Forum this way: “The Open Angel Forum (OAF) is dedicated to providing entrepreneurs with free and open access to the angel investors that they need. We are firmly committed to fighting against “pay-to-pitch” schemes.” You can read the full mission and rules here.

While it’s hugely important that OAF is free to entrepreneurs, there are a few other things that strongly attracted me to the format of the Open Angel Forum. First, each chapter was to be organized by a well-connected angel investor and was to be limited to about 15-20 angels in attendance. Every one of those angels had to qualify as someone who has made at least four angel investments “of note” in the last 12 months. Because of this, the turnout in LA was truly stellar. It wasn’t just locals – many others had flown in like I had. Ron Conway, Chris Sacca, Shervin Pishevar and many more joined an awesome local crew including Mark Suster, Matt Coffin, and many more. Jason did a good job of sticking to his guns, turning down a bunch of late requests by angels to attend. Because of that, it was a manageable but top notch crowd of about 20 very active angels. Frankly, I was pretty blown away and honored to even be there.

Next, rather than some artificial process for selecting companies to pitch, the local OAF chapter just collaborates to invite companies that they’re seriously considering funding. Essentially, all the presenting companies are sponsored by one of the angels in attendance. This stops the angel group meeting from being the typical “watch and snicker” event which is not helpful to anyone. Rather, every single one of the companies presenting is a legitimate investment opportunity. Certainly, I think there’s a place for “unknown” companies to present at angel groups, but I’ve always said that if you can’t impress just one member of the group, perhaps you really shouldn’t be there. Pitching to a room full of strangers is also generally not helpful. In fact, this is one of the core things we teach at TechStars about the fundraising process.

But then came a moment at the Open Angel Forum last night where I knew this was a fantastic event that had to be replicated. I think it was the founder of Backupify, who, right in the middle of his pitch took a swig from his beer. I remember thinking to myself “I’ve never seen THAT at an angel event before.” Trivial right? I don’t think so – this was the first angel event that I’ve ever attended where the entrepreneurs who were presenting actually seemed comfortable. Relaxed even. I think it was a tribute to the atmosphere. Sipping your beer while presenting sort of became an instant tradition at OAF.

I’m proud to announce that Jason has asked me to run the Colorado chapter of Open Angel Forum. I instantly jumped at the chance to try this in Colorado, and I fully intend to transplant the “sip of beer” tradition here. I’m announcing today that the first Open Angel Forum Colorado (OAFCO) event will be held on February 3rd in Boulder. Jason Calacanis will be attending in order to help us kick it off right, and I’ve also talked him into talking about the Open Angel Forum and why startups should avoid paying to pitch at the February 2nd New Tech Meetup.

At the first OAFCO event on the evening of February 3rd, we expect a similar format: 10-15 angels and 5 companies. If you’d like to attend as an angel investor, please let me know. Likewise, if you’d like to present your company at the first OAFCO event, please fill out this form. Note that presenting companies and angels don’t have to be from Colorado. Like the LA event, I’m hopeful that we’ll have great angels and companies from all over the country at the first Colorado meeting. If it’s interesting to you, come join me, Jason Calacanis, Brad Feld, and many more investors at this special first OAFCO meeting in Colorado. There are also tickets available for service providers – as Jason explains on the Open Angel Forum web site – this is how the event is supported. Only five tickets are available, so if you’d like to attend and help sponsor the event, head here before they’re gone.

I’m excited to try this new format out here in Colorado. There are a bunch of other chapters being started in cities all over the country, but I won’t steal their thunder. Suffice it to say that each chapter is being run by some great local investors. So again, I feel honored to be given the baton for Colorado.

I’d welcome your thoughts in the comments!

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Internet Business Models of the TechStars

I’m a guest lecturer for an executive MBA class at Denver University later today. I was asked to talk about Internet business models (among other things), so I thought I’d take a look at the 39 companies that have been through TechStars to give them a sense of the relative popularity of various business models. I think this represents a fairly decent cross section of reality, since about 75% of these companies have raised outside funding after TechStars ended.

Some of these are open to interpretation or are really a hybrid of a couple of forms. My categories might be somewhat arbitrary. But here’s the data as I see it:

SaaS (33%) – These companies sell their product to customers via the web, and don’t bother with a “try before you buy” product. Examples include Rezora, SendGrid and Filtrbox.

Freemium (20%) – These companies give away a free product, and then try to upsell more sophisticated features or solutions on top of that. Check out Baydin and TimZon.

Sell Installed App (5%) – I broke this out from SaaS, because these companies are actually selling software that is licensed and physically installed. Subtle difference these days. A good example is RedLaser from Occipital.

If you add the three approaches above together, you get 58%. So well more than half of the companies we’ve funded are ultimately selling software to people who pay for it. Novel idea, huh?

Gather/sell eyeballs (18%) – You might call this the “advertising” model, or the “underpants” model. Some call it “audience aggregation”. Some of the companies which achieved early exits were in this category (Socialthing, Intense Debate) , but it’s quite risky too. Often, companies doing this initially have other models in mind once they reach a critical mass but can’t use that approach early on because they don’t have enough scale.

Marketplace (13%) – These companies try to aggregate buyers and sellers, and generally take commissions or service fees for providing the marketplace. Foodzie and oneforty are examples.

Lead Gen (5%) – These companies often provide a valuable free service, and then provide qualified leads to buyers. This is very similar to the Freemium model, except that the upsell is not more software, it’s other services or software provided by someone else.

Virtual Goods (2%) – This model typically involves providing a game or other interesting virtual environment and then selling virtual goods in that environment. J-Squared Media’s MiniPlanet is a strong example.

Crowdsourcing (SaaS) (2%) – These companies use the power of a large distributed workforce, often to do things that computers can’t do automatically or efficiently. Typically they ultimately deliver a service to the customer. Retel Technologies is a good example.

Content Production (2%) – Although it’s a perennially unpopular approach with investors, these companies create content and then attract an audience for that content, typically selling advertising inventory targeted at the audience or subscriptions. Howard Lindzon’s WallStrip is an example of this approach that worked well.

Enterprise 2.0 (0%) – I was surprised to see that we haven’t funded any companies (yet) that are taking web 2.0 consumer technologies and applying them to enterprise settings. Some companies I know of that are doing these sorts of things are Yammer and Brainpark, as examples.

So there you have it. If you’d categorize the models differently, please let me know in the comments.

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An offer to Funding Universe

UPDATE: Funding Universe posted a response to this post and has now waived pitch fees nationally as a result.

Funding Universe is expanding their presence in Colorado and they are presenting a CrowdPitch event on September 30th in Denver. It costs $125 to present your company there, and it’s free to attend otherwise.

Some of us vomit when we hear that promising entrepreneurs are being charged to pitch to investors in Colorado (or anywhere). I’m hoping people will stop doing it. In my opinion, If investors want to see companies they (or sponsors) should bear the costs instead of the entrepreneurs.

To be fair, CrowdPitch is an event that is geared towards to general community and not specifically towards investors. It’s designed as a fun investor role-playing “monopoly money” type event. But still, it’s a bummer that companies have to “pay to pitch” in any setting.

So to welcome Funding Universe to Colorado, I’ll offer to pay the presentation fees for half the companies if they’ll match me.

In any event, here’s some more information about the event:

Want to pitch?

At LivePitch early stage entrepreneurs have 4 minutes to pitch to a panel of experts and a live audience of 40 – 70 peers in order to:

1. Discover investor insight.
2. Let the community know what resources are needed to move forward (partners, services, funding, connections, talent).
3. Gain visibility in the business community.

Want to attend, but not pitch?

Attendance is free. You’ll learn how investors think, meet the hottest start-ups in Colorado, and have a lot of fun. You’ll also help decide the winner of the event by investing your monopoly money in the business of your choice.

When and where

When: Wednesday September 30th
Time: 12:00 – 1:30 pm
Where: TAXI
3457 Ringsby Ct.
Denver, CO 80216

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