Getting the right Investors is so key
I am an angel investor. There are a variety of reasons why I started investing in people and their dreams. First of all, I have the privilege to hear so many interesting ideas and meet so many bright people that I want to get involved with and I am lucky to have the financial means to support their ideas too. I know just enough to probably be dangerous but my intentions have always been to help entrepreneurs grow, navigate the growth of their company to the next financial hurdle where they might need more financing, create a solid foundation to grow on, be a good mentor by listening and advising, open up my rolodex to them and certainly find out the right information if I don't know the answer and last but certainly not least hope I see some financial rewards myself.
The first board I sat on was a start-up called UPOC. I was an investor and a very good friend of the founder, Gordon Gould. UPOC was way before it's time as for anyone who used the product knows that it had the feeling of Twitter. Sightings from events to celebrities texted out to anyone who wanted to follow your messages. I spent a lot of time talking with Gordon at least a few times a day as well as getting his investors not to take advantage of him financially but figure out the most strategic way to use Gordons vision and intellect. At one point we interviewed CEO's and as far as I was concerned we absolutely picked the wrong horse but the board wasn't so much interested in my opinion but of diluting Gordon. I was his champion. I learned a lot from that board seat. The biggest thing I learned is that getting the right investors is so key.
There are many people jumping into the world of investing in start-ups. People who come out of hedge funds or banking do not necessarily understand the nuances of how much of an option pool there should be or how much founders stock should be allocated, fairly. The first round is important but it should be smart with thoughts about what will happen on the fourth infusion of cash.
This past week I met with someone who had been destroyed by her first group of investors. She did not get advice from anyone in the venture start-up world but took money from a group of individuals who have run major companies that are household names. She was left with so little after taking a small investment that it not only infuriated me, I felt just terrible for her. The lesson to her group should be zero of zero is zero. My advice to her is to walk away, wait the required year to not compete and begin again.
Personally, I'd rather take less on a smaller valuation to start the company on the right foot hoping that there will be growth. I can put more money in on the second round as the company grows instead of diluting the founders too much at the beginning. After all, it is the entrepreneurs who have the ideas and the energy to roll up their sleeves and grow their businesses and achieve their dreams. I'd rather help them see huge growth at the right price that we can achieve together because as I said, zero of zero is zero.