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As the CEO/founder of three companies in the United States and the United Kingdom, I’ve developed a deep appreciation for the challenges and joys of being an entrepreneur in various countries. Myfirst company, X-IT Products, was named one of United States ‘Top 10 Start-ups in 1999′ by a top Entrepreneurial magazine.
I came up with the idea for the World’s Smallest, Safest, Strongest Fire Escape ladder and brought it to market with Kevin Dodge and Aldo DiBelardino.
Here’s a video about the company and the experience…I decided to move on after the battle but Aldo stuck around…
So I’ve spent the last week or so thinking about Angels. No…Not the kind with wings but the kind that dips into their big pockets and help entrepreneurs start and build their businesses.
The first two companies I started began with Angel Investments – for the first start-up, where I had designed an award winning fire escape ladder, the angels cash allowed me to quit being a minimum per hour waged Consultant (given I was working 100 hour weeks…) and pursue my passions to start and build this business.
So – a few moments ago I Googled ‘Angel Investors’ and most of the results focus on what Angels are (broadly) and where to find them…all good points but much too ‘money-centric’.
Huh? You are probably thinking…isn’t that what Angels are all about?
Well I’d like to offer you a different way of thinking about it.Â
It’s true that Angels tend to get involved in very early stage companies and often look for a high rate of return on their cash…let me explore that for a second…
“Angels tend to get involved in very early stage companies…” – in my case, the first $XXXK of funds were raised while I was still an employee elsewhere – at that time I had…a business plan and a prototype. THAT WAS IT~!
No customers, no employees, and no office – literally just a stack of pages I’d sweated blood and tears over and a prototype of a product that would go on to look very different.
What these angels were really investing in was ME! And I would guess that most Angels who go ahead and invest in a business ultimately make the decision not because of the business plan, the prototype or even the first few customer endorsements but because of the person with their hand out…
So – back to the money. Angel investors get involved at the RISKIEST stage of a start-up – most start-ups don’t go anywhere and their money goes POP! Now even if Angels are people with a high net worth – they still (probably) worked hard to make it…so as, in the investor community, the angels tend to take the most risk – they also look for the highest multiplier on their money.
Multiplier? Whassat? So – for example, they give $10K – if they get $100K back when there is some form of liquidity event then they have made 10X on their initial investment of $10K (i.e. $100K divided by their initial $10k).
As a for instance – I have heard of angels looking for 20 times or even 30 times of their money back. So, for that $10K, they would hope to get $200-$300K back from some form of liquidity event.
Liquidity event? Whassat? …that’s basically even that allows the investors to get some or all of their cash out. (Example – IPO, acquisition etc)
Bringing this full circle – So why Andrew – do you think that the Google results were too ‘money-centric’? Isn’t that what angels are all about?
Yes and No! In my view, the money you get from Angels tends to fall into one of three categories.
Either CHEAP MONEY, EXPENSIVE MONEY or just, plain old, MONEY!
Am I talking about the multiplier again? Absolutely not! The amount of multiplier you, as the entrepreneur, can guarantee to the angel investors is zero! You can guarantee absolutely nothing. You business might go gangbusters and someone could come along and buy you for a fortune. Likewise, your business could go gangbusters and you could IPO – the multiplier the angels get could be very different…you have no way of predicting what it will ultimately be…
Let me explain what I mean by cheap and expensive Angel money…it’s quite simple…
When I took angel money for my first start-up, it became obvious, very early on, that I had three types of investors:
1)Â The Value Add Investor:
This is the investors that calls you up occasionally and is looking to help…they are opening up their contacts database and connecting you with other angels, advisors, entrepreneurs, suppliers or whomever…to help you and your business grow.
Money from this kind of Angel – I call “Cheap Money’ – because you get much more value than just the cash – it makes their money really worthwhile so whatever multiplier you ultimately pay, it was partially because these value add angels helped you every step of the way – their payout is cheap money. You get me?
That leads us to the other kind of Angel…
2) The Pain in the Ass Investor:
There are some investors who, as soon as they give you the check, become an absolute pain in the rear. From that moment forward, they believe they own you…no, not just a piece of your business (which they have)…but YOU! They will call you 24/7…they will ask you to jump through hoops that may have very little to do with the businesses immediate needs and, they will tell you, loudly and often how bad a job you are doing and how you should be doing it some other way. And do they open their contact database to help out? Rarely if ever. Their function is to become a complete time sink and a constant annoyance.
I consider money from this kind of Angel…”Expensive Money”. Wouldn’t you?
The third type of angel is just plain, old money – they give you the cash, you put it into the business and they are happy to get the monthly or weekly updates about how the business is going – their value was limited to the initial cash they may put in.
Now – before I finish this post – I want to leave you with the challenge the above creates…and tell you that over the next few postings I tell you the technique I eventually discovered to ensuring you only EVER get cheap money i.e. Angel Investors who bring a considerable amount of value – perhaps enough to really make your Business the success it is destined to be.
So here’s the challenge – “You can’t tell which angels are going to be in category 1 or 2 or 3 until AFTER you have taken their cash and they’ve signed on the dotted line.”
Its true – you can interview and screen angels (if you have choices…and you ALWAYS have choices…even if its to bootstrap and use your credit card while working at a day job) and it’s tough to tell if they will add value or be the bane of your existence.
I hope the above has given you a few things to think about. And come back so I can take you through how I managed to have a higher chance of picking the value added Angels and getting ‘Cheap Money’.
Please join my mailing list if you would like additional information .
In the meantime – here’s a video with some key intial points regarding angel investors – worth watching:
What a great pick-me-up after a long week to read your take on our site. I’m glad you like it and I’m flattered you chose us as one of the sites you review. I understand your suggestions, and will take a look at those elements with a fresh eye. We’re continuing to improve the site as each day passes, so please stop by again in the future. Thanks again for the vote of confidence. If you ever want to consider making that virtual investment a real one, let me know. Your bio would suggest you’d be a great person to have giving us additional counsel. All the best!
Doug Worple
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Doug
Thanks for your comment…I have just about resurfaced from banging my head on the desk after seeing 3Luxe…it was one of those moments that happens all too often ~ ‘Why didn’t I think of a highly demographically segmented product search engine?”. I mean really! It’s so obvious when you think about it. So come on folks, before 3Luxe – who can really lay claim to creating a product search engine that specifically and tightly targeted a specific demographic of consumer? And No, tech geek is not a demographic before folks start jumping up and down about CNet and that ilk.
Again, good luck to 3Luxe! Stay in touch and let me know if there is any way at all I or the Advisor Garage site can support you as you take the discriminating consumer market by storm!
3Luxe.com is a product search engine with a difference…other search engines use algorithms, numbers and fractions as the cogs and wheels to regurgitate a whole string of very near misses to everyone that plugs in a search phrase. 3Luxe uses no algorithms or numbers…it more relies on the taste and interpretive skills of its founder and pooled review site results to determine the top 3 products currently available.
Like Flash floor cleaner and hundreds of P&G commercials, draw a line down the middle of your computer screen and compare and contrast – on one side you have a big complicated machine delivering a homogenized gloop of product results to anyone that asks and on the other side of the screen, the three best products in any given category according to the 3Luxe founders.
Business Model:
Advertising from key manufacturers who are ultimately lucky enough to have their product/s in one of the top three results
Affiliate links with Amazon or Shopzilla et al when people take the next step after the search and review and treacle forward towards purchase
Google ads (ugh!)
Some Core Functionality/Elements:
Um…Search!
3 Results only of perhaps the most expensive but kick butt products you can find in any given category
Thumbs up or thumbs down vote for any of the items returned
A very cool drop down of review results from cnet and others, along with consumer reviews from other sites
Bookmarking
Send to friend
Comment posting for all items
Likes:
Like, Like, Like. This site is well built, thoughtful, intuitive and not surprising the Worple Brothers have got it right…I say not surprising because Doug Worple, the CEO is another former proctoid that went on to create what looks to be a very cool creative / advertising agency called Barefoot. Like it or not, the great advertising agencies are helping to shape the tastes and desires of us all…so it is not a shock that by combining their own tastes for items with consumer reviews from multiple sites they are delivering product results that actually seem to be the best 3 luxury items. I guess my original concern was “What makes these guys able to choose the best three items that I’m going to like?” – but in a sense, better to combine the science of review sites such as cnet with some degree of taste than relying upon the Google number crunchers. This business model opens up a number of now obvious business opportunities i.e. segmented product search engines according to demographics – so now we have the ‘A’ search engine, anyone up for creating the ‘B1′ product search engine?
Dislikes/Suggestions:
The home page has more of a ‘website’ than a search engine feel. You could argue that this is so different that going for the minimalist search format is wrong – but the current look and feel of the home page is almost of a templated website.
Taking a note from P&G brand training – too many fonts, and no clear obvious focus for the eye causes confusion in terms of what are the priorities on the page. We have caps competing with flowing scripts with more modern fonts, moving photos and all in all its a great concept which, from a design perspective, needs some tweaks.
My Virtual Investment: With my virtual $1M, I would consider it a luxury if I were able to make a $500K virtual investment in 3Luxe. Good luck Guys!
As never before the ability of online networks has the potential to shape the world. Tumpang is preparing to take advantage of this dynamic by offering people who come together online the ability to put their joint purchasing power to work.
The Tumpang model is interesting. Manufacturers are asked to discount their products if Tumpang can guarantee a group purchase of a certain quantity of items. Then, within their site, they offer the items for sale at the discounted price providing enough people agree to purchase the item at the discounted rate. As individuals the customers may not be able to get these ‘bulk’ discount prices – as an online mini-purchasing group, they suddenly have more power.
Tumpang is currently focused on the Chinese market…but are making moves to go international. There are two obvious challenges at this point:
Products are often country specific so although they have international plans, this may not translate well for the mini-groups. Will a German purchaser be interested in a kettle for the Malaysian market? See my point?
Most of the products on the site at this point seem relatively low quality i.e. Tumpang does not seem to be striking deals with Apple, Panasonic etc but rather more unknown brands. However, as their purchasing power and traction increases this should give them more negotiation strength with the bigger, more popular manufacturers.
So, Tumpang is one to watch. This crowd purchasing approach could create another shift in online purchasing.
I wish I could tell you all about Flixor but I’m not allowed to today. What I can say is that Flixor is a very cool up and coming company focused on tools that have both consumer appeal but also the potential to revolutionize the advertising industry. I recommend you go to http://www.Flixor.com, bookmark it and watch as this company moves from stealth to a very compelling young company. If you are a potential angel – reach out and I’ll forward on your contacts – you won’t be disappointed…
