Comment by birken | Hacker News Reader

Comment by birken | Hacker News Reader

> But the cool kids don't beg. The cool kids — the ones who really know what they're doing and have the best chances of succeeding — decide who they allow to invest in their companies.

The company I was an early employee of (that ended up being a "unicorn") was not a cool kid, and we certainly were begging people to invest both at the angel stage and (especially) the series A stage. And those people got a really really good return on their money.

This isn't to say there aren't valuable signals perhaps involving "cool kids" status, but there are a lot of diamonds in the rough.

> I figured it would be more fun to be the beggee than the beggor for a change, and I was right about that.

As a much smaller time angel investor myself than the author, I'm still the beggor. You are only the beggee if you are writing 25k+ checks (and more like 50k-100k to really be the beggee). If you are writing 5k or 10k checks, you are going to be begging people to take your money, cool kids or not cool kids. So if you are looking to get into angel investing today without allocating 6-figure amounts to your hobby, I wouldn't advise doing it for ego reasons :)

How is it that a $10k check even gets a startup to take your call? That pays like one engineer for a month, if that. (Genuinely curious)

Considering that "cool kid" founders do engineering themselves and that they typically don't pay salary to themselves, 10k could cover their initial hosting or say hardware prototyping costs.

"Cool kids" should not be taking 10k checks except as a favor, every investor they take on and have to maintain a relationship with is a potential distraction to the business. I'm lucky to have more than enough capital to run my business until we're done prototyping and ready to start growing.

In my experience founders taking a 5-10k check often do it as a favor to an advisor they like and who can't afford to invest more. Maybe the advisor helped them out in the past, or their personal brand or connection are relevant to the startup.

A $5k check will give a super-early-stage "startup" (two or three college kids) with no salaries and about $1000/month burn rate ("living expenses" in the right market outside of SV) about four months of runway. You'd have to approach at a sufficiently early stage (like so: http://velocity.uwaterloo.ca/funding/velocity-fund/).

What share of the company would you expect for that kind of investment? If the amount would be trivial then why would you bother (little reward for so much risk), but if it's non-trivial then why would they accept your money, given how small the amount is compared to the value of their sweat equity?

If they really believe in what they're doing, they won't want to give chunks of it away so cheaply. Conversely, if they're willing to sell on those terms, wouldn't you be concerned that they aren't serious?

>If they really believe in what they're doing, they won't want to give chunks of it away so cheaply. Conversely, if they're willing to sell on those terms, wouldn't you be concerned that they aren't serious?

If they're college kids or new college hires, you'd probably banking on them not knowing how valuable whatever they're making is.

7%

Angel Investors get huge stakes for their small high-risk outlays.

http://blog.ycombinator.com/the-new-deal/

> We have a new standard deal at YC—we’ll invest $120k for 7%.

> This replaces our previous standard deal of on average $17k for 7%, plus a SAFE that converted at the terms of the next money raised for another $80k.

Originally, before they invented the SAFE, there was no SAFE in the deal

There are usually several of these $10K ones, especially from angels the founders like and want to have a longer term relationships with. Also, most initial development is either outsourced or done by the founders.

Or it pays one skilled non-tech employee for a YEAR here in China. I'd gladly take $10k in exchange for 0.5-1% at this stage.

Group investment clubs. Get a group of 20 guys each putting 10k in and you get 200k. These exist in B.F. Indiana so they must be elsewhere too.

For someone who needs to support a family and with a fancy office it's nothing. But for some kids in a garage it will come a long way.

10k pays for ten months of an engineer in Turkey and many developing countries.

It's either part of the entire round, or it's gonna go to a founder, one of whom is an engineer if it's a tech biz, and it'll feed them for 2-3 months while they get the prototype together.

> This isn't to say there aren't valuable signals perhaps involving "cool kids" status, but there are a lot of diamonds in the rough.

Yeah, it entirely depends on where you're positioned as an investor. If you have great deal flow, then you can limit yourself to cool kids. But if you're more obscure, it makes sense to seek a comparative advantage with undervalued companies.

> we certainly were begging people to invest both at the angel stage and (especially) the series A stage.

Oh, sure, but angels typically don't lead series A.

And yes, finding needles in haystacks does happen. But for any founder who really has the knack, it only happens once :-)

OP didn't claim that the cool kids always succeed, or that the uncool kids never succeed.

Just that they have higher odds.

And numbers backing the claim would help. A lot. I'm inclined to believe it is all a craps shot.

the article-writer OP claimed "There is a small cadre of people who actually have what it takes to successfully build an NBT [next big thing], and experienced investors are pretty good at recognizing them." which is hilariously and demonstrably wrong.

we already have one person chime in with a counterexample (the person you replied to) and that is a very common experience. No, experienced investors are not pretty good at recognizing them. It's hilariously wrong to claim they are.

Benchmark Capital has a pretty small number of bets, and a pretty high hit rate, from my perspective. They certainly seem better at picking than most.

Though I'd say a lot of that is of course positive selection - the best founders self-select to Benchmark/Sequoia/A16Z, and to Greylock/Accel.

Genuinely curious if your choice to group those investment firms is intended to imply something about them - such as they generally work together/compete with each other, belong to the same tier, etc.

Yes, due to tier.

They could be awful at recognizing them and only invest when founders show up with a box pooping out bars of gold already, and not at any point before then, since they're so awful at recognizing them.

so you can have a 100% success rate (investing only in founders that show up with a box already pooping bars of gold) while having a 0% ability to identify successful founders.

a high hit rate does not mean you can evaluate founders correctly.

If they keep growing into bigger boxes pooping gold, then you've done a pretty good job as an investor. It's all about IRR; if you invest and your investment grows, it doesn't matter what stage you invest at.

Keep in mind that for every Series C company that's pooping gold bars still 90% will fail, and a lot of investors are gonna lose money investing at that stage.

of course, I said "100% success rate", under the scenario I sketched they're great investors. I just showed that this doesn't mean they can recognize the cadre of people who have what it takes. They could be 100% successful while having 0% ability to recognize anyone whose boxes aren't pooping gold yet.

> investing only in founders that show up with a box already pooping bars of gold

will get you a 100% success rate at getting conned, btw.

>Benchmark Capital has a pretty small number of bets, and a pretty high hit rate, from my perspective. They certainly seem better at picking than most.

Of course some investors have better results than others. That would happen if they were all choosing to invest or not at random.

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