#startupfounders

The X Factor: Invest in People Surrounded By Equals Or Those Greater

the-x-factor

Let's discuss the #4 of the Angel Kings' four must have personality factors, otherwise known as our "PASS" formula.  Here's a reminder of what those four personality factors are:

  1. Passionate, but with a purpose.
  2. All-in to their endeavor.
  3. Shows no fear of failure.
  4. Surrounded by equals or those greater.

Surrounded By Equals Or Those Greater

Not one startup founder has created a successful company without being surrounded by amazing talent. 

When we invest in startups through Angel Kings, we don’t just get to know the startup founder, but we also get to know the team.   We also don’t care whether someone went to an Ivy League or state school, or if the team is stacked with previous successes.  Ultimately, we want a founder who has managed to recruit people of equal talent and skill to support her vision and share the same success–driven purpose.

The default question we ask before investing:  Is there more than one person on the team who could step up and take over the CEO role if the CEO died, was replaced, gave up or just didn’t have it in her anymore?  There must be at least one, and preferably two or more, people within a company who could step up to the plate and replace a founder.

Even though an iconic personality ideally should build the startup, someone should be able to take over at a moment’s notice.  Don’t invest in a one–person business, which is often the problem that investors encounter with lifestyle and one–person service companies.


Within the Angel Kings’ Investment Formula, we use the following as metrics before deciding to invest in PEOPLE:

·      Integrity

·      Organic net wealth vs. Age

·      Family background

·      Education

·      Experience

·      Credit and Background check

 Investors need to interview founders in order to trust but verify the credentials and people with whom they plan on investing.  Your intuition is often the best marker for future success. 

For example, someone who claimed to have generated more than $10,000,000 in revenue at a previous cybersecurity startup once pitched to us at Angel Kings.  With such profound success in business development, we knew we might have a hit on our hands.  However, after speaking with the previous CTO and CEO, we learned that the startup had dissolved after three years and that the company had hit no more than $750,000 in total revenue during that time frame.  Be careful with integrity... Trust, but verify.

 Investors need to determine how old a founder is and whether or not she has previously earned a living or made money independent of her family’s wealth.  If a founder has made money by her mid–30s – read: had a liquidity event, IPO’d or sold a previous company – this should catch your eye.  However, if a founder is saddled with debt or still struggling financially in her late 20s while using her parents’ money to pay her bills, stay away.

Most 20, 30 and 40–year–olds should have learned how to manage their money. But another indicator of success in startup founders is their exposure to affluent people, which may be because many founders come from wealthy families themselves.  We believe that it is best to invest in founders who are comfortable having a conversation that deals with large amounts of money, but also do not support themselves using their families’ wealth.  These startup founders tend to have wealthy parents who taught their kids how to invest but also how to live frugally.  As an investor, having a founder who has been taught financial responsibility at a young age yields greater returns.  This doesn’t mean Angel Kings doesn’t invest in some kid who’s only 19 years old and is building the next big thing... rather, we tend to ask enough about a founder’s background and nurturing to get a sense of how he or she handles money.  After all, when we write a $1,000,000 check, this money should be neither overwhelming nor too little for a founder to understand how to manage it.

In fact, look no further than Zuckerberg and Gates.  One’s father was a wealthy dentist and the other’s father ran a bank.  Both kids went to private schools and then matriculated at Harvard University.

 Why does exposure to money matter?  Why are angel investments more successful when the founders come from a family with some means? 

The basic reason is two–fold:  On the one hand, you get someone who won’t spend freely without frugality (a big problem currently in startup investing), and on the other hand, the investors will get someone who’s not going to sell out on their first buy–out offer from a larger company. 

Larry Page and Sergey Brin of Google exemplify the type of founder we’re talking about. They were offered $1,000,000 to sell Google to Yahoo.  To most people, $1,000,000 is a lot of money.  However, both Page and Brin had been among wealthy students at Stanford, and they both come from families who understand worth, value and how to spend money frugally but with calculated risk.  As founders, their backgrounds gave them a far–sighted perspective on what Google would be worth down the road.


If you'd like to learn about startup investing or want to see if you're an accredited investor apply here. Angel Kings are the angel investing and venture capital experts.

Ross Blankenship is an expert on startup funding,  angel investing and venture capital.

Ross Blankenship is also the Founder and CEO of AngelKings.com.  Angel Kings is an investing platform that provides accredited angel investors the opportunity to invest in top startups and companies in sectors like cyber security, biotech, mobile, data and financial services.  Angel Kings provides both venture capital funds for startup investing as well as private equity funding for early and middle-stage investments.  

The X Factor: Invest In People With An All-In Mentality

Remember the Angel Kings' four must have personality factors, or otherwise called our "PASS" formula:

1.  Passionate, but with a purpose.

2.  All-in to their endeavor.

3.  Shows no fear of failure.

4.  Surrounded by equals or those greater.

In this article, we will be discussing #2 of our formula.  

 

The All-in mentality

 

All passionate and purposeful founders or inventors must be asked whether or not it’s their full–time venture or just an idea they’re pondering perfunctorily.  Why?  If it’s not their full–time, all–in moment, don’t bother writing a check.  Not one of the top 10 billionaires in the world ever took on an idea, product or service part–time. 

For Musk, his all–in mentality has driven him to a level of obsessive compulsiveness that one could blame for a divorce and much strife within his own life.   Musk was all–in to PayPal – and to every venture he pursued.   Musk worked day and night, and in fact, slept in the office and shared a tiny apartment to save on expenses.  Musk would do everything he could to make sure that his company succeeded.

Normatively, is this good or bad?  Who knows… your job as an angel investor is to find the best founders who can bring you a massive return on your angel investment.  No, we don’t want, wish or hope for any of our founders to suffer personal strife or deal with major pains, but look to none other than Steve Jobs to know it can happen to the best.

 When we say all–in, just like in poker we want you to treat any investment – $25,000 up to $10,000,000, which we’ve seen at Angel Kings – as possibly your only startup investment.  A founder expecting you to write a check should be just as committed, if not more so, to building her product as you are in giving precious dollars to help her fulfill her vision.  She has to understand that receiving your check does not mean the work gets easier.  If anything, she has to become so hyper–focused in making her vision succeed that her level of commitment to both your investment and her vision becomes a bit daunting.

The all–in mentality is a two–sided coin for both investors like yourself and founders. 

On the one hand, you need to be willing to go all–in and have enough of a meaningful investment for it to hurt if the startup doesn’t succeed.  As Mark Cuban says, you need to have enough “skin in the game” to care about whether the startup succeeds or fails. 

On the other hand, the founder should be willing to play her cards right, not be distracted by different commitments, and remain fully committed to making your investment profitable.  If a founder is hedging her bets by thinking that “if this doesn’t work out, we can always do something else,” then it’s not going to work.  There’s a limited amount of time during which your startup investment should take off, and the founder can’t squander that time bouncing around ideas and splitting her time between different companies.  The all–in mentality requires focus, decisiveness and cooperation between the founder and the investor. 

As an investor, you have to be discerning about the founders of your startup investments.  Although a founder may have a great idea and is brimming with passion, she must be able to shoulder the level of risk that your investment carries.  Just as in poker, the founder must play every hand as if it were her last hand to play. For every hand dealt – whether pocket Aces or deuce–seven – a founder must be all–in as though her life is on the line.  Even when tired, exhausted and ready to give up because she feels like nothing is going right, the best founder always gets up quickly before the self–pity worms its way in.  There is a level of tenacity, shrewdness and optimism that a founder must possess in order to make sure her vision succeeds.

 

For the investors…

As an investor, your big moment could come at any time.  Again and again, you’ll be pitched on ideas, products and services that will be the next “big thing.”  You have to know when and how much you should bet to get a fruitful return, one in which you’re not just in the money but you’re the grand winner …  Yes, it’s possible.

 

For the founders…

View every hand you’re dealt as if it’s your last.  Look at an investment as your ticket.  You will never be dealt pocket Aces every hand.  You’re likely to be dealt just as many terrible cards as the next guy.  In fact, you should be happy to even be sitting at the table instead of working a boring job!

 

If you’re distracted or not fully committed to each hand, you will fail.


Want to get information on angel investing and venture capital? Get information from the venture capital expert on startups. And find out if you qualify as an accredited investor here.

ross-blankenship

Ross Blankenship is an expert on startup funding,  angel investing and venture capital.

Ross Blankenship is also the Founder and CEO of AngelKings.com.  Angel Kings is an investing platform that provides accredited angel investors the opportunity to invest in top startups and companies in sectors like cyber security, biotech, mobile, data and financial services.  Angel Kings provides both venture capital funds for startup investing as well as private equity funding for early and middle-stage investments.  

The X Factor: How To Invest In The Right People

When Angel Kings invests in startups, we look to the founders first.   Our team looks for that future icon: the next Steve Jobs, Bill Gates, or Elon Musk.  Those names are pretty big shoes to fill.  We want someone who will swing for a homerun every chance he or she gets; someone who creates a new industry or platform to solve a problem; someone with an all–in mentality from day one until the day we meet him or her. And just to be clear: We meet the founders behind every potential investment them before we write a check.  And you should, too. 

The “People” factor accounts for a large percentage of our investment formula.  We’re disclosing this not because we want some sycophantic founder to pitch us and tell us how “passionate” and “dedicated” he or she is; in fact, to the contrary. 

The investment formula is about selecting the right people, and informing and educating them so that they don’t bother pitching us unless they fit our proprietary “PASS” Formula. 

Here are Angel Kingsfour must have personality factors before we make an investment in an idea from a founder or founders.  We call this the “Angel Kings’ Personality Profile” model:

1.     Passionate, but with a purpose

2.     All–in to their endeavor

3.     Shows no fear of failure

4.     Surrounded by equals or those greater

 These four personality traits are hard to define objectively.  After all, how do you define passion?  What does it mean to be “all–in?”  How can you tell if someone has no fear of failure?  How do you know if a founder has people on her team just as good as she is?  And does this matter?  Let's start answering these questions by further discussing #1 in our "PASS" Formula.

Passionate, But With A Purpose

It is vital for every founder to be passionate, since passion is what fuels a startup to success.  Think of a startup as a car, and every founder as the driver.  That driver’s passion is what fuels that car.  It’s the gasoline that keeps the car running through every bump on the road; every storm it has to weather; every passenger it has to carry.  We’ve been pitched countless times, and 99% of the time, the founder will say how passionate or dedicated he or she is about an endeavor.  However, if passion fuels a startup to success, it is purpose that will guarantee that a startup remains headed in the right direction.  Every founder that has had tremendous success has had both passion and purpose embedded in their companies.    

Take a look at Elon Musk.  Having founded some of the most successful companies in modern times – PayPal, Tesla, and SpaceX –Musk perfectly fits each of the Angel Kings’ personality traits.

usk starts each new company with a fundamental question: will my idea completely revolutionize an age–old industry for the betterment of the people?  Most startups see a personal pain point and decide to fix it for themselves.  However, Musk sees fundamental stagnation in an industry, and delves head first into solving a problem that will change commerce.  Musk begins to answer his own question by building a product he would use personally, which is important, but he then tests immediately whether others would use it too by asking if they would pay for it… and invariably they do – in droves.

PayPal, Tesla and now SpaceX have changed the financial and transportation industries to the point that traditionally embedded players, like banks and NASA, are forced to rewrite how they can compete within the market they used to dominate.   Musk will remain an icon of the VC and angel investors industries because he persists in challenging the classic players with innovative ideas.  His passion is complemented by a real desire to purposefully drive change and to produce new solutions to existing problems.

Passion is important as the basic trait, but a better marker of a future icon or success is whether there is a genuine purpose behind an idea.  Passion, purpose and money aren’t mutually exclusive, either.  What we’re saying is that you are more likely to make money investing in someone if he or she has passion and purpose combined.


If you'd like to learn about startup investing, or if you want to see if you're an accredited investor, apply here. Angel Kings are the angel investing and venture capital experts.

Ross Blankenship is an expert on startup funding,  angel investing and venture capital.

Ross Blankenship is also the Founder and CEO of AngelKings.com.  Angel Kings is an investing platform that provides accredited angel investors the opportunity to invest in top startups and companies in sectors like cyber security, biotech, mobile, data and financial services.  Angel Kings provides both venture capital funds for startup investing as well as private equity funding for early and middle-stage investments.  

 

Startup Burn Rate vs. Startup Profit and Loss

Don't Burn All Your Money

The gross burn rate is the amount that is being spent every month. The net burn rate is the amount of loss. Both are of equal importance. One of the reasons that net burn is such a valuable number to investors is that it provides some idea of how long the business can continue to operate, assuming it doesn't increase its net burn. As such, the net burn can be a way to determine how many more months a startup can stay in business, based on the cash it has in the bank. A company with one million dollars in the bank might sound promising, but if its net burn is $250,000, it can only stay afloat for four more months unless drastic changes are made. So that scenario does not sound like a good investment at all.

The net burn rate can help current investors measure and determine their level of risk, and can also give them an idea of how quickly they will need their teams to focus on fundraising. New investors will also be interested in the net burn of a startup, because they will want to know how quickly they need to raise cash, and how much cash they will be asked to invest.

While it's important that startups keep their net burn as low (or at least as realistic for their company and industry) as possible, having a very low net burn actually can work against them if they're looking to raise a significant amount of money. To illustrate this point, a startup with a net burn of $150,000 wouldn't appear to need to raise millions of dollars right away, and asking for that kind of money might put investors off. Prospective investors could wonder why the company would need that level of capital. So simply seeing if investors will fork over large sums of money isn't a good practice for startups, and can lead to their being overcapitalized.

Here are some tips and questions for you to consider when reviewing a company’s net and gross burn rates:

1.  Is the company responsible with money? 

Make sure that company founders who are seeking your capital investment articulate why their company needs it.  If the company’s net burn rate is low, why are they seeking a high–dollar investment? Are there other expenses that are not being disclosed?  Be wary of companies who respond with the idea that “more money is always better”.  These companies tend to develop a bad habit of unnecessary spending. 

The burn rate of any startup should be similar to the burn rates of the competition, but the size of the company and its operating expenses will dictate the overall burn rate.  It’s always best to invest in companies that have 10% month–to–month growth and at least 18 months of burn rate, as these companies have proven to be more viable in the long run. 

2.  who makes up for most of the company’s revenue?

Make sure that the company’s revenue is not reliant on a few customer accounts, and there is a varied distribution on where the company makes money.  This provides a safety net for investors since market fluctuations cannot be easily foreseen and can happen quickly. Having a wide array of customers allows a company to survive any revenue losses due to unpredictable market fluctuations.  SaaS companies are ideal for investors because their biggest customer may account for <5% of their revenue, and their revenue is ongoing and recurring. 

3.  Is the company spending on growth and development?

Pay attention to where the company does spend its money.  A company may have a high gross burn rate due to growth and development expenses.  It is a calculated risk that provides investors with longer–term rewards if the company raises the value of its product and broadens its customer base.  Stay away from companies that have low burn rates in a stagnating market since these companies will provide little return of investment. 

Venture Capital Firms: All about VC investing

Investors aren’t born overnight.  They don’t come out of the womb with the ability to identify successful startups.  They might want you to think they do, but they don’t.  Some may have the good fortune to have an ample cash flow to invest.  But the knowledge that would allow them to pick the right companies in which to invest isn’t something learned by intuition. Intuition is expensive.  What you need is both strategy and focus to win so you can become one of the incredibly successful angel investors mentioned in this book.

Most people—you may be one of them—are intimidated by the idea that investing is exclusive to “those people” like Peter Thiel or other Silicon Valley tycoons.  “Those people” work in tall buildings made of glass.  “Those people” wear three colors when it comes to clothing: blue, black and gray.  “Those people” look sharp with their shiny, polished shoes, and they walk around with a portfolio in one hand and a cup of coffee in the other.  “Those people” talk only to people who look similar to them.  They use words like “return of investment,” “financials” and “valuation” as easily as you might use the words “ice cream,” “coffee” and “sleep.”   They always know when to invest and when to walk away.  They also seem to know about the up–and–coming startup companies that are going to explode in the market.  But they never share that knowledge. 

At Angel Kings, we know when to invest in a company, not because we have prophetic powers, but because we do our due diligence to find out everything about that company–from the founder to the financials. We look for companies that provide better solutions for everyday problems, not iterations of other companies’ successes.  It’s easier to follow the pack of VC’s who invest at the next biggest startup, but it’s wiser to take a closer look at startups that are providing simpler and better solutions for problems of everyday people.  Our main goal is to reduce your risk—for which there’s plenty in the current startup–investing environment—and help you make calculated, wiser decisions about where to place your money.  


ross-blankenship.jpg

Ross Blankenship is an expert on startup funding, angel investing and venture capital.

Ross Blankenship is also the Founder and CEO of AngelKings.com.  Angel Kings is an investing platform that provides accredited angel investors the opportunity to invest in top startups and companies in sectors like cybersecurity, biotech, mobile, data and financial services.  Angel Kings provides both venture capital funds for startup investing as well as private equity funding for early and middle-stage investments.