Tag Archive : investing

Circular Patterns In Venture Capital And Angel Investing: Interesting Trends And Tips

1. During the past decade, the size of seed rounds has remained stagnant and number of deals have decreased. To the untrained eye, it seems that there is more competition for seed dollars. Below the surface, however, startups are recycling founders experience. The reason why the number of deals has decreased is that teams are better prepared, are more financially savvy, have access to better-priced support, waste less time and resources, are using other forms of funding PRIOR to seed rounds, and are pivoting or deciding to get out earlier -at the pre-seed stage. (Founders will jump into exploring new opportunities).

Founding teams are recycled

2. More firms seeking seed rounds already have sales, expression of interests, and some form of market validation as a result of the circular economy of entrepreneurial mind and action. Firms that seek seed rounds are more advanced than 10 years ago. Founders are using other ways to get funded (as they should! Because seed funding is very expensive!), AND they are also recycling the experience of founding, co-founding, advising, and/or being early employees in previous firms. This is creating a circular economy of entrepreneurial experience. Not just serial entrepreneurs but a large pool of people who have experienced startup development (failed, successful, and everything in between, in so many roles!).

Supplier of funds are recycled

3. More investors are getting into each round, and seed rounds have become more collaborative. More and more small funds, angels and angel groups are co-investing. That means more eyes are evaluating deals (GOOD) but also BAD deals are getting through because the impact of each deal in the overall portfolio is lower, and the FOMO (fear of missing out) can get that signature! Think Theranos (ouch).

TIP: Nobody talks about the herd mentality and there will be some lessons to learn going forward. Because of the cycling and recycling nature of funding, early investors are able to scan deals early, with lower amounts, and, if they want to play in future rounds, they need to get in early and with others: pay to play.

Founders and funders’ recycling is also changing the exits:

4. Exits are being recycled too! Companies are being acquired, taken public, broken into pieces, resold, privatized, re-public’ed, and there are many emerging opportunities for exit. This is actually an area ripe for disruption. Welcome to the world of recycling exits.

And the funding process has become more interesting and complex.

5. As both entrepreneurs and funders become more comfortable navigating many options of funding startups or grownups, new funding options are emerging: there is better knowledge about crowdfunding, cryptocurrencies, hybrids (safes/convertible notes), and SFI-types (can we call this special funding instruments?). Capital suppliers are borrowing mechanisms from SPV, SPE, and SVI. I can’t wait to see what new options sprout of this.

All of these recycling and repurposing has an impact on ROI and capital markets

6. Cycles are longer: It takes longer to climb a larger mountain, especially if, along the way, there have been some quasi-exits, pivots, more and larger rounds. This is having an impact on the way we negotiate funding going INTO the firm, because there is light at the end of the tunnel, but the tunnel is getting much longer. Combine this with the uncertainty of how investors get OUT. Again, this is an area ripe for disruption and I can’t wait to see new options emerging. With longer cycles, the return on investment decreases, so firms are pushed into finding new and disruptive ways to excite investors and NEW investors who supposedly are more risk-averse and adventurous, but in reality are reckless.

Longer roads need more resources,
But the supply of capital does not exist in a vacuum

7. Public markets are shrinking, and investors -especially institutional investors- are navigating through a rollercoaster of political insanity. Mostly derived from the surprising interest in protecting borders than in having healthy global economies, financial and economic illiteracy is permeating the political arena where decisions are reckless and financial managers are focusing on reducing stupid (gasp) risks instead of creating and supporting new wealth.

Overall, a combination of healthy recycling of talent, capital, and technology is fueling the economy despite mistakes made by politics.

For investors the signals are clear: Get in early, support many startups, learn and collaborate.

For entrepreneurs the signals indicate: Use many forms of funding, use dynamic funding, ask investors for support (not just money), and create dynamic teams.

Oh, and for small business owners that think “small is beautiful”, now, more than ever, my famous quote of 100% of 1 is 1, but 1% of 1000 is more, is more valid than ever. Get in line, ditch the illusion of a “safe” and embrace the “growth” mindset. If we stop growing, we start dying. Small IS beautiful, it is just not sustainable.

For Government and Economic Development Agencies, the puzzle is getting more and more complex… Hang in there!

We really don’t know what we are doing, but we are doing!

Alicia Castillo Holley is an international expert on Wealthing (R) a system to create wealth. She has started 9 companies and one not-for-profit, raised millions of dollars and trained thousands of people. She’s a recognized author and speaker and travels around the world twice a year as a speaker /trainer. http://www.wealthing.com

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Angel Investing As a Taxi Ride

In the convoluted microcosmos of Silicon Valley, it is more common to find a person who is an ‘angel investor’ than a person who owns a bike. Angel investors by definition allocate a small amount of their own investment funds to support companies that give companies a financial taxi lift. One thing few people realize is that to get into that taxi you need to be ready, and you need to know where you are going, and when do you think you will get out.

So, in financial terms to access angel investments you need to:

1. Get yourself to the taxi: you need to be able to walk on your two feet, or with the help of a device. We don’t invest unless you have an established company, a tax id, a defined product or service, a prototype or a defined set of promises, some form of market validation (sorry your friends do not count). We don’t take crawling babies without parents – but we take babies with parents and we call that pivoting. And yes, both babies and parents get out on the next stop.

2. Carry a wallet. Have some skin in the game. The best way to put this in perspective is this: if you are not going to take a risk, I’m not taking it for you.

3. Speak the language. To understand each other we need to speak the same language, and in many many cases that means that the financial language needs to be clear to you. Oh yes, and the business language, and the execution language. You don’t need these languages to apply for some jobs, but if you want the title of entrepreneur, you need the language to get hired.

4. Have direction. Knowing where you are going and how to measure you are on the right track is critical. Yes, there might be accidents but you can do a plan B on the spot if you know where you are going. It also helps if you know the route, if you’ve taken a similar route before or if you have advisors along the way that can check in. Or you can take a ride with others and everyone benefits.

5. Accept some guidance. You might know the route, the goal, and the starting point, but we are in the business of transportation. We are in this day in and day out, and know when and where there is traffic, bottlenecks, stop signs, and landing spots. We also know the best time to take off, run, and go. And we know what has changed or not since the last time you took a ride.

6. Plan your exit. Taxis need your space to carry more passengers. You will need to get out at some point. I once said that the best description of the angel investor- entrepreneur relationship was this: how can we part ways and be happy about our time together? This is one of the most exciting opportunities to create something in such a lose structure. Angel investors invite entrepreneurs to their taxis at the expense of other rides, they spend time and resources together, and they expect financial and emotional rewards. We want to feel good about taking you from here to there. Entrepreneurs must also choose who they take the ride with. You can’t go to the moon in a bike, but you can enjoy the ride in a different way, and you will NEED that taxi to take you to the shuttle’s landing, or the airport, the train station, the port.

Thinking about Angel Investing as a time-defined transportation helps you manage this funding mechanism, but if you want to fund your company, whether it is a small company or a young one, there are many other ways to do it. Don’t limit yourself thinking that angels are the only ways to fund a company. Sometimes there not, and sometimes there are not even the best way.

Having an angel invest in your company does not define your success.

Article Source: https://EzineArticles.com/expert/Alicia_Castillo/278084

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