Wow, the last week or two have been really intense. Probably working as hard as I was during the first month or two. We have a lot of users on the east coast, so we were constantly being woken up by server alerts at 6am, having gone to bed at 2 or 3 – it was a great incentive to get the thing fixed and running properly!
We’ve finished off our funding round now; it all come together really quickly once we had a lead investor. The money should give us about a year’s runway, depending on the degree of success we have at containing server costs, so we’re really looking forward to having the luxury of being to work on what we want for a few months without having to worry too much about cash money.
Things are really coming to a head for a lot of companies in our batch now. People are either getting funding or beginning to struggle to keep it going. It’s really sad to see some great companies and great teams have such a hard time, when I would invest in them myself, if I had the cash. But, I suppose this is to be expected – there needs to be filters at every stage of a company’s development, otherwise the whole startup universe wouldn’t work. Unfortunately, I know for a fact that the criteria that a lot of people use for making the cut are not optimal.
It’s actually a fascinating thing to see the different algorithms investors have for judging companies. The system they’re trying to predict is so, so complex that even with perfect information and infinite experience, you’d be doing well to beat random choice. Given this discouraging environment, there a few different approaches:
The optimists still think that they can predict the future with enough accuracy to make it worthwhile. They might tend to look for “hot” things, trends, growing markets and so on. If you have a massively multiplayer, viral, mobile social network for pets, see these investors.
The silent majority is a huge pool of potential investors who probably exist but no-one’s ever really seen. They realise that predicting the future is pretty impossible, and hence don’t invest, at least as individuals. They might put money into hedge funds and VC firms like any other rich person. Risk aversion is probably rife here.
The instinct follower generally decides if they’re going to invest in you in the first 5 minutes of the first meeting based on how you make them feel. Rapport and confidence equals money.
The slave to data obsessively digs for non-public information that could give him or her a tell on whether you’ll make money. They’ll speak to your peers, past and present, they’ll analyse your usage data, your business models and they’ll grill you as people to try and make as informed a decision as possible.
Obviously, most people are some combination of all of these, and it’s interesting that there doesn’t seem to be a pattern as to which category good and bad investors fit into.
Also, I think that the main motivation for a large majority of angel investors (especially experienced angels) is to try and perfect their algorithm for picking winners. For interest, more than for profit. During Y Combinator, Paul Graham invariably asked the angel investors we had speak to us what their criteria for investment were, and I think he was intrigued and maybe slightly bemused at how different their answers were. Still, Y Combinator’s algorithm of looking for determined, flexible technical founders with an abundance of ideas seems to be working pretty well for them!
I’ll be back in England from the 11th July until the start of August, so looking forward to catching up with friends and family then. Brace yourselves for requests to sleep on your couches!
