Musings on investors

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!

Please Sir, can I have some more (funding)

Last week was presentations week, which all went off without a hitch I’m glad to say. Pat and Amir put most of the pitch together and did the talking, while I’ve been filing a couple of patents before we start bandying our ideas all around Silicon Valley.

The scariest moment of presentation week probably happened when I was driving us to the second demo day. I was in such deep focus, solving the world’s technerdery problems, that I turned the wrong way down a freeway ramp, into the oncoming traffic, which was fortunately not particularly oncoming at the time. Justin screamed like a big girl.

We’ve moved onto raising more funding now, which is going well so far – lots of meeting lined up with the Right People. The debate of taking less money from an Angel or taking more money from a Venture Capitalist remains open – there’s definite benefits of both approaches – but we’ll see which seems right when the time comes.

On the food front, we had our best steal so far from the Y Combinator catering surplus: after the second demo day we made off with five massive trays of deliciousness – salami, cheese, sandwiches, fruit, chicken, brownies and more. Henley the dog ate most of the chicken and now has a room-clearing wind problem.

I’m looking forward to coming back home! I’ve not decided exactly when I’m going to be where, but in general terms I’ll be on the south coast for 2 or 3 days at the start of April, then will be going across to Haverfordwest (golf capital of Pembrokeshire, so I hear) and Derbyshire to see the nieces. Then London and Cambridge for more meetings with investors and potentially some disco disco disco dancing. Then California for the summer!

PS: I know some of you will love this flashy mix tape tool: http://mixwit.com/. They’re fellow Y Combinatororors, and I love their stuff. Also, if anyone wants to get in on the ground floor of a very promising startup, let me know – a company we’re friends with are hiring.

The plan for San Fran

My initial trip to the US will be from January 2nd to March 31st, which just about scrapes inside the 90-day limit of my tourist visa..

I’m flying out with one of my co-founders, Amir, and will be staying with the other co-founder, Pat, who has a house in San Francisco here.

The reason we’re going out to the west coast rather than staying here in England is that we’ve got backing from a group of investors out there, who run semiannual programs in which new companies fight it out to get further funding at the end of the three month period.

We think this will be really useful because:

• There’s a competitive aspect to it – we’re trying to be better than the other guys in order to get that funding
• We get regular exposure to the investor community out there, which, on our experience, is more lively and creative than the one over here (with exceptions, obviously…)
• The network of like-minded people we’ll make will be invaluable for cross-pollinating ideas, and help us develop this and any other future ideas we decide to pursue

At the moment, we’re at the stage where we have a vaguely functioning proof of the idea we pitched to the investors, which is a great start considering we really started part-time work about 4 weeks ago! What we are going to be doing in San Francisco to start with is get as much feedback as possible on what we have created, and what we plan to create, then once we’re sure what direction we want to go in, put our heads down and work as hard as we can manage for 10 weeks.

The culmination of the programme is a “demonstration day” where all the teams involved do a show and tell in front of investors and corporate development people from all the interesting tech companies in the bay area. Needless to say, we need to get that right!