[This was one of the most insightful events we have had on the art and mindset of early
and middle stage investors. So we have included extra long videos of the speakers
and an in-depth report on the event.]
Way Too Early vs. Last Money In
The heart of the October iBreakfast was the interaction between Howard Morgan whose
lament is that he invests too early (and way too early) vs. Robert Hoffer an investment
bank advisor. The early stage investor goes through many twists and turns before seeing a
return on their relatively modest investment. Oftentimes they see nothing. The late stage
investor, the last money in, on the other hand, gets the most money and often sees the
payout a lot sooner. The investor who participated in Facebook at a $500 million
valuation, saw a 20x return - and much sooner than the typical Angel, who sees his
investment flounder at the same time that he gets diluted with each round.
So what makes an Angel tick? A big part of it is love - they just love to be at the cutting
edge of the next big thing. Or realistically, putting together a few bets that anticipate
it. On the other hand, they also need to make a big return. Forget 10x, think more in terms
of 30x. This is what pays for all the failures. So how does a true Angel Investor -
a unique combination of compassion and greed - think?
According to David S. Rose who, like most Angels, wears many hats (Investor, Software
Entrepreneur etc.), the most important piece in the start-up puzzle is you the
entrepreneur. You plan comes next but they expect that to change anyway. It's you and
your team, expertise and willingness to adapt and endure that really counts. If they feel
you have it, they will work with you until your plan is investible.
In David's case, he has committed to a true in-house incubator of entrepreneurs, just
like that. Indeed, many investors have Entrepreneurs-in-Residence whose purpose is
to wait around until they have developed the right idea. So incubators, of one kind or
another aren't entirely dead. In fact, whole regions like Silicon Valley, according to
Robert Hoffer of Newforth Partners, an Investment Bank for early- to mid-stage
companies, are really large incubators. Rose is building one in New York while using the
overall experience to attract, anticipate and gather deals for his own funds or the NY
Angels group of early stage investors that he chairs. While some cynics may argue that New
York's idea of incubation is simply to leave the air conditioning off, in fact, this is
generating plenty of interesting deals. At the top of his list are a Fishing Community
website and Comic Book Portal. Fishing, as we learn, is one of the biggest recreational
communities in the country, while the demographics of Comic book fans are
surprisingly mature and well-heeled (25-35 year old males with decent jobs).
Howard Morgan's view is more of the jockey over the horse. He partners with idealab, one
of the great in-house incubators of all time. Aside from investing in big ideas on the edge
of a breakout like a hybrid vehicle that does 300 miles a gallon and a company that
provides all the solar energy roofs for Google, he looks at the 6 P's before
1. People - are you really the person for this company? Can an investor really work
2. Product - they have to flexible enough to position it where the investors think it
3. Profits - a monetization strategy.
4. Passion - can you fire up other investors, workers and customers .
5. Persistence - can you really stick with it.
As an investor, he is currently involved with VideoEgg, a web video hosting platform along
with other ventures in the online advertising category.
Robert Hoffer's, Newforth Partners looks for companies that can become fodder for M&A and
they like to bet on the technology and markets rather than the people. The people
running the company can change, he says, but we can predict where the technology is going.
His hot spots are any technology related to MPEG 4 and the digital distribution system
that accompanies it.