On this special segment of the Full Ratchet, the following
investors are featured:
Each investor illustrates the most critical lesson they have learned about startup investing and how that has changed their approach.
Jonathan: I’m going to specifically focus on consumer facing apps. I would say five to ten deals I see are consumer app with no revenue plan and I’m not talking advertising. Well everyone says, “I will get advertising dollars once I have a big enough audience.” It’s really tough of the scale and it needs to be done really quickly or else it’s a big failure. A bad launch equals game over at the end of the day. I don’t like 3:18(unclear) taking investments. I’ve been burned as an Angela and I’ve obviously learned my lesson. Either they fail quickly or they grow like wildfire and that’s really, it’s a bet. We’re not me game I’m betting. You would like to have downside protection. We love our revenue and we’d love to be able to go to sustainable business and consumer apps with no revenue plan are really tough. One of the hardest things to do is to get someone to download an app on their phone and then close to impossible if you have a consumer keep that app out on their own and use it. Monthly or even daily. So, that’s a space that I’ve learned a lot about and I’m trying to stay away from as much as possible. Not saying that I wouldn’t Invest #The Space but I’d be very wary and I would make sure that there was some sort of revenue plan aside from just strictly advertising.
Nick: On today’s special segment, we have #John Houston. John, have you made an investment that didn’t work out which caused you to adapt or improve your approach? If so, what did you learn and how has it changed the way that you?
John: I’ve have made many more investments that did not work out then I probably have extracted lessons learned from but I like to delude myself into thinking that for every total loss, I’ve learned something. The most important thing I’ve learned to just focus on the likelihood that it can be a good investment for me as opposed to whether it’s really cool technology. I love to say that looking back over my losses, there’s an inverse relationship between the extent to which I really understood the technology and how fast I wrote my check. To say another way, I have found as I look back particularly in high tech deals I invested in, I really only learned about the technology a few years later. The last I understood it the more I liked it and the faster I invested.
Nick: I always say that the stuff I really know well, I scrutinize and ask a million questions because I understand the questions to ask and the things I don’t understand well, I just don’t even know all the questions that need to be asked.
John: Yeah! As an example, I was commercial banking for thirty years as I’ve mentioned and I have absolutely no interest in investing in any company whose primary client base is going to be big financial institutions and the reasons for that are; first of all, I think on the one hand I know an awful lot about financial institutions having squandered thirty years of my life in that sector and then on the other hand I realize, “… but you know, I left the industry and retired fifteen years ago so probably everything I thought I is no longer relevant…
John: … and then I just don’t have any interest in it anymore. It’s much easier to rush into things you don’t understand.
Nick: Is the big lesson learned there being that you try and invest in things you understand or have you changed the sectors of the verticals that you focus on?
John: What I’ve tried to do since there’s very little I think I really understand, I’ve tried to rely very heavily on the members of the Ohio Tech Angels who do understand it. As you can imagine with a group of that large, it’s difficult to come up with any sector where we don’t have a handful of people who have worked in it and actually have stayed current or are still working in it. So that’s one of the beauties of a large Angel of group because you put together the due diligence team with people that know the questions to ask and so what I’ve done in the last five years rarely will I write a check into a deal that has not gone through the Ohio Tech Angel fund gauntlet. I used to do a lot of side deals but now I really want to rely on the combined expertise of our members.
Nick: On today’s special segment, we have #Peter Wilkins of Hyde Park Angels. Peter, have you made an investment that didn’t work out which has caused you to adapt or improve your approach or have you missed out on an investment that ended up doing very well? If so, what did you learn that has now changed the way that you invest and informed your process?
Peter: Absolutely, I mean I think that there’s plenty of failures that I’ve experienced personally with my own start-ups as well as looking across high parking zones portfolio. I will tell you that my own personal experience choosing the right capital partner, one that is knowledgeable about the investment that needs to be made and what is expected of you and them is really critical. The wrong partner can pull you in so many directions, the right partner can pull you in the right directions and that’s just through my own experience. The other thing that think we see is that if there’s not alignment with the entrepreneur in the investor of what the vision is going to be and the strategy to get there which a lot of times you assume is going to just kind of naturally unfold, without spending some time up front to make sure you’re aligned, your six months down the road and all of a sudden there’s a major conflict because different people have different expectations. So, I’ll use a marriage analogy. It’s like, “Oh honey, you want to have children?” “Well, I never wanted to have children.” and I know that sounds ridiculous but if you say, “Hey you know, what we don’t we never wanted to go after the consumer market but we realize that if we focused on this specific market around security or around B-B that was our initial three year rollout.” It is surprising an entrepreneur does not have that conversation and I think those are critical for entrepreneurs that to consider’ making sure that the vision and direction and strategic direction of the organization is aligned with their investing partner.
Nick: Yeah, we had #John Huston on the program and he brought up the same thing. Just getting the investors aligned with the founders and then we also talked about the co-founders being aligned with each other on the vision and in the ultimate exit potential and in goals for the business.
Peter: Yeah absolutely.
Posted in: Investor Stories
Tagged with: accelerators, Angel, Angel Investing, AngelList, Crowdfunding, Entrepreneur, Founder, incubators, Investing, Investor, pitch competitions, pitch deck, Seed, SeriesA, Start-up, Start-up Fundraising, Start-up Investing, Startup, Startup Fundraising, Startup Investing, tech investing, technology, VC, Venture, Venture Capital, Venture Capitalist
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