Crowdsource or Angel funding? Which is better and why?
Christine Goodwin stashed this in @angellist
I've been trying to determine what is the best route for raising an initial round of capital (pre-seed stage) and would love some feedback/thoughts on the pros/cons from this community.
My only concern with crowdsourcing is managing their risk profile and their expectations.
Managing expectations is challenging with angels, too.
Is there one expectation that seems to persist with angels? Is it time to market? Revenue over (unrealistically compressed) time? Lack of understanding of the type of startup and the projected growth model?
The main expectation of angels is true of almost all investors, including venture capitalists and public stock owners: that they will start to make money soon after their investment.
If that doesn't happen, they can exhibit any number of behaviors from wanting to interact more to wanting to give feedback on plans. Look at the Yahoo shareholder Dan Loeb, who wants the Board to fire the CEO over the misrepresentations on his resume. He's actively lobbying for them to fire the CEO even though it's THEIR job to decide, not his. What makes him think he has the right? He invested and is losing money.
Cool...so it's not really much different from working for sociopaths! If I follow the 10,000 hour rule for exceptional talent -- that's my talent! ;O)
As an aside, I am a bit peeved about the flap over Thompson. I haven't followed all the news about it, so I don't have the **cough cough** F-A-C-T-S (because that's what we get out of the news, right?) but the thing that peeves me is this: since when did college degrees outweigh performance as a metric for tech CEOs. I feel like I fell asleep under a tree and woke up to a brave new world where it was REVEALED that Gates, Jobs, & Zuckerberg lied about QUITTING college. I don't agree with being unethical and lying but at the end of the day, the Board chose him for what he was able to do, not what paper said about him. If falsifying documented pedigrees was a reason for canning people, half the US government would be fired and not promoted.
By the way, if you spell Zuckerberg's name with a "u" instead of an "e" and then right click on it to spell check it, the first option Firefox suggests is Cheesburger. And if you spell it properly, the recommended spell check is Rubbernecker both of which feel like shots of serendipity with a twist of humor.
If Yahoo was doing amazing, no one would care.
Since it looks like Thompson is a terrible CEO -- everything from his treatment of employees to the panic-sale of Alibaba shares to the poorly thought through suit of Facebook -- investors look for ANY reason to lobby the Board to oust the guy.
In the end, most investors care about just one thing: MONEY.
Watch Shark Tank. Kevin O'Leary is particularly good at owning this type of behavior.
I'm kind of a weirdo and have HD rabbit ears. Not much of a TV watcher.
But, I agree with you... terrible CEOs need to go. Silly for the board or others to create a bunch of histrionics to do what they are emplaced and empowered to do. Really, this whole flap begs the question: what the hell was the board doing the whole time he was driving yahoo into the ground? At some point, they are a part of his ability to execute on his decisions.
As for investors caring about their money.. i think that's fair. I think smart investors understand the dynamics of partnership as key drivers in creating their ROI.
Christine, you got it.
In general, the fewer investors the better because communication takes time.
If you have some physical product, crowdfunding is a good way to do presales.
So far in the U.S. crowdfunding has not been a good way to raise investment -- the regulations are still being put into place.
So right now angels are pretty much your only option besides "friends and family".
You can find a crowd of angels on AngelList: http://angel.co/
Hi Adam - I have noticed that trend. My sense is that if you have a mobile or web offering, crowd funding could be a risk especially if you are looking for funding so you can execute more quickly. Been looking at AngelList. Love what they are doing and really impressed with their hackathon.
I agree with everything you just said, Christine.
The main challenge with AngelList is to rise above the noise since there's so much going on there.
Any suggestions for rising above that noise Adam?
Have an amazing product and/or some amazing stats about the product.
Amazing trumps all.
Hi All, I ran across this great article with great, sensible pointers on picking the right crowdfunding service, since this market is getting crowded itself. Not to mention, quite a number just waiting for final SEC regs.
I don't see companies listing on more than one or two. So hope this helps you choose wisely when the time comes.
Awesome reference, Dennis. Thanks!
If you do crowd funding, be aware that you are also passing up on the connections and expertise that Angels can often provide. (Assuming of course you picked the right Angels.)
So you should consider putting together an advisory board to help fill any gaps in your know-how and help you expand your network for recruiting, sales, follow on investment, etc.
Great advice! Thanks, Tristan.
By the way Christine, this process never gets easy.
I'm on my third startup. I've had many angels invest in the first two.
I'm still deciding which angels to talk with about the third.
You have to match the passions.
Adam- Amen! I totally believe that. In fact, I think it's a mantra for living.
Third times' the charm, right? ;O)
I hope so. PandaWhale is a much bigger idea than the current product might indicate.
So it's important to me to get this one right. :)