Startups, Sales, and Sales Hires

You have a startup, you seek funding and your investors appear singly focused on your sales. If only you only had more sales! If only you had a sales person. May be so, but it more likely not.
The best case made that I have read in this regard is reprinted below from Matthew Bellows, CEO of Yesware.
Beware the Sales Hire.To address the concerns of your investors you may need more results from a "Cofounder/Selling CEO" as referenced below. If you cannot do it, then find one, but it is a very different talent that a Salesperson.  Read carefully

You're Not Ready for a Sales Hire: 4 Reasons 

Hiring a salesperson too early is a good way to distract your team and waste money. But there are three signs when it is time.

Do you work in a start-up? Do you look around every once in a while and say, "You know what we need? We need to hire a salesperson to really get this company off the ground?" Well, you're probably wrong.

It's strange for me, a lifelong salesman who started a company to help salespeople, to advocate not hiring one of my own. But that's exactly what I'm suggesting, at least until you and your company are ready. Here's why:

1. Salespeople need something to sell.

Some thing—not a concept or a prototype. In general, salespeople stink atproduct development. They excel at revenue development. If you are envisioning a great salesperson rounding up customers for your idea, your beta trial, or your brand new service, then you are dreaming . Good morning sunshine!

2. Salespeople are expensive.

The better a salesperson is, the more expensive he is. If a salesperson feels your product isn't ready to bring to his contacts, she will hold back. Experienced salespeople are more protective of their contacts than the memory of their high school sweetheart. So for every day that your new sales gun thinks your product isn't awesome, she is paying a big opportunity cost by working at your start-up.And she is going to charge you for it either in money or in frustration.

And if you find a salesperson who offers to work for equity, ask her how many times she's blown away her quota.  Chances are she never has.  Don't make the hire. If you do find the exception to the rule, that person isn't in sales—she is a co-founder. Give her equity (that vests). 

3. Salespeople are hopelessly optimistic.

If you hire a salesperson, he is going to run at the job like a pole-vaulter. Heknows he'll clear the pole. But it's a rare salesperson who can keep the energy up if he doesn't get quick, positive feedback from potential customers. After a couple of weeks of failing, most good salespeople are going to start thinking about other poles they could be clearing. And the ones that just want to hang on to the job? Well, there's no quicker way to murder your company vibe than listening to your new salesman get dinged on 60 cold calls a day.

4. Salespeople are mostly risk-adverse.

Call it the curse of the fat bonus. A salesperson who has made $200,000 or $300,000 for a few years in a row is going to be counting the days until she can make that again. There just aren't that many money-really-doesn't-mean much-to-me-it's-the-work-that's-important kind of salespeople. 

So please, don't hire a salesperson to figure out what your customers need or whether they will buy some future product that might have some certain set of features. That's the job of the founding CEO. Yes, it's your job, even if you are an engineer.

How do you know that you are ready to hire a salesperson? Consider these three things: 

1. There's enough opportunity.

It will vary by company, but $1 million is the number I use. There has to be another $1 million in revenue that you can identify but that you cannot pull into your company because you are too busy selling to other people. If you can identify $1 million worth of prospects, it's a great time to hire a salesperson.

2. Your product is awesome.

What does that mean to a salesperson? It means you have reference clients—paying customers who the salesperson can leverage. When she sees your customer list, you want her to think, "Oh man, if the founder can get these customers, I am going to KILL IT here."

3. Your culture can handle an influx of sales energy.

If you have a tight, technical team, bringing in salespeople is going to change the atmosphere like a high-pressure system moving into the tropics. Batten down the hatches.

Hiring a salesperson too early is a great way to distract the team, waste your money, and bury a company. Hiring one too late means you won't grow as fast as you otherwise could. It's best to be on time, of course, but given the risks and rewards, it's much better to wait until you, your product, and your company have reached some of the milestones I've mentioned. Then make that first sales hire.

Matthew Bellows is CEO of Yesware, an email service that helps salespeople track conversations, create sales templates, sync emails with CRM and much more. @mbellows

The Multiparty Line (over and again)

Suddenly more and more of my friends and family of the "not-early-adopter" personality type are signing up for Facebook.  They think I am a digital technology early adopter, so I am flooded with "how to" and "why" questions. 

We must have reached the tipping point in social media. In most of he country it is now presumed that you can read and write, watch plenty of TV, own a personal computer and a cell phone AND that you "are on Facebook". If not, you'll feel that you have to explain why not: After all, if you want to hear from your children or get photos of your grandchildren you better be on Facebook.  Furthermore, many of your friends probably have given up email and switched to Facebook, social gatherings will announced there - be there or be square.  The more hip only "do Twitter" and text from smart phones.

As I look at how most people use Facebook and Twitter I see a similarity with past chapters in the evolution of telecommunications: The tolerance for multiparty line communications and loss of privacy swung as follows:

Telephones between 1930 to 1960's and even beyond for outlaying rural communities: Seniors still remember that in those years, presuming to have private telephone conversation in a small town was a joke.  Either your neighbor(s) or a bored switchboard operator was presumed to be listening on. 

Automatic switchboards and sufficient telephone lines brought privacy back.

CB radios became popular, not only with long distance truckers, but also with aunt Mae and cousin George from 1972 (because of the First OPEC Oil Embargo and resultant gasoline shortage) until the early 80's.  With some planning (for a trip in convoy) you might manage to talk to someone you knew, but by en large it was the "first Twitter" where you told strangers what was on your mind or "in the road" - listeners "followed you" and you were "Buddies" only because you had in common the same piece of interstate highway at the same time:  10-4 Good Buddy...

Cell phones eventually brought an end to CB radios and brought privacy back.

Computer Bulletin Board Systems (BBS) created the first multiparty communications for computer users around 1975, their use exploded with personal computers in the early 80's until supplanted by the internet in the early 90's.  Again you could "talk" (type) on an open line to all those that had a similar interest: computer software,  computer games (text-based, before-video), dating services (professionals or lonely hearts), etc. 

The first user friendly Internet Browser (Netscape) in 1990 opened the Internet to the masses and with email, privacy was back. By 1999 you had better be ready to explain under what rock you lived if you did not have an email address. 

Web2.0 Social Media Arrives

Social Media  could be said to go as far back back to the PLATO system (1973) at University of Illinois, but in its current Web2.0 form it started with Friendster in 2003, followed by the explosion of  MySpace (driven by the high school crowd), Linkedin (the professional crowd), Facebook (the college grads crowd) and Twitter (the short comments crowd). 

All provide a choice of communication channels that vary from open-line to private-line telephone emulation. In Linkedin and Facebook anyone known or unknown can be friends by invitation and mutual agreement. Friends of friends can be more or less shared depending on user choice and the fee paid for one's account. In Twitter anyone can be anyone's friend, just because they are there.  With something valuable to say and consistent effort nurturing the audience one can garner 200,000 followers or more. In Facebook, with a "poke" you can be "friends for 3 days" and show a little tease (A "poke" is intended to get someone's attention allowing them to see your Facebook page for 3 days, so they can know who you are, and hopefully add you as a friend).  

Those who bother to manage their privacy can hide their Facebook friends, but most users are pretty open, by accident or by design.  Some do not know any better (instructions for adding friends are jammed down your throat while those to manage privacy are far from clear), so they have all their friends visible to all friends of friends. Then they write on one friend's wall a private message (trivial or important) only to discover they were shouting on the town's party line.  

We are back to telephone privacy circa 1945, but this time the technology is not to blame. 

The psychology and sociology of multiparty lines

At this point you can go on to something more productive than reading the remainder. Following are my speculations and opinions on the subject, and you know what they say about opinions.

I always interpreted the user's tolerance of a multiparty line as the price to be paid in the early stages of a new technology introduction: When the resource is limited, the price of privacy is high and beyond the budget of most, but eventually mass adoption scales the system to where privacy is affordable to all.  

Today, however I see the commonplace use of open communication channels for private matters, seemingly with little concern, when means to achieve privacy exist.  Why?

Is there a group psychology in play here, similar to that found in American high schools or colleges: The dynamics of wanting to belong, wanting to be heard, wanting to be included, wanting to be popular?  It would surely explain why the first big successes by social media sites were with students in high school  (MySpace) and college (Facebook), whereas the membership process and the chatter in Linkedin (business leads and job hunting professionals) have been far more private and resulted in slower growth.  

Is this why some feel compelled to announce to the world "I at the airport waiting for a flight to London" (as if we would care) or "Stranded in Paris on the way to Moscow" (it happens to everyone that changes planes in Paris), or "traveling from A to B stopping at C to walk the dog" (as if we all were waiting for them), or "standing in line to buy my iPhone tomorrow morning" (so you are one of a million)?

It's easy to say - just stop following them, drop them from your friends lists, etc. But that is not the point. 

First, those same people at times make public announcements of value ("iPhone proven to lose call" - Good to hear, I am not crazy, "X just released a multitasking xPad" - Good to hear, now I can skip the iPad). 

Secondly, the riddle I wish to unravel is why private comments aimed at a single person find instead their way into the chatter of the public town square. Has the need for privacy been abandoned?  If it is evolving we better understand why and how, because the public town square is changing and we cannot stay away from it - it is the new language we must learn to use correctly.

Please, comment with whatever insight or guesses you care to share (BTW, not just with me but with all my followers!).

Marco Messina

Markets, Customers and Angels' Risk Aversion

Famous entrepreneur and Stanford Technology Ventures Program lecturer,Steve Blank reports that business failure from technology failure (the business' technology encounters operational conditions under which it cannot perform as hoped) is about 10%. Business failure from misunderstood and miscalculated markets, market failure, is about 90%. Why?  I propose that the nature of the "entrepreneurial brain" has much to do with it.

Entrepreneurs by nature are innovators, problem solvers: they perceive a need (more convenience, more speed, less cost, whatever) and instinctively start seeking a solution, a fix. That initiative and independent thinking is the power of entrepreneurs, but is also a curse. Asking  "what do others think" does not come as automatically. So, the entrepreneur finds a solution to "the problem", a problem possibly perceived by only one person, himself, and presumes it is a widespread need.  Then, enamored with the conceptual "solution" (s)he commits time, effort and treasure to create a prototype.  Sometime for lack of sufficient resources a detour is needed into fund raising to finance the idea now morphed into a business venture.  

Eventually a product is ready for sale and the surprises start coming: customers are not as enthusiastic about it as hoped, they have difficulty using the product because of a million reasons, or they could benefit from using it, but other circumstances prevent its adoption (e.g. supply chain disruption, legacy systems, not invented here, etc.). In a few words our entrepreneur has invented a Bricklin or a Segway, an innovative design with definite benefits but overall unsuitable for the larger market originally targeted. The outcome is then outright failure or a walking zombie of a business.

In product and software development there are long standing disciplines (use case analysis) to ensure that acceptable performance will be possible in specific instances of use.  Use case is a discipline that forces  asking questions, and more questions, and more questions.  The same discipline is needed with respect to markets and customers. Here are the questions to ask:

What are your customers top problems?
How much will they pay to solve them?

      Could they do nothing and get by?
Does your product concept solve them?
      Do your prospective customers agree with you on this? [Your guess that they do is the issue we are trying to avoid!]
Draw a day-in-the-life of a customer (the customer's use case) 

      before & after your product adoption

      what will the product improve

      what will the product hinder/change/complicate

Draw the org chart of users & buyers

     are they the same?

     we must satisfy both, but buyers control

     who has a vested interest in favor or against adoption?

     who is the loser if adopted?

     can your customer afford to upset the loser?

Are there enough buyers NOW to make it worthwhile?

Can we scale our processes to match the market size?

The only way to know for sure is for the founders to go out (out of the office, in the real world) and ask the customers.  Go out and ask are obvious, but would marketing consultants be able or even better at doing this research? Definitely NOT.  Consultants can go out with clipboards to get data and analyze it, but at this stage the critical component is intimate understanding of BOTH the customer and the product concept/prototype.  Only the founders-inventors can "feel" both sides of the equation and catalyze a workable solution based on the customers' responses.  If the consultants could do it, they would have been the inventors-founders.

So, early on, even before prototypes, go out and ask your intended customers how your product will meet their needs and what issues it will cause and LISTEN. The product will almost inevitably be modified by this effort, but at much lower cost than building and rebuilding prototypes or final products. You may discover that your product is perfect at a perfect price with the expected benefits, etc.  Too bad that its adoption would kill another more important part of your customer business and therefore your customer would have to be mad to adopt your product.

Validating your value proposition in person and directly with the customers (taking into account all vested interests involved)  may just reduce the probability of your business' market failure from 90% to something less. Any improvement will likely appease your angel investors' risk aversion.

Marco Messina

Did you just say THAT to an angel?

One of my favourite Dale Carnegie quotes is: "If you want to gather honey, don't kick over the beehive."

Just like bees, angels have adverse responses to certain stimuli. Keeping those in mind will make getting to their honey far more likely.  Following are some examples of statements (S) often made by "honey seekers" and the mental responses (R) they are likely to stimulate in the angels.  Depending on the mood of the moment, the responses may or may not be verbalized. Often, in front of a large audience, the "honey seeker" is better off if the response is just a silent smile.

S   We have no competition
R  Either you have not researched it, haven't found it, or are so deluded to not recognize it...
R  If no one does it, perhaps it's because no one needs it

S   We have made very conservative projections
R  Sure.  So did the 1000's that came before you; and you are not even smart enough not to say it
R  If you are conservative you are no entrepreneur, buddy, you better go work for the Census surveys

S   We researched it so much, this is now a sure thing
R The only sure things are death and taxes.  We do not like sure things.

S   We are creating a market
R Excellent! This is an answer in search of a problem, that will be a real quixotic adventure
R Cool! If I wanted to create "futures" I'd be buying into a kindergarten or a primary school

S   Our solution will become the standard
R My goodness! We only have to stop the people who today are doing whatever by the current standard and force/train them to do it a new way. Along the way we only have to redesign all regulations, training programs, certifications, cajole all vested interests, etc. AND we make no money until it's done. Where is my checkbook.

S   If we get 1% of .... to buy our product we'll make millions
R Ah! Here comes the 1%er again.  If I could only have a dollar for only 1% of the 1%ers that presented plans I'd have the best performing fund at next years ACA Summit
R  Sure buddy, and we are going to do it all with viral marketing too

S   I am the only resource but I'll have key man insurance
R I like that!  So for an early exit all I have to do is to pray for trucks to hit you.  This is so new a strategy, we could write a white paper for HBR
R  We could optimize this plan by doubling the premium and make you open a branch office in Darfur

S   We are co-managers
R No way.  We want to know which throat to choke when things don't work.  Only one throat.
R So, we are supposed to pay two to make decisions that one should be able to do?

S   We only have to scale... 
R But of course! The difference between your local taco stand and McDonald's is only scale.  Same for mom's kitchen and Campbell Soup or my kids' tree-house and the Sears tower. It's only scale.

Lastly there are the responses that "seekers" give including an implied  "you dumb ass" commentary.  They are always a good bet for making angry bees out of angels:

you have to understand...

No buddy, I have the cash and do not have to do anything, you have to make me understand

everybody knows...  

Ah well, I must be the only idiot that doesn't.  I stand corrected.  Thank you so much for that clarification.

as I said before...  

Excuuuse us! We are either forgetful, slow or inattentive.  We'll do better next time... since you ain't getting any "honey" this time around.

Conclusion

Much has been written about human communications since Dale Carnegie wrote his masterpiece, little of substance has been added. It remains one of the best  manuals around: you might read it again with your angels in mind.

Marco Messina

Fishing for Angel Fish

The scarcest resource of entrepreneurs is not money, is time.  Money, when you can get it, is just a means to increase available time by hiring outsiders to do for you whatever you are smart enough to delegate and manage.  Conversely, all the money in the world will achieve nothing more than the going rate of interest in a bank account (3%) unless one puts it to work with time and energy. SO, NEVER WASTE  TIME.


One way I see many entrepreneurs wasting time is chasing funding from angel investors with propositions that do not come close to having any chance of success.  It is like going fishing for the wrong fish in the wrong pond with the wrong bait - most unlikely to make dinner tonight.

So in the interest of better fishing let's study the angel fish.  It is easy because: 

• these days most angel fish school in groups 
• most states and regions have well advertised (web) ponds, 
• the fish have the kindness to spell out in advance what bait they will strike

Here is an example taken from "one billboard at a well known California pond":
      Tech Coast Angel members invest in southern California companies, only. We look for products and services that can achieve rapid adoption in very large markets. Some of our criteria: 

• Scale: annual revenue potential of at least $50 million
• Market: a compelling, well articulated strategy for capturing and defending a significant market share
• Barriers to entry: patents or proprietary technology
• Team: a strong, not necessarily complete, team
• Exit strategy: some idea of who will eventually acquire your company
• How we fit: a desire for advice and coaching
• Valuation: you must fit within our risk/reward expectations

At other ponds the billboards list:

• specific industries (because the fish have expertise in them)
• level of business development (no pre-revenue plans)

So, figure out what business (bait) you have and decide if you stand a chance to catch angel fish.  If not, go fish for other species that bite on different bait, presumably the one you have. Here are examples:

Friends and Family:  this species bites on you personally and your trust factor with them.  Returns are hoped for but often the motivation is to help you along with the world changing idea you shared with them.

Banks: They still have money and do lend it if your business is the right bait for them. You'll need collateral and cash flow to have an chance. Beware of lines of credit that appear to be a strike, but you cannot count on for very long. 

Factors and Receivable Discounters: They bite on (and take a good chunk of) invoices you carry as receivables from financially reliable customers (they bite on someone else credit). 

There are many more, each specialized in different aspects and needs of your business.

Back to that favorite species: the angel fish.  The words that carry value with them (shiners in the fishing parlance) include:

Scalable: 1. the business can grow into a big business, 2. you and your team are capable to grow it

Market size and dominance: "1% of the world" is probably meaningless, "80% of left handed investment bankers with an income over 500k" is a concept one can measure and relate to. Attractive markets have size and allow some level of dominance.

Early Exit: a plan with an Exit is a requirement (remember: angel fish get to eat only at exit time). Early Exit is golden. More on this in a forthcoming post.

Barrier to Entry: the stronger your position, the less spooky the fish will be

Risk: This is the monster from the dark depths that scares angel fish away. They know it is part of the game, but they hate it. To manage their fear, show that you have identified fall back positions and fail safe conditions at every step; be able to simulate the cash flow projections accordingly. 

BE BRIEF: this is the most impatient fish in the world 

Happy fishing.  There is fish in that pond for the right bait. Do not waste time otherwise.

Marco Messina

Be Mindful Of Your Audience

Entrepreneurs must be able to SELL. Selling, of course, involves all the steps leading to closing a deal such as: understanding the customer's need, presenting a solution, explaining features and benefits, articulating a value proposition, etc. Most entrepreneurs become quite skilled at selling their products and services.
Raising financing for the business, however, involves selling the idea and future prospects of the business to investors.  The entrepreneur must sell a small piece of the company to outsiders to finance its growth.  The process is similar, not the same and angel investors routinely confront skillful business owners who do a poor job of selling the investment deal.Why?  I believe this happens because most often the seller is not mindful of his/her audience.

Let's look at the parameters of  two "Acts" that occur in the "Play" of business building and financing:

Act 1:  Entrepreneur E is pitching Product/service P to prospective Customer C

E understands C's problem well
C understands well and is painfully aware of his problem
C appreciates the difficulty of solving the problem (it is yet fully or partly unsolved)
E has put a lot of time, effort and creativity to find his proposed solution
E is particularly proud of the obstacles encountered and overcome along the way to create the solution being proposed, and explains them in detail to C who is interested in and understands the details and is impressed by E's competence
C is looking for reliable continuing long term performance and support in the solution he buys
E  promises to be around forever to service C's needs in a continuing relationship

Note: Over time Act 1 is repeated regularly, frequently and profitably thereby creating a practiced habit which makes its performance easy and almost automatic.

Eventually when financing is needed to grow the business the Entrepreneur must perform in a new Act with little or no prior practice as follows:

Act 2 - Entrepreneur E  pitches Business B to Investor Group IG

IG need a vehicle to invest their cash at as good a return as they can find
IG decided that buying a piece of a good business (B ?) run by a good operator (E ?) will give them good returns

IG, looking at business B,  are focused on: how fast it will scale, how profitable it is, or will be, and how fast they get their money back, and how many times over

IG, in the first presentation, do not have,  individually, the technical competence to assess or are interested in the minute details of business B's products
E is expected to make his pitch to address the interests of IG.

E instead remains true to his well practiced past presentations:
E focuses on product minutiae that go right over IG's head - IG is confused and bored
E demonstrates his creativity by the complexity of the solution and all the things that went or could go wrong with it, that E had to master - IG is scared by complexities as opportunities to lose money
E is proud of his business plan to create a business that will grow, change the world and last forever - IG see their investment locked inside a business, never to be returned

This performance becomes the concluding Act of a "Tragedy of missed opportunities". Missed opportunities for both the Entrepreneur who gets no funding and for the Investors who were bored and scared away from a business that possibly had real potential.

The fix is for the Entrepreneur to learn about the Investors audience as diligently as he learned about his customers.  Then speak to them on their own terms:

• KISS - make complexity simple and brief (Elevator Speech and One Page Summary)
• The company is the object of the pitch not the products - Investors assume the products work, at least in the first presentation.
• Scalability is the key to big ROI - Convince, why it is possible and likely
• Specific parameters of  profitability and scalability yield ROI and return multiples that interest angel investors  Few types of businesses can do it (see AngelCalc post) at the right size of investment, do not waste your time otherwise.
• Business does not happen, a team (more than a founder) makes it happen.  Sell the team, have a team that can be sold, evolve the team it if necessary.
• If there is no competition, you have not found it yet. Even if true, doing nothing is always an alternative.  Investors are afraid of competition that has not yet been identified, so should you. 
• Investors love simple solutions to serious painful immediate problems, are leery of solutions in search of a problem and markets needing years of gestation, or of new standards to be created to coerce the world to do it your way.

Mostly, practice KISS: know your audience, speak to them on their terms.

Marco Messina

Calculating with Angels - Angelcalc

Do you know when your young business venture is "fit" to attract angel investor financing?

There are many theories and rules of thumb being bandied around about how angels seek their targets. The reality is that angel investors can be roughly divided in two groups, each with dramatically different decision making processes (and ROIs).

"Golf Cart Investors"

These are the ones who buy into a deal on a hot tip, topically received by a buddy on the golf course. Most often the buddy has done little or no due diligence, has little or no knowledge of the industry and technology involved, and has received the supposedly hot inside information from another buddy in similar fashion.

These angels are dangerous to your and your business' health. They invest with virtually no understanding of the deal, have unjustified expectations and eventually will prove to have little or no patience to wait for the business to succeed. Their returns are almost inevitably negative and most often they will do no more than one or two deals before they go back to golfing only. Unfortunately they will tell others that angel investing is a crap shoot and waste of money, thus limiting startup capital availability in the community.

"Professional Angels"

These are the real Angels entrepreneurs want to work with. Frequently they work in groups so that they can share the heavy burden of due diligence research required and they bring to their side of the table scientists, engineers and management experts in different industries and technologies. They will ask a lot of questions and then more questions and then proof and supporting documentation. They will not move fast but will cover their bases well. When they invest they will stay involved and help with seasoned advice and working their contacts to help the business succeed. These are true ANGELS.

Research by the Kaufman Foundation shows that their returns are on average quite attractive (2.6 times their investment in 3.5 years). On the other hand, a rule of thumb often quoted is that these angels consider a deal if they see a potential to earn 30 times their investment in about 5 years. These two seemingly conflicting perspectives are reconciled if one presumes that the probability of success of a well researched deal is only about 10-12%. From experience I believe that it is a reasonable and not overly pessimistic expectation considering that the typical business that fits angel investors has many or all of these characteristics: Little or no sales, limited proof of market, may have lab tested technology, but little or no production, no proof of scalability, delivery, distribution experience. Moreover, all of the following may aply: in some other garage a similar or better mousetrap may be ready to come to market, the management team may have or may develop unforeseeable weaknesses (from sociopathy leading to financial embezlement to personality incompatibilites to love affairs - I've seen them all as causes of aborted successful businesses); "effective" IP protection may prove difficult to obtain or worse may be revoked when prior art appears unexpectedly (see the post about patents and RIM's adventure), government regulations may prevent or delay market acceptance, unforeseen and totally unrelated vested interests may create insurmountable barriers to market acceptance. All considered the 10-12% probability may even be high, but it appears to be what angels use implicitly if not explicitly.

So, with all this in mind, below is AngelCalc (copyright Marco Messina 2007-2010). Its intent is to help you determine if your business has sufficiently high growth and profitability potential in an industry with sufficiently high PEs to satisfy the requirements of the Pro Angels. Services, generally are unlikely to qualify unless they have a unique IP component and market dominance potential. If your business cannot meet the angels' criteria, your funding efforts will be better put elsewhere. F&F (friends and family) may be an alternative at least until the criteria may be met.


Calculating with AngelsThis model attempts to explain the finance-ability of a business based on angel investors' required returns.

Its objective is not to set a valuation. It seeks to determine whether the relationship among the following factors allows a viable solution that meets investors criteria.

The factors for a P/E-Multiple based calculation (as for a public company) are:

1.  time horizon is 5 yrs, 
2.  future EBITA,
3.  future PE and market cap (from current comparables),
4.  investor's average returns and required return,
5.  the ASK needed to implement the plan
6.  The % equity to give up for the ASK

 The factors for a valuation based on revenue multiple (e.g. selling the company) are:

1.  Time horizon is 5 years
2.  Revenues in year 5
3.  Applicable multiplier for comparable companies sold

With both valuation methods the implied probability of success is 12% because it reconciles the return multiple identified by the Kaufman Foundation research (2.6 times return in 3.5 years) with the rule of thumb often quoted of "30 times the investment".

See input instructions above

Questons or comments? I'd love to hear from you, particulalry if you disagree.

Good luck. May you be so lucky to find a real ANGEL.

Marco Messina
The Angel Pitch Guy