Archive for the ‘Angel Investing’ Category

Are You Excited by the Sight of Competition?

Wednesday, June 2nd, 2010

competition startin line

One of the greatest challenges of any investor or entrepreneur is deciding what to invest in.

Business ideas (and investment opportunities) are like the bus – there’s always another one coming.  So we’re all stuck in a constant state of evaluation, left to our own devices trying to decide which ones will succeed and why.

Of course, most businesses change their course more than once in their lifespan.

Men I enjoy reading like Nassim Taleb might have you even believe that we can’t predict anything in life, so why bother trying so with businesses.  This philosophy aside, how do you know where to put your money and your time?

At Growth Partner, we’re working on a guide right now that outlines how we evaluate a potential deal or new business.  One thing I believe investors and businessmen seem to have a conflicting opinion over is the level of competition in a given niche they’re looking into.

Are competitors bad?  Does that mean there’s less chance of your investment succeeding?

I’ve heard people say as much.  I’ve also heard that competition (on the SERPs or on the street corner) is no more than a validation of the business.

That is, if you’ve got an idea, and someone is already doing it and surviving, all the better.  That means you’ve got a good idea.  Invest with gusto!

Let’s look at it more closely.

Breaking Down Both Sides
1. Competitors are Bad News Bears.

Too much competition means you’ll be fighting for pennies on the dollar.  Established companies are hard to unseat.  They have everything in place and we have nothing.

To draw from my own thought process, note that I’m purely an online guy.  I invest in web-based businesses.

Say we’ve got an offer to work with (we talked to them a few months ago, so this is legit).

To evaluate this opportunity, I go off to Google and start doing keyword research.  I search on some of those terms like “auto insurance quote”.  All the big brands are there, in the organic rankings and the paid.  A bunch of lead aggregaters are there too.

So, should we work with this guy or is he going to be over his head?

It’s interesting and complicated.  First off, brands have been getting more love in Google lately.  So even with a killer exact match domain like, you’re fighting the brand-love.

Also, if we want to go in and compete for paid traffic, those keywords are some of the most expensive online.  We’ll need to really kill it on conversions and on backend monetization to do well.

Fighting for pennies on the dollar?  Maybe.

Let’s do another example.  What about something easier, like “San Antonio lawn care”?

If I’m going to start a lawn care biz in San Antonio, I’m pretty sure there are a lot of competitors.  It goes without saying.  High school kids that work their neighborhoods, all the way up to corporate-type providers with businesses all over town.

san antonio lawn careSearching that set of keywords brings back a different type of competition (cause again I’m looking online).  You’ve got the OneBox local results to fight with, and it looks like most of the top-ranking sites are directories and aggregaters.

Good business to jump into, with these cited competitor types?  I think so.  I’d go try to buy, get in those local results, and push ahead of the directory sites.  They are spread thin, and San Antonio can be your market, when they are dealing in 250 others.

Granted, I chose two fairly conventional business types, but they do represent various types of competition both online and off.  The thought process is similar no matter what niche or business you’re looking at.

Competition from big brands can be a problem, as can a crowded marketplace for lawn care providers in your area.  But it can also be a sign that somewhere, someone is running a similar business and making money . . .

2. Competitors Mean this Business Will Work.

The presence of a few established competitors shows that this business can work.  We can capitalize on mistakes they’ve made, or market segments they’ve ignored.  Their track record can mix right into our blueprint to success.

In short, competitors show you a business idea is not some pie in the sky idea.

Existing search traffic can show you people are looking for a particular service, but it’s really the guys you see in the top 10 organic results and the top few paid results that give it this validation.

(Note of caution: Just because a company is bidding on a keyword, it doesn’t mean they’re doing it on purpose, or they’re doing it profitably.  But that’s another discussion.)

Consider this example, one of which I think is interesting and common amongst all “big thinkers.”

Tell me if you’ve done this – you have an “ah ha!” moment in the shower, on the plane, or on a lazy afternoon.  Some genius idea just came to you.  You’ve never seen anything like it, and you know it’s money.

After a few hours searching online, you put together a one-pager on the idea.  You pick out a domain name.  You’re all ready to go.

The next day, you bring it up to your buddies and one says, “Oh you mean like ABC Company?”

Shit.  Someone else already created this?  And marketed, and sold it?  You’re ingenious concept is now a lot less sexy than it was the day before.  Now there’s competition.  Bad thing?

I don’t think so.  I think that’s a great thing.  Too many entrepreneurs get bent out of shape over an existing competitor.  They should appeal to concept #2 here, that existing competition validates the idea and the business.

Sadly, at this stage, some might abandon the idea.  You’re forgetting that you don’t need a revolutionary idea to have a successful business.  You might need an interesting angle, or “in”, or marketing strategy.  But as far as original ideas go – There aren’t any! There are only iterations.

It’s a Constant Battle, but Keep Your Head Right
Like I said, starting a business or choosing which ones to invest in will always come with a dose of uncertainty.  You are obligated to research the competition and the “competitive landscape” before making any decisions one way or the other.

While some will shy away from crowded fields, count me as one that sees competitors as a positive. Especially when you are marketing online.  I sleep much better when I have some active competition in the SERPs.

Without it, you’re more susceptible to two things that kill any business – being too content, and being caught by surprise.

Image: Eric Wolfe

Dear Startups, Test Your Idea on PPC First

Wednesday, April 14th, 2010

Test idea on PPC

Let me sum this up in one sentence:
As a startup or new business, the amount of time you spend writing up a sexy business plan to pitch investors would be better spent running a $500 PPC campaign testing your idea.

The pain point for me comes from both sides.  I have new business ideas all the time, much like other entrepreneurial people.  I also do the investor/angel thing, mostly with my boys here on

You can save everyone a lot of time and trouble with a simple PPC campaign.  Doesn’t matter what side of the coin you’re on.  Let’s look at the how and why . . .

The Business Idea Side
The ‘market potential’ for your product means nothing without testing.  Back in the day, you had to rely on market surveys and other empirical data to determine if your business idea had any mettle.

That was expensive.  The intention, though, should remain with the entrepreneur of 2010.

You are lucky enough to live in a world with Google Adwords.  This is a good thing.  The costs of launching a new business online are hastily reducing to zero.  Testing a business idea or even a half-baked, half-assed business-sorta idea, is easy.  So do it.

Stop thinking about writing a business plan (that you mostly copy of some web template – be honest), and start here:

1. Register a domain name.  Doesn’t have to be good.  Starting a bird feeder biz?  Get
2. Get hosting, install the CMS of your choice.
3. Make 3-4 landing pages.  Ask questions.  Find out some key answers to the market you are hoping to serve with your genius new idea.  Offer to sell your service right now.
4. Setup an Adwords campaign and spend $500.
5. Read the answers you get.  Scour the analytics, the keywords and clicks.  Any sale or response is good.  Email your new ‘customers’ and find out more about them.

Now it’s time to reflect.

That was easy wasn’t it?  And informative? You bet.  Guarantee you have a different perspective of your starter business after a little Adwords campaign and ‘customer’ interaction.  Guarantee you saved yourself from future, more expensive mistakes.

The point is, this is so easy and cheap to do, you should do it.  There’s no risk in doing so, and the upside is possibly priceless.

It could save you from wasting 9 months of your life chasing a bad idea.  It could teach you what people really want, not what you think they want.  It makes you get serious.

The Investor Side
As an investor, I want more of the aspiring to take the time to use Adwords for research.  Putting your idea, or at least a shell of your idea, in front of the right audience is very ‘real world’.

Business plans don’t equal funding. A business plan lives somewhere else than the real world.  Unfortunately, success will only come outside those .doc walls.  Maybe you feel safer with just a ‘plan’?

A quick test PPC campaign toughens you up.  That’s what I like.

Also – How immune to BS business plans do you think a seasoned angel or VC is?  I am 27, and if I read one more sentence about the ‘market potential’ of an idea with 0 customers and 0 test customer interactions, I am going to flip.

If you’ve tried some things online, you’ll ask better questions of your investors.  You’ve saved us all a bunch of time.  You don’t need me or any other crusty angel to help you right now.  Go do, and come back later.

Potential investments that have a passionate leader, a verified business model/service, and existing revenue are so much more inviting than a fluff plan about market potential.  While you may not make it that far in your Adwords test, you’ll be a lot closer than otherwise.

Don’t write a business plan and try to pitch investors without running online campaigns that force you to interact with your desired customers.  You don’t know what people want. Use the easy and cheap tools the internet provides to make yourself more refined, and wiser, ahead of seeking investment.

Image: vbsuresh

Invest in Something You Can Control

Wednesday, March 10th, 2010

Part of the beauty of angel investing is the idea that you’re investing in a person or idea that you can speak to, see, and interact with.

This as opposed to dumping your hard-earned cash into stocks, bonds, or mutual funds.

Investing in a company as an angel is an intimate affair. You commit only after a thorough due diligence process evaluating the potential success of the idea.  You evaluate the talent and drive of the founding team.  It’s about people, and the company comes to hold a special place in your heart.

Traditional investments like stocks?  They’re just a ticker symbol in a chart, affected by powers far-removed from your own.

Right?  Isn’t one of the best things about angel investing that you get to participate in how well your investment turns out?

It’s Not Just Your Money They Need
My ideal vision of an angel deal incorporates something much more than money.  Forget about being a “passive investor”.  That’s just as boring as a mutual fund.

When you put your money into a company, hopefully it’s partly because you feel it can benefit from your experiences in business.  So you’ve grown 2 online companies through strong search marketing and sold them?  That’s awesome, and you should be finding companies that can benefit from that experience.

Of course you’re not necessarily going to come in and be the CMO.  But the 1 email per week you can give your entrepreneur could be worth $100,000 to the bottom line.  The one answer per week that you can provide about a tough marketing decision could make all the difference in the world.

Go With What You Know
It’s only natural for people to be drawn to things they understand.  In angel investing, that means you’ll likely gravitate towards companies that mirror your own past experiences.

That’s a good thing!  Take your money and your advice to places where it’s mostly likely to be useful.  I’m not about to invest in a pharmaceutical manufacturer, but I’ll jump all over

Remember – You Can Contribute
The “passive” angel investor annoys me, especially if he/she bemoans the poor performance of their investments.  If it’s your Energizer stock, that’s one thing.  If it’s the $50,000 you put in 2 angel deals in 2008, well do something about it. I’m sure your entrepreneurs are open to ideas, help, connections, and insights.  Get dirty!

(If they aren’t, sorry.  Probably shouldn’t have invested to begin with.)

A big reason we coined “growth partner” is because angel investing is the perfect opportunity to actively invest.  Embrace the opportunity to solidify your investment, and get dirty with your entrepreneurs.

Photo: Birdsmack

Investing in People is the Game We Play

Monday, February 15th, 2010

An age-old adage from investors and entrepreneurs is they’ll always take an “A-quality person with a B-quality idea”, and not the other way around.

This means I’ll happily invest in a person or team I believe can produce a successful business.  The business idea itself?  Less important.

Because whether you realize it or not, business is all about things like execution and the ability to adapt to change.  Not a phantasm that solves the world’s problems like a lightning bolt.

Bad Investments
Ask most angels about their mistakes and the answer is usually people-centric.   They lament investing in the wrong person, not the wrong idea.

Look at these key characteristics of a successful business relationship.  Each is tantamount to a profitable and enjoyable experience, long before any dollar is made or lost.

Trust.  Communication.  Leadership.  Determination. These plus the aforementioned Execution and Ability to Change are what make a business successful over time.

As an investor, you want the opposite of the guy who’s chasing a lifestyle business.  You want the most determined business leader you can find to lead your investment to the promised land of a 10x exit.

Why Does the Idea take a Backseat?
Because most businesses start off doing one thing, only later to figure out what really works.

It’s more about talent, determination, and adaptability to change than the million-dollar idea.  Everyone knows this by now.

Personal Investment Contracts
One cool concept that exemplifies this point in the extreme is a ‘Personal Investment Contract”.  Compliments of Rafe Furst and EmergentFool, a PIC is when an investor offers a cash payment to a promising individual in return for a % return on their individual income in subsequent years.

In English (and in Rafe’s example), they gave $300,000 to a promising young mind in a lump sum payment.  In return, this budding star has to forfeit 3% of their income each year so long as the contract remains in place.  Read more about it here.

What’s crazy is I almost like this concept better than a traditional angel deal or investment.  It doesn’t have a single pesky business idea getting in the way.

Our Success has Come from People
When I look back on the past 8 years of businesses I’ve been a part of, here’s what I see:

-Innumerable Ideas.
-Many failures.
-A few successes.
-1 team.

The very reason that we’ve been able to do “growth partnerships” and other investments is because we have a team of people that exemplify the traits I listed above in bold.  (It’s also why you should team up with us!)

As an investor, look past the idea, and see only the people behind it.  That’s what you’re after.

(pic from Cybernet)

“Showmanship” Can Increase Your Chances of Getting Funded

Wednesday, February 3rd, 2010

Want to get funded?  You might consider hiring Lady Gaga to sing your pitches.

Ma-Ma-Monah-Ma, Fund Me, Oh La La.

Don’t Be Boring
Startups and other entrepreneurs in search of funding have a tall task in convincing investors to take a chance on their ideas.  Your ability to be a good salesman in your pitch is very important, so don’t be boring.

Lulling well-fed money men to sleep with a boring PowerPoint and meek personality will kill your dream.

Proof you want?  I got me some proof.

geodelic demoGeodelic Wins Twiistup
Last week I was in Los Angeles for Twiistup, a tech investor and startup event.  (Fun times by the way.)

On Thursday morning, 10 or so companies took the stage and pitched their startup to the panel and audience.  While all the presentations featured generally well-spoken and passionate folks, one company took it to the max.

That company was Geodelic, a location service that lets you locate eateries, drinkeries, and other “around you” things.  They also have a sweet deal with airports watching departure times and showing terminal amenities.  View the demo here.

When it was their turn to take the stage, the CEO, who is Indian, took the stage with a ukulele.  He queued up some gaudy pink slides and started talking in corporate speak using a heavy Indian accent.  The collective thought was “This has to be a joke”.

It was.  He had 2 other Geodelic team members placed in the crowd, and they shouted out some taunts- “We can’t understand what you’re saying!”.

On point, he quickly pulled out the ukelele and began singing.  Then a girl danced to “Everybody dance now”.

The Geodelic slides simultaneously flipped from the gaudy pink stuff to a video demo of their technology in action – very fast-paced and demonstrative (something befitting of the attention span of people in 2010).

And surprise, surprise – They won the event.

geodelic twiistup

The Takeaway
Geodelic got people on the edge of their seats, played to our senses, and put on a show.  

While they have a great product, everyone at the event admitted it was the way they nailed the presentation that pushed them to victory at Twiistup.

While I haven’t been an angel investor long, I suggest putting some serious thought and creativity into how you pitch investors.  If nothing else, a good “preso” makes it harder to dismiss your idea.

You can save time if you hire Gaga.  Oh La La.

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