Calacanis Weblog - Latest Comments in The Trouble with Bubbles (talent, angel & incubators… oh my!)

Re: The Trouble with Bubbles (talent, angel & incubators… oh my!)

Carlos Tobin — Sun, 21 Nov 2010 12:42:47 -0000

What you missed is not investing in the two deals you really liked but turned down because of valuation. I wonder if you had countered, and come up with a creative way to finance the company if the founder would have agreed? For instance, allowing whatever valuation they wanted but countering by adding a 5x liquidation preference to their PPM.

For Example:

$1M Angel round (40 investors, one board member)
Valuation: N.A.
5x Liq. pref.
Liquidity event: $6m sale
Return: $5m to preferred, and $1m to common.

-Downside protection: Upon a really early exit the angels receive 83% of the proceeds, regardless of the equity they own (i.e. 20% or 0.5%).

-Upside: Typical 20-30x: based on the EPS and P/E ratios, in a ppm, a 20-30x return in 3-5 years.

The question is, would founders be willing to bet it all in order to give you short term and downside protection in exchange for the chance at a blockbuster?

Re: The Trouble with Bubbles (talent, angel & incubators… oh my!)

Fidel Guajardo — Fri, 19 Nov 2010 17:13:04 -0000

OMG! This post has my vision shooting through the roof! Absolutely awe-inspiring!

Re: The Trouble with Bubbles (talent, angel & incubators… oh my!)

Jeremy Campbell — Fri, 19 Nov 2010 11:04:31 -0000

Sounds like you got most of it right (unfortunately)! I was wondering why you weren't doing more angel deals this year and now I know why. It must have taken you a week to write this post, thanks so much for writing it Jason love your insights!

Re: The Trouble with Bubbles (talent, angel & incubators… oh my!)

Jeremy Campbell — Fri, 19 Nov 2010 11:02:30 -0000

Wow wow wow amazing amazing article Jason! I was thinking that early next year would be a better time to raise an angel round but I guess I was wrong :( Booms rule, and bubbles drool!

Re: The Trouble with Bubbles (talent, angel & incubators… oh my!)

__kris — Fri, 19 Nov 2010 05:39:29 -0000

1. What did you get right?

Losers: 80% of Angel investors

2. What did you get wrong?

I think we can agree on the fact that it's not a big bubble and it certainly doesn't require drastic measures.
Not yet anyway.
Growth just ain't linear. The difference between the bubble in the 90s and the real estate bubble was that both were backed by the financial industry.
What we're seeing right now is a bunch of individuals who call themselves angel investors but they really aren't.
Relationships matter and most of them don't have any. And even if they do have some, then there's no guarantee they will help or be neutral.

You sort of took a 180 degree turn compared to what you said before.
I think telling people to leave The Valley is like asking someone to stop going to Starbucks just because it's a bit more expensive to go there and because they sell lots of unhealthy smoothies.
The Valley has always been more expensive and there will always be people who throw money at you claiming their money is better, when in fact it makes you fat and lazy.
It's up to the entrepreneur to separate the wheat from the chaff and it has become increasingly difficult because everyone's making promises.

3. What did you miss?

How is Launch.is going to solve these problems?
I think it should be bigger than just a conference. The conference should be the start, not the end.
And if your predictions come true, then you will have no choice but to go global.

I don't get what you mean by Absurd Software Efficiency & Innovation

One last thing. What you wrote about Facebook and Google offering high salaries being a cost-effective insurance is interesting.

Re: The Trouble with Bubbles (talent, angel & incubators… oh my!)

Johnfurrier — Thu, 18 Nov 2010 17:18:32 -0000

Oh yeah. I'm running my own private incubator (invitation only)

Re: The Trouble with Bubbles (talent, angel & incubators… oh my!)

Johnfurrier — Thu, 18 Nov 2010 17:17:08 -0000

Great post Jason even with the usual flare it's right on the money - pun intended

Re: The Trouble with Bubbles (talent, angel & incubators… oh my!)

Troy D — Thu, 18 Nov 2010 14:35:17 -0000

The Angel bubble may actually me market forces. Previously, there were barriers to entry, but as those are being eliminated, the price starts moving to more perfect

http://tech.rawsignal.com

Re: The Trouble with Bubbles (talent, angel & incubators… oh my!)

stevefarnworth — Thu, 18 Nov 2010 13:54:53 -0000

Getting fresh talent from Nowheresville to relocate to SV/SA will surely be an easier sell than to a secondary start-up hub unless you're already burning pretty bright, wouldn't it?
Talent will want to get in at the ground floor, and that means they'll have to subscribe to the vision before it's seen whether a company will be a bubble, or at the start of a new wave.

From my perspective in a small city in England, the advice is sound, but the dropping costs of creating a web-based product, combined with non-favourable angel investment/%-point terms means I'm always going to be biased towards taking a smaller round and keeping a higher stake in my only thing of value; the company.

Re: The Trouble with Bubbles (talent, angel & incubators… oh my!)

Lucas Dailey — Thu, 18 Nov 2010 13:41:44 -0000

It all seems to wash with what I'm seeing, from the smallish web enclave of Madison. Great observations. Great recommendations.

The discussion of the talent war and salaries seemed a little deterministic regarding A/ B/C level engineers.

I strongly believe http://www.youtube.com/watc... is correct regarding motivation for the Creative Class.

Hell, when we're funded I'm planning on a 50k salary for myself, I want every drop going to "the cause." Though obviously when our engineers switch from equity-only to primarily cash, they'll get near (pre-insanity) market rates. But I think building something world changing plays a leading role once salary's reach an "easy living" threshold.

Re: The Trouble with Bubbles (talent, angel & incubators… oh my!)

Steven O'Brien — Thu, 18 Nov 2010 13:38:57 -0000

"With Twitter, Zynga, Facebook and Google in the ultimate game of one-upmanship, small startups are simply not going to be able to compete for talent in the Valley."
I disagree, there will always be a sizable handful of engineers that would rather work in a startup environment than in a big company like Google or Facebook.

Re: The Trouble with Bubbles (talent, angel & incubators… oh my!)

jasoncalacanis — Thu, 18 Nov 2010 13:29:51 -0000

1. What did i get right?
2. What did i get wrong?
3. What did i miss?