Before and after an angel investment; stories about why angels are once bitten, twice shy

Outside of Silicon Valley it is extremely hard to raise any financing for a startup. It is not unusual to hear about a $250K – $500K round taking more than 2 or 3 months to close. If the entrepreneur is a first-time founder, without any pedigree (top tier school, well known previous employer) expect it to take longer. In fact according to the data shared by Mar Hershenson (slides below) angels now are not investing until you have some traction.

There are many reasons why angels take so long to invest and insist on multiple meetings, due diligence and more data before they invest relatively small sum of money such as $25K – $50K. Besides the usual reasons such as “hard-earned money”,  “better investment options elsewhere”, etc. there is one issue that rarely gets discussed outside closed rooms or in private messages.

The lack of information sharing by entrepreneurs once a round is closed.

I dont think it has anything to do with if the company is doing well or not. Some entrepreneurs just don’t keep their investors in the loop – writing that off as “busy work”, “don’t have time – building the business, gaining customers”, etc.

Looking at my investments alone, 3 of the companies have founders who were referred to me by friends have founders in this bucket. Before my investment, I would get an email or WhatsApp message every 2-3 days with a request for follow-up meetings. One of them was very persistent, following up with me for 5 months before my investment.

After the investment however, radio silence. Now, I have to reach out to them every 6 months or a year to find out how they are doing. While previously I would get a response to an email in a day, now 50% of emails are not being responded to.

To be honest, I understand that entrepreneurs are busy. Unlike VCs who have information rights and have an ongoing cadence with the CEO as part of the board, angels rarely do. Angel investments are mostly passive, with a promise to help with “network” and “connections”. In many cases these are marginally relevant to the entrepreneur.

I have however now developed a new set of checks to ensure I don’t go down the path of an incommunicado entrepreneur.

I ask to be sent their weekly / monthly update to investors or the team for 2 months. The quality, timeliness and consistency of the emails gives me a clear indication about if the entrepreneur is even going to keep others in the know or in the dark.

This is only one of several checks but, if you are an entrepreneur, having a frequent (monthly) update on highlights, low-lights and insights about your business, key milestones and next steps helps you and the investors find ways to help you.

Always hire Marketing people first over Sales

I have a friend who started a new SaaS company for larger (1000+ employees) organizations. The product is aimed at enterprises and must be “sold”, not bought, meaning while some of his potential customers have this problem, they are not actively looking for a solution. Instead they have used a band-aid to provide short-term fixes for the problem. There are no opportunities for a self-service solution, where someone can “try” then “buy”.

After the initial 5 beta customers (all paid, $120K ARR), and terrific feedback from them, he started to think about raising a $1-$2M round of funding. He had previously raised $300K from angel investors.

The approach to raising his round began with a discussion with his angel investors who each made 1-2 connections to other follow-on investors.

Many of those follow-on conversations turned into “we will wait until you are further along” passes or “you still need more traction for us to get involved” meetings. The company is in Seattle, so the number of investors in the target list was less than 10. A few meetings were in Silicon Valley as well, with similar feedback. None of them mentioned the market was small, but a couple did mention that it was likely a bigger company might be able to build this.

In search of traction, he started to think about hiring a sales person to increase ARR. His website is functional, mostly informative and has the basics. He is spending $1-2K per month on Google ads, getting 4-5 inbound requests from those efforts, but the pace of customer acquisition was slow.

He did connect with a BD / Sales person who he knew from his previous company and started to talk about having her join the startup. She was making $200K all in (base + commission) and wanted some assurances that she will be able to make that in a year. After realizing that it won’t be possible to give her that confidence, he looked at trying to get “commission only sales reps”. No luck there as well.

He finally got a friend-of-a-friend to recommend a young, sales person in New York who wanted to explore a career in technology after selling electrical equipment to large companies for 3-4 years. He was able to get the sales rep for $120K (60K base) all in, a jump of $20K for the rep from his previous position, if he hit his targets. The rep was to generate $500K in initial revenue from large companies in the New York / New Jersey area.

The first 2 weeks of the sales rep’s time was spent in demos and learning, while my friend helped him build a target account list. Then the rep started to build his “email list” of IT directors and managers with the titles that fit the company’s profile. That took 7-8 hours a week to research, collate and build over 2 more weeks. The rep also went back to his connections to ask for referrals to the right person in their organization, which resulted in 3 follow-on meetings.

They built a list of 250 targets with names & email addresses after combing through LinkedIn and another “IT database” from a vendor (DiscoverORG). After 1 week of emailing and cleaning email addresses, some of which bounced, trying different messages and subject lines (A/B testing), they got 2 emails back – both asking them to “remove me from your email list”.

2 months into the process, my friend realized his company was not ready for a sales person.

They did not have content, enough inbound traffic or interest to make the sales person effective. While he identified a few marketing tools – whitepaper, videos that he needed to get done, they were in the works, and he was using contractors and his own time to focus on those, which slowed things down.

He let go of the sales person 3 months after he hired him.

His angel investors provided bridge financing for another $150K for him to hire a marketing person instead and my friend eliminated 1 developer to make room for the marketing budget.

He hired a freelance marketing director for 3 months on contract and is the primary sales person, with a vastly improved website, whitepapers, 3-4 blog entries each month and has appeared in a conference as a speaker as well.


Sales person for 3 months – total spend ~$18K ($15K salary, plus travel expenses, LinkedIn navigator subscription, email tool – Outreach, database subscription – Discoverorg), etc.

> 23 meetings, 3 follow on discussions and no sales.

Marketing person for 2 months – total spend – $23K ($15K monthly retainer, plus whitepaper content, blog content, travel for conference, etc.)

> 32 meetings and discussions, 5 inbound inquiries, 3 initial pilots, 1 sale for $28K.

While not definitive, I see this consistently with SaaS and enterprise sales startups. The return on marketing dollars over sales is higher, more immediate and sustained.

Most technical founders think they only want a “sales closer” not marketing guy that “creates content” and does some “google ads”.

They dont realize that to make the sales person effective, they need marketing in the first place. Thoughts?

Raj Bhaiya, my brother, 54 not out.


“He’s coming from Delhi. He got a job here, so he’s going to stay with us. You will learn a lot from him”, said my mom to the grumpy 15-year-old me about my cousin “Raj Bhaiya”. The grumpiness was thanks to having to either a)share my room with him, or b) hang out in another room giving my bedroom to him. Not a happy outcome for me either way.

He greeted me with a hi and a bag of goodies – some chocolates, some sweets from Delhi and some other “stuff”. Early Diwali, nice.

I might like him after all, I thought. My sister and I liked Raj bhaiya right-away. He was a very effective counter to our dad, who would not let us watch more than an hour of television each week, with his “Mama, this match is very important” – to every match that was shown on TV, regardless of the sport.

Raj bhaiya stayed with us off and on for a couple of months, before he left for Mysore. The next time he came over was when he hurt his hand badly injuring himself when a machine tool “came in my way” – not the other way around apparently. When he returned, there was more cricket. Now, however, he was earning money, so the endless trips to the Iyengar bakery for buns, cakes and puffs were a welcome relief for me. He loved his food, so he fit right into our family. Cricket came first, then food, after that everything else – there was much to like about Raj bhaiya.

Mom liked him as a motivating older influence on me. He was an engineering graduate, high achieving and conscientious, all of which she wanted me to be.

Cricket, tennis, soccer and football brought us together. Most of all, just cricket. He would go far and wide to watch live games, including random minor league games in the small city of Mysore, telling me how he would be able to scout the next Dravid.

During my time at Mysore, he had moved to the US and we kept in touch mostly via email. He got married in Bangalore and I remember being at his wedding still trying to catch a cricket match while he kept asking us for the score every so often.

He made you feel like when you were with him, you were special. He was a rare individual who sang your praises in front of you, not behind. He was lavish with his praise, very rare for us in our family. Even when I met him a few weeks ago, he was keen to point out to his nurse, the doctor and anyone that listened that I lived “less than 3 miles from Jeff Bezos’s home and was a neighbor of Bill Gates” even though I live in the neighboring village.

Throughout the last 30 years I have know Raj bhaiya, I recall him making trips to meet me, Vinita and the kids. How unfortunate that I did not take the time to go and meet him regardless of how close he was. Yes, to my selfishness, he was the paragon of generosity. That’s maybe why my mom and he were close – her mirrored her giving ways more than anyone I know.

There are 3 distinct memories I have of my bhaiya.

First, he called me when India played and beat Pakistan in 1998 in a World cup game, played in Bangalore. He knew I was in San Jose, but called to ask me how many people I knew in the crowd. He wondered loud if there was anyone with a poster that said “Mukund, come back Bangalore misses you”. He made you feel like you were more special than others to him. I am sure other folks have the same stories about him, but I know I was more special than others were.

The second time he came home to visit, asking me for some “investment advice”. He wanted to invest in bay area startups. This was little before the dot come bubble. When I told him I knew many startups but they were all expensive, his response was “Yeah that’s why I am asking you. I will tell them I know you, so they should give me a better deal”. When I asked him why that would be so, he replied with “Simple, he is Amaloo Athai’s (my mom – his aunt) son – he has to be just as good as her, so you should assume he is as well. He was lavish with his praise and knew how to make you feel better about yourself.

The last time was when he would come home to see us in Seattle. He would continue his tradition of being the bearer of gifts, each time getting the kids of us something that we would certainly remember him with. If he did not bring anything, he’d gift us a bunch of money. Generous.

Raj passed away yesterday at 5:05 am EST after a battle with brain cancer. He was an awesome brother, a generous soul, a friend to cherish and one of the good ones. His wife and 2 daughters are in my prayers as is his sister and parents.

US Food Delivery Market – at a glance

The United States food delivery market is comprised of companies that help restaurants and cloud kitchens deliver food to the home and work. There are over 100 companies in this market, with a total size of the market approaching $30 Billion in 2019, and expected to be at over $300 Billion in 10 years.

Nearly 80% of the market is delivery at home, with Friday, Saturday and Sunday accounting for over 70% of orders.

Food Delivery market

The top 5 players in the US market for food delivery are:

  1. DoorDash
  2. Grubhub
  3. UberEats
  4. Postmates
  5. Caviar

Globally, Swiggy, Just Eat, Delivery Hero, Deliveroo, Takeaway, Foodora and Food Panda are dominant.

The Statista market report (PDF) on food delivery is an interesting report on the overall delivery statistics with a global focus, not US alone.

The top 3 trends in the US include:

  1. Automated delivery via robots, drones and autonomous vehicles.
  2. Customers wiling to pay for a monthly subscription for delivery instead of on a per order basis
  3. Delivery from cloud kitchens will exceed stand alone kitchens in 5 years.

The food delivery market saw an overall $21.8 Billion in private market investment from 2010 to 2017.

Machine learning with posted hospital prices: Funding available

New federal laws require all hospitals to post prices for all their procedures, operations and drugs. The problem however is that they are opaque, confusing and largely useless to patients.

First, there is no standardization on naming procedures. Second, the prices posted are usually not the ones that patients actually pay.

There is a large problem for patients who cannot compare prices or services. In all there are about 5000 hospitals in the US.

I do believe there is an opportunity to take all the excel spreadsheets  of prices posted by hospitals to clean, normalize and consolidate prices and give patients a clear opportunity to compare prices.

I would fund that opportunity.

Venture Capital Survey: How do they make decisions, what’s important: Summary

A fairly extensive survey of venture capitalists was published this week from 4 professors at Booth School, Chicago; Stanford; Harvard; and Univ of British Columbia.

How do VC's decide to invest in a startup
How do VC’s decide to invest in a startup

It is a long 80 page read, but worth it.

Here are the highlights that I thought were worth reiterating. Nothing in this report would surprise an insider, but for new entrepreneurs seeking investment, it answers questions about the 8 areas:

  1. deal sourcing (where do they get startups to invest in);
  2. investment decisions (which ones they invest in);
  3. valuation;
  4. deal structure (what are the key terms and conditions);
  5. post-investment value-added;
  6. exits;
  7. internal organization of firms; and
  8. relationships with limited partners. In selecting investments

They surveyed over 889 VC’s at 681 firms.

  • Roughly one-half of all true IPOs are VC-backed even though fewer than one quarter of 1% of companies receive venture financing
  • Public companies that previously received VC backing account for one-fifth of the market capitalization and 44% of the research and development spending of U.S. public companies.
  • The ability to generate a pipeline of high-quality investment opportunities or proprietary deal flow is considered an important determinant of success in the VC industry.
  • Over 30% of investments are generated through professional networks. Another 20% are referred by other investors and 8% from a portfolio company. Almost 30% are proactively self-generated. Only 10% come inbound from company management.
  • Few VC investments (<10%) come from entrepreneurs who beat a path to the VC’s door without any connection

  • The median firm closes about 4 deals per year. For each deal in which a VC firm eventually invests or closes, the firm considers roughly 151+ potential opportunities
  • VCs focus on the quality of the management team, the market or industry, the competition, the product or technology and the business model in their investment decisions.
  • VCs ranked the management team (or jockey) as the most important factor.

  • California VC firms are more likely to say passion is important and experience is less important.
  • The average deal takes 83 days to close; the average firm spends 118 hours on due diligence over that period and the average firm calls 10 references.

  • The average required IRR is 31%. Late-stage and larger VCs require lower IRRs of 28% to 29% while smaller and early-stage VCs have higher IRR requirements. The same pattern holds in cash-on-cash multiples, with an average multiple of 5.5 and a median of 5 required on average, with higher multiples for early-stage and small funds
  • VCs report that fewer than 30% of the companies meet projections.

  • Interestingly, 91% of our sample believe that unicorns are overvalued—either slightly or significantly
  • Pro-rata rights, which give investors the right to participate in the next round of funding, are used in 81% of investments.
  • Participation rights that allow VC investors to combine upside and downside protection (so that VC investors first receive their downside protection and then share in the upside) are used on average 53% of the time.
  • Redemption rights give the investor the right to redeem their securities, or demand from the company the repayment of the original amount. These rights are granted 45% of the time
  • Full-ratchet anti-dilution protection gives the VC more shares (compared to the more standard choice of weighted-average dilution protection) if the company raises a future round at a lower price; this investor protection is used 27% of the time.
  • Liquidation preference gives investors a seniority position in an exit.
  • An option pool is a set of shares set aside to compensate and incentivize employees, vesting refers to a partial forfeiture of shares by the founders or employees who leave the company, and control rights include features such as board seats, veto rights on important decisions, and protective provisions. VC’s were most comfortable negotiating these rights
  • The average VC firm syndicates an average 65% of its deals.
  • Over 25% interact multiple times per week and an additional 30% interact once a week, indicting that 60% of VCs report interacting at least once per week with their portfolio companies. Fewer than, one-eighth report interacting once per month or less. The high level of involvement is consistent with previous work and anecdotal evidence.
  • 87% of VCs are involved in strategic guidance of their portfolio companies.
  • 72% of VC firms help their companies connect with investors in future rounds.
  • 69% of the VCs say they help their companies connect to customers.
  • 65% of VC firms say they provide operational guidance.
  • Overall, the average VC firm reports that 15% of its exits are through IPOs, 53% are through M&A, and 32% are failures.
  • Deal selection emerges as the most important  with 49% of VCs ranking it most important. Value-add follows with 27% and deal flow lags with 23%.
  • The average VC firm in our survey employs 14 people, 5 of whom are senior partners in decision-making positions.
  • VC’s report working an average of 55 hours per week.

  • VC firms spend the single largest amount of time working with their portfolio companies, 18 hours a week.
  • Consistent with the importance of sourcing and selecting potential deals, sourcing is the second most important activity, at 15 hours per week.
  • Networking is the fourth most important at 7 hours per week

How to leverage Moving Averages to confirm a SaaS company’s traction?

On Tuesday I had a chance to talk to 23 entrepreneurs who were selected to participate in the Microsoft Accelerator Jury selection for cohort 4 at the Seattle Accelerator.

The companies were all advanced stage (ready for a post seed or Series A round) with an average of $1.5 Million ARR (Annual Recurring Revenue).

Moving Average
Moving Average

One of the things that got hard this time was to evaluate a company’s traction, given that all of them said their “market was very large”. The teams mostly looked strong, so there was little a Jury member could do in 15 min of presentation + 15 min of Q&A, so we had to look at momentum in the short term. Which in itself is bizarre, given that these were long term bets, but humor me for a while.

So, I asked a few of the companies to outline their 3 month moving average of traction. Most did not know what that meant.

Moving averages (MAs) are one of the most popular and widely used technical indicators. Moving averages smooth the traction data to form a trend following indicator (# of customer signups, monthly recurring revenue, etc.)

A Simple Moving Average (SMA) is figured using the monthly ARR for a specified period, such as 6 months.

If prices are closing lower, the SMA points down. If prices are closing higher, the SMA points up.The average “moves” because every day the oldest day is dropped off as the current day’s information is added.

A criticism to the SMA concept is that each day’s action carries equal weight.

Exponential moving averages (EMAs) are similar to SMAs except that more weight is given to the latest data.

What are physical and synthetic ETFs?

ETF Structures
ETF Structures

Physical ETFs attempt to track their target indexes by holding all, or a representative sample, of the underlying securities that make up the index. For example, if you invest in an S&P 500 ETF, you own each of the 500 securities represented in the S&P 500 Index, or some subset of them. Physical replication is reasonably straightforward and transparent. Nearly all ETF products in the United States are physical ETFs.

Instead of physically holding each of the securities in its index, a synthetic ETF relies on derivatives such as swaps to execute its investment strategy.

Because they don’t physically hold the securities in which they invest, synthetic ETFs can provide a competitive offering for investors seeking to invest in harder-to-access markets, less liquid benchmarks, or other difficult-to-implement strategies that would otherwise be very costly and difficult for physical ETFs to track.

How to invest in Alternatives ETFs?

Alternative ETF
Alternative ETF

Roughly 40 funds occupy the alternative ETF space, and they provide two broad categories of product: absolute return funds and tactical funds giving access to unique patterns of returns, such as volatility-focused products.

Alternatives are used for two primary objectives. First, they can be used to reduce volatility and manage risk in investment portfolios. They can provide diversification to reduce overall portfolio risk or to help hedge against declines in equities or bonds. Second, they can enhance returns by investing in unique asset classes.

How to invest in Commodities using ETF?

ETFs have made investing in commodities cheap and easy for investors of every size and level of sophistication. Before ETFs, if investors wanted to invest in commodities, they had to open up a futures account, get approval from a broker, and maintain margin to cover any movements in the commodities contracts they were holding.

Investors interested in exposure to commodities, with 112 funds available, have a number of options to choose from. They range from physically backed single-commodity funds, such as the SPDR Gold Shares (GLD), to futures-based commodity baskets.

Commodity ETF
Commodity ETF

The two major types of commodity ETFs are (1) those that physically hold a given commodity and (2) those that use futures contracts to gain exposure to a commodity.
Physical commodity ETFs are simple: They store the commodity in a
vault somewhere, and each share represents a certain percentage of the stored commodity. Physical commodity ETFs are currently available only for the precious metals—gold, silver, platinum, and palladium—and baskets of them.

Futures-based commodity ETFs are both more prevalent than physical commodity ETFs (by number, if not by assets) and more complicated. These ETFs hold futures contracts linked to the targeted commodity. Futures contracts are agreements to buy the commodity in question at a future date.

Unlike equities, for which a number of standard benchmark indexes exist that everyone agrees generally represent the market as a whole, there is no consensus on what constitutes a commodity market portfolio.

The personal blog of Mukund Mohan

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