Angels Don't Have To Choose Between Hobbs' Solution And Hockey Sticks. Doing Both In The Same Deal Is Possible.

The shows just keep getting better and better, and more and more relevant, I don't dare not subscribe. Because of the level of honesty on these shows, I think we are likely to learn the new direction of the venture industry here first.

I hope the discussion about the broken business model reaches a consensus that agrees on a change, and from there the needed changes in the selection process are made to support the changed business model.

I am so happy to hear Charlie Hobbs propose the solution "to favor companies that can reach cash flow breakeven on money that we can provide". It is exactly how even the VCs use to operate. In the more distant past VCs did not have as much money as they did in the recent past. Therefore even they use to stress that the business plan they were reviewing needed to show that the opportunity would be sustaining itself before the money ran out.

An opportunity sustaining itself use to be considered one of the indicators that a successful exit could be achieved. If it couldn't do that, there was no reason to expect an exit from it. Somehow this teaching was traded for attracting VC money.

Charlie Hobbs' advice is the foundation of the correct way to invest that made the big VC firms of today. By investing wisely like this, it keeps you around for the Googles and eBays. Lately everyone wanted the Google without worrying about their longevity in this business.

Years ago I use to show in my presentation how the opportunity would be self sustaining in less than two years. Nobody cared. They all wanted me to show them it would be a Google over night. Five to seven years to achieve Google status on Angel money or three years on enough VC money wasn't good enough for them.

I don't believe it is a given that Angels are vulnerable to pay to play. Hobbs' solution is the best and maybe the only defense against pay to play. Invest in something that will have positive cashflow before it seeks VC funding.

Angels don't have to choose between Hobbs' solution and hockey sticks. Hobbs' solution does not lead to the Googles but it keeps you around so that you are on the scene when they do come along. If one wants the Googles one has to get in on those technologies that fit the creative destruction model in the previous article that Frank recommended, but one would still get into those technologies according to Hobbs' advice. Just because it is a hockey stick opportunity doesn't mean you throw out the baby with the bathwater. Keep to the rules of success.

It's not one or the other, hockey sticks or sound investments. It is do sound investments so that you will be around to invest in a hockey stick soundly.

In addition to following Hobb's advice, Angels need to identify those areas where creative destruction is or will take place. I think this is also the next step in Frank's show.

Frank has added a lot of value to the presentation process. Now he is adding value to both the processes of identifying what is wrong and identifying the fix. I could easily see Frank doing the same thing for the selection process.

It is easier to give Hobbs' advice than to identify where to apply it. This is a key place where value still needs to be added.

If I could afford his rates, I would gladly pay to be on Frank's show, to say here is the creative destruction opportunity that I have identified, and here is how the opportunity can achieve positive cashflow in a short period of time. But I don't just want to pitch. I want to take the hard questions from Angels. What about this, what about that, what about the other thing? And see how I do.

Hi Frank, I found your show on iTunes a few months ago and have been listening to it religiously ever since. I work at a gold mine in Carlin, Nevada (just outside of Elko) and am able to listen to your show on my iPod while I drive an enormous dump truck around a giant hole in the ground. I thought you'd get a kick out of how far out in the boonies your show has reached so I attached a photo of my rolling "office".

Thanks again for the show; the information is invaluable. I'm still not sure how an isolated, blue collar worker like myself can attract capital and talent to my business - but at least now I know where to look and, more importantly, what you guys are looking for.

PS. Shows 88, 92 and 94 have been my favorites so far - keep up the good work Frank!

This is Ran here from Eye-Predict. Just felt like giving you some feedback.

Your latest podcast focused on a very interesting topic. I am referring to the issue of low angel ROI, its likely causes, and possible solutions. You framed the problem very clearly - if the outflow keeps outpacing the inflow, the available capital for angel investments will continuously decline, which would be bad for everyone. My limited experience makes me not the best person to comment, but as an entrepreneur listening to your podcast, I couldn't help but hoping for a more comprehensive discussion of this topic.

First, the notion that less entrepreneur-friendly deal terms would improve ROI seems doubtful. According to your previous guest and others, most VCs have a rather low ROI. So even if angel investors could somehow achieve more equal footing with VCs, it would merely make their ROI comparable to VCs, which is still too low. Moreover, trying to set deal terms that are less entrepreneur-friendly would simply drive away good deals, leaving TCA to sift through the deals that don't have better alternatives. It seems to me that a more promising approach would be to aim for win-win instead of trying to re-align the win-loss between investors and entrepreneurs.

Other possible reasons for low success rate may include:
- Suboptimal ROI model. Are there alternatives to the exit strategy?
- Unreasonable expectations. Is it a coincidence that financial projections rarely come true?
- Inefficient filters. For example, insufficient domain expertise may lead to misplaced focus on showmanship and financial rather than domain-specific questions during due diligence.

It would be interesting to hear from experts about possible solutions. For example, what would it take to make dividends a more attractive ROI model? Are there ways to involve more domain experts in the evaluation process?

Your podcast is a valuable community service. Hopefully, new funding sources, such as the Kauffman Foundation, could be tapped to support it.

Just wanted to let you know that I really enjoyed this and appreciated both of your and Charlie's honesty. Candid with no spin. Thank you. I get the sense that the story is the same worldwide (or at least here in Australia), but then so is the investment criteria / philosophy.

My own experience with angel groups (and VCs) has been pretty disappointing and a long way from the blurb on the angel websites. In the case of my startup, we now have AU$250k in Australian Government grant funding in the bank, a billion dollar automotive engineering firm designing our product for the market and we are struggling to finalise a round of AU$350k for 30% of the company. True story. You state that 10 pitches to get funded is the average ... trying to survive while this process happens in the challenge!

As an entrepreneur with a real product in development which will be sold to real customers, via a real go-to-market model, current angel criteria rules us out. In fact, it seems that there are a lot of company types that are simply wasting their time seeking angel and VC funds in most cases. Charlie makes some interesting points and I wonder how the types of companies he invested in successfully (prior to TechCoast Angels) differs from the types of companies that the group is investing in.

Having got a sense from you when we met in the US in June that the 'bathtub is draining', this interview with Charlie had even more meaning. I think that there's an interesting (and perhaps confronting) body of evidence building that may be highly instructive on where things are not working and where they are. Trends on investment types and success and failure rates over time of different types of investments would be very interesting indeed.

If you (TechCoast Angels) could exit every one of your 'lifestyle' businesses today, would that solve the problem and re-fill the bath, or are there bigger issues ... I look forward to the next installment!

I think the subscription support is a great idea. As a suggestion, it might be a good idea to also have a onetime subscription of $24 for the year in addition to the $2 per month. I would do that. Let me know.

I really enjoyed your talk with Charlie. As a new member, I really appreciated his insights and the way you drew them out.

Keep up the good work!

Nice job my friend.

I've been a member of TCA since 1998. Really enjoy and have gotten a lot out of your interviews.

I wish this interview went on for another hour with more questions. This was one of the most insightful podcasts I've listened to in terms of the perspective/reality of Angel Investing.

It seems that most of your other interviews don't get the honesty that this man brings to the table.

I wanna hear more damn it haha. Do a show with him and his friends(TCA members who have been in on deals with him/sit on boards with him) But he might be an interview that's better when he's on his own because other personalities might overshadow his.

Seems like you need to do the new Jim Armstrong interview over again because he seemed really stressed out/not in the best mood to be interviewed. Seemed like he had a lot on his mind.

He still gives good advice but I think you need to get a few drinks in him so he sounds as joyful as you did in your new years podcast.

I really enjoy your show. The last one with one of your founding members was very interesting, and also touching. I think that it is always a challenge when persons who have been involved in the start of a venture feel disconnected from its strategy or growth a few year later.

(in response to "what were you thinking?" from a former member of the TCA Board)

Thanks for the thoughtful comments. You've caused me to reflect... where was I coming from in getting Charlie on the show?

I remember back to the Executive meeting a last month; Charlie wasn't attending, but emailed the group while we were convened. I didn't read it at the time, but several members did and it disrupted the meeting. His comments were getting universal acclaim, so I looked forward to returning home and taking a look myself.

A little background, I didn't invite Charlie onto the show right away. For better or worse, I spent a day reflecting on the issues he raised. Charlie had missed two previous opportunities to be on my show, one of those a screw-up on my part. Inviting him on the show to comment would cancel out my previous faux pas.

Of course I knew his remarks were critical, but that kind of commentary is so rare and so appreciated by my audience; I knew his email sentiments would appeal.

The response to the interview has been very positive. And Charlie says so, too. Members have called us both to applaud his candid remarks. One concept I read into their atta-boys: many were questioning their renewal and found some comfort in Charlie's admissions.

Then John Morris called. He had lots to say, but of most interest to me was the news of a pending "Investors Bill of Rights", new terms that will address some of Charlie's sore points. I've offered equal time to John to describe the new term sheet. And how will that look? To demonstrate that TCA has the courage to air the concerns of a founding member, to take them to heart and make changes based on that feedback; it will show a dynamic organization.

Audience numbers are up on the Show. Listeners around the world are eager to hear how the economic crisis is affecting angel investing. They want to hear straight talk about the issues.

Do damage to TCA? Not my intent. If I were to count the times my podcasts cause controversy, I'd have to admit once or twice a year I can picture some members wincing at the content or its spin. Can I take cover behind 'fair and balanced'?

I have been mulling over writing a book called at this stage "The Reality Brochure on Early Stage Companies" for quite a while. What I want to do is record my experiences and observations of the early stage ecosystem. I realise there are lots of books out there, but my observation is that they all say the same thing and when you are actually doing it there is little correlation to the literature.

Most people in business, whilst they might read a story about Microsoft or invest in Google, really have no idea what goes on in an early stage company. Unfortunately, many of these people do MBAs and then go into Venture Capital. I have developed some theories about the various components of the process - IP, people, capital, exits, etc which I want to explore.

One of the key areas is obviously capital raising. Your interview with Charlie Hobbs a couple of weeks ago inspired me, so I have started writing. I want to interview a number of people who have been involved for sometime. I want to do a small number (10-20) qualitative in-depth interviews rather than quantitative via survey. VCs aren't of much interest to me as in Australia they rarely take much risk. If you are pre-revenue, most VCs won't even look at you. I am keen to explore the differences between here and the US, but certainly across the board (including the angels) the amount of risk investors are prepared to take appears to have declined dramatically.

The really interesting thing about your interview with Charlie, is the story around where early stage investors have come from, and their successes and failures and what has worked and what hasn't including individual verses group investment, the state of angel investment and what might be done to improve the situation.

So, would you be prepared to be interviewed?

It could end up early stage heresy, but I want it to be the truth (at least according to me).

Let me know what you think.