13TH April 2012

Angel investing - Creative problem Solving - Timeless - Uncategorized

Money for Something: my criteria for investing in sharing

I am asked a lot about my investment criteria, but lately many of the questions have focussed on my criteria in the sharing economy. This is pretty amazing, because less than a year ago, I could not have told anyone what the sharing economy was.

Now sharing is something I do love, as I abhor waste and adore ways to get more out of any asset. Ask my wife.

In the past year, a movement has surfaced that is global (big) , reflective of our economic state (sucks), green (uses our planets assets more effectively), driven by a connected group (mobile powered millennial), and highly disruptive to a bunch of  old models of doing business. It is alternatively called the Sharing Economy and Collaborative Consumption, depending on who you ask. I like the former because I have a hard time spelling the latter, but either will do.

But overall, there are big and sustainable trendwaves. The kind that I like to ride. (Disclaimer: my favorite investment in sharing so far is TrustCloud, probably). So, within the Sharing economy, this is how I break down the key ingredients to my angel investing options:

Networks or Platforms: Many winners, or winner takes all. This is emerging as a very big theme for me, and depends on what stage one enters the market development. I believe every new trend breaks into two types of opportunities; networks within a trend become a story of many winners. For reference, look at the online ad nets, with plenty of $100M+ businesses. Look as well at the mobile ad-tech business, and the several winners to date in the networks (Millennial Media’s monster IPO, and sales by Admob, Quattro, even Amobee). Now look at the platforms that sold picks and shovels in ad-tech: Atlas ($6B), DoubleClick ($14B or $3B, depending on who’s counting) and the incumbent adserver in mobile (another Vaux investment, I wrote about here).

The point is, the networks are great businesses that scale quickly and become an exercise in good sales and marketing systems. The barriers to entry are low, and scale counts. But margins erode at the top end of the scale, because they rarely have a technology platform underneath. I’ve seen it before, trust me.

On Leadership: Bold enough to be early, seasoned enough to run a fortress. In an age of SUPER angels, I am anything but. I don’t have the braincells or the checkbook to attempt 500 startups, the coding passion of prgrammer king FAKEGRIMLOCK, or the patience to do the TechStars or Foundry stuff. But I have the courage to be early and the capital to be patient. So when we latch onto an idea we like, I can land on a beach with a team of Startups SEALS, secure a niche and talk my way inside the castle walls before claiming the fortress to support a large organization. Teams of five are fun, teams of five hundred are awesome. I’ve led both. As such, passive roles and stakes just don’t excite me. Frankly, they distract me.

Karma: Makes me feel good, as in “I did that!” To be frank, I think the best monuments in the world are contained in the Emerson Poem “If” (that my father recited at my wedding, amazingly). To have made the world a better place, even in subtle ways, is sure gratifying. To point to a logo, an event, or even a business process and say “I helped to build that” is really special. Sharing makes me feel that way. Up top now, anyways

Lean: develop a product for $250, acquire users for $250. Scale with real capital. These days, I gravitate to digital media because it doesn’t cost much to develop a product that solves a need. (and almost all the proceeds are for just that- product). Then, a little more to ramp users, again within angel range. But sooner or later, most digital media companies will need big capital to scale, which is where access to VC (where I have again been blessed) is key.

Partners: Coachable entrepreneurs. I’ve said it before, and each day it gets more relevant: life is short, and I have long ago given up having to work with buttheads (knowingly). While most of the entrepreneurs I work with are younger, they all possess a common thread and that is the thirst to learn and the courage to recognize and work on their mistakes. It helps not that I am the most direct guy around, so the chances for setting people back is always there. But I speak the truth, and I always speak the same in front of people as I do behind them.

Of course, there are many more criteria for selecting a sharing business, but these are some that ring true. I will be discussing them with a panel next month at the Shared Squared event, and I’m sure there will be more added to it.

Oh, one more reason I like sharing: my mother always said it was kind.

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