What’s Old Is New Again

I know I’m getting old. I remember in 2007 when the idea of a super angel appeared, where successful entrepreneurs were suddenly angel investors making 10 or more seed investments a year. This was a “new” innovation that was celebrated with much fanfare.

Between 1994 and 1996 I made 40 angel investments with the money I made from the sale of my first company. I was referred to as an “angel investor” – I didn’t get the super angel moniker back in the 1990s, but I was often referred to as promiscuous.

Every day I’m reading about a new thing in the startup world. Big corporations are splitting in two or spinning off divisions that are being funded by VC firms. The amount of VC investment each quarter is growing, with us now in the $10 billion / quarter zone, rather than the $10 billion a year zone. Strategic investment is in vogue again, with virtually every large public company trying to figure out how to fund startups. Hedge funds are once again allocating big money to private companies and lots of cross-over public company investors are trying to get large dollars into private companies pre-IPO.

What’s old is new again. As we know from BSG, “All this has happened before, and all this will happen again.”

There are definitely new and interesting things happening this time around. If you haven’t noticed AngelList, you are missing what I think is one of the most interesting phenomenons around. And I’m deep in another one, Techstars, which has helped spread the mentor-driven accelerator model around the world.

Every cycle has a different tempo. We are in a very positive part of the current cycle. But it’s a cycle, and we know that by definition we are likely to have too much, and then a correction, and then too little. Welcome to life.

This part of the cycle always makes me uncomfortable. I love innovation, but when things that have been done before get talked about as though they are new, and no one bothers to try to remember what happened, why it happened, and what went off the rails, that’s uncomfortable to me.

Don’t live history, but study it. Remember it. And make better decisions and choices the next time around.

  • bwyman

    alright, I have to ask the obvious question. Aside from noting the itchiness in the back of your head, what’re you doing differently this time around? Or is it more of a transition to wanting to play the long game and realizing that it requires a different view on things?

    • Oh – that’s a very long post that I probably should write…

      • Felix Dashevsky

        Yes, please!!

        • Rick

          +1

  • I agree with you as i was there in those times too. Aside from these macro elements, what specific behaviors are you seeing that worry you?

    • Rick

      History repeats itself. Study patterns from the past to see if any are similar to today.

      • Amen, that approach is in many ways what’s helped Buffet/BH be so successful. I don’t mean to kiss ass Brad, but thanks for the kick ass post … good to see some tempered reason amidst the froth.

  • Alex Blum

    Conversely, what things were done well in the last cycle that can be carried over?

    • Those playing a long game did just fine. Those trying to optimize for short term gains, or then short term declines, had a pretty rough time.

  • Great post. I would say your subject reflects broadly on any trend whether it is technology, fashion, business strategies, etc. What is key, as you have pointed out is recognizing and avoiding the “doomed to repeat the same mistakes” caution of forgetting the past.

  • How do you know when “the correction” is coming, before it actually comes? What does it look like? Smell like? Feel like?

    People have been saying for several years now that there’s a bubble that’s soon to burst. You say we’re still in the positive period. What signals are you reading differently than everyone else?

    • Rick

      You have to “buy low and sell high”.

      • Rick

        Gonna’ have to add to this. That wasn’t a smart ass remark. What I’m saying is you needed to have something to sell now. Something you bought low and is now high. Now you look for things that are low and wait until they are up. If you have big bucks. You can buy controlling ownership in a company or companies then sell at a higher price.
        .
        Now since the market is very high you might just want to wait for shorting opportunities. Or just go into cash and wait for the bust. Then buy things low and in a few years sell them when they are high again.

    • I have no idea how to know when the correction is coming before it comes. All I focus on now is how to play a long game that doesn’t matter when the correction comes.

      • not just a good investment strategy, but good life advice in general. you don’t have to worry about the storm if you’re building a ship that can withstand anything.

        • Rick

          BTW… Burton Malkiel has a good book called “A Random Walk Down Wall Street” that talks about investor psychology just before past corrections occurred.

    • If you know it’s a matter of “when” and not “if” just plan for it now. If there is any correlation to Wall St., every single correction, even ’87 was seen by the pros before it happened, as a pro trader I study these things. There are plenty of signs. In 2007 Wall St knew there was a day of reckoning coming, but not exactly when, just like Brad said he sees the cycle. They planned for it, they knew exactly how it would play out. The signs we simple, people we getting money too easily, houses were in a bubble, jobs weren’t great as we’re in a flux to a new information driven economy leaving behind the industrial age, etc. The general public got blind-sided, but many in economics, including Suzy Orman, knew and took steps prior to it.

      BTW: Suzy along with several others say we’re in a “cycle” as well, to end in 2015 to 2016…basically when there are presidential elections, just like last time.

      To your 2nd paragraph, you’re totally right. Look at investing sites today, you’ll get plagued with doomsday messages by Google Ads, all calling for the next day of reckoning. Even a broken clock is right 2x a day. Until that day, we are in a positive period. We’ll be in a positive period until we’re in a negative one.

      • Rick

        “houses were in a bubble”
        .
        I remember looking at a house back around 2007 and the realtor telling me that I could borrow 115% of the cost of the home. The home was brand new so no need for the extra money. Point is I thought to myself “Lending people more than a house is worth is not a good approach. Something bad is going to happen.”
        .
        I sold my stocks and watched as the world crumbled. Sometimes crash indicators are found in odd places.

  • I’ve just recently gotten involved in AngelList and its amazing. Like you said, something completely different.

    The good: Wow, how else could I have got access to some of these companies? I wish I’d have been able to invest in angel.co itself, I suspect they will be gobbled up quick. I absolutely luv piggybacking off the work the VCs have done to vet these companies and the carry to me seems reasonable based on that piggybacking although we’ll see when one of them hits (fingers crossed).

    The bad: nothing yet that I can point to although we’ll see how my attitude changes when the first one tanks 😉 The potential for badness seems to me to be really high. I could see somebody that doesn’t know what they’re doing getting burned really easy (hopefully that won’t be me). I have lots of traditional investments but I’m new to this angel thing. I’m hiding under the FG syndicate as a learning experience. There seems to be a lot of people forming syndicates that I’ve never heard of and even if they are famous, like Calcanis, people need to be fairly sophisticated to get into this I think.

    The meh: The funds seem less interesting to me. I suppose the risk in the funds is somewhere between an pure angel investment and a stock mutual fund but I don’t get the feel that its really worth it and certainly not as interesting as riding the companies directly.

    While I really like the actual site, its pretty clear that they are working like crazy and making lots of changes all the time. I wish the site came off as a little more mature.

    Overall, I’d highly recommend getting into it if you have the stomach.

  • Rick

    “Strategic investment is in vogue again, with virtually every large public company trying to figure out how to fund startups. Hedge funds are once again allocating big money to private companies and
    lots of cross-over public company investors are trying to get large
    dollars into private companies pre-IPO.”
    .
    But no money for my projects! What am I doing wrong Brad?

    • Rick

      So… I’m still posting in haste. Every time I figure out a way to save a minute. I find two minutes worth of stuff to do. lol
      .
      Let me explain:
      I take the time to plan out every idea. Including the ones I run past you Brad. The situation is like this. I’ve created legal entities in the past. That’s no problem. Coming up with an operating costs schedule is also no problem. Been there done that for start ups. Since I’ve been in the software industry for years I know how to plan the development of a system.
      .
      The problem always arises with finding the funding to get past the planning stage. I can see what I need but I can’t get it! That’s the real question. Why can’t I get funding?
      .
      The previous post was just too ambiguous for you to answer. So I had to expand it. But I think you’re getting the picture. I can do everything it takes to get to needing funding. But for some reason I can’t get that funding. My plans are solid. My skills are good and include many years of experience at start ups. What’s up?

      .
      Any thoughts or suggestions from others would also be great!

      • mengwong

        “I’d like to start a band, but I can’t play any instruments.”

        Plans are nothing; execution is everything.

        Investors will write cheques to two kinds of founders: serial entrepreneurs who’ve succeeded before, and first-time founders who already have traction of some sort, ideally revenue, but possibly user growth.

        You can get revenue by selling product. If you’re selling B2B, you might even be able to sell it before it’s built!

        If you can’t sell the product before it’s built, maybe you lack sales skills. So then you need to build an MVP. If you’re building a B2C product, you have to do this, to get user traction.

        If you can’t build an MVP on your own, maybe you lack product development skills. So then you need to recruit a technical co-founder.

        If you can’t inspire a developer to work on the startup for free, maybe you lack leadership skills. Or maybe the idea isn’t very interesting.

        If your innovation isn’t very interesting, maybe you lack domain expertise, or maybe you lack creative insight.

        Pretend you’re an investor. Would you give money to a founder who lacks leadership skills, sales skills, technical skills, domain expertise, and innovative insight?

        Sorry if this comes across as harsh. I’ve seen over 1,000 seed-stage startup pitches in the last 3 years. All of them are looking for seed funding, and as an accelerator it’s our job to help them raise their round. But we can’t do the impossible. This framework is the fastest way to explain to the majority of startups why they don’t meet investor criteria. The ones who do, we invest in!

        Howard Hartenbaum’s keynote from Techventure 2014 might offer another perspective: https://dl.dropboxusercontent.com/u/9544489/reading/20140925%20TechVenture%202014%20Howard%20Hartenbaum.html

        To be more constructive: Lean Startup methodology offers a framework for validating customer demand without the need to spend a lot of money. Ash Maurya’s Running Lean and https://www.udacity.com/course/ep245 are good places to start.

        Also, is your plan complete? If any term of this equation is 0, the whole thing goes to zero. I call it the Drake Equation for Startups.

        • Rick

          “Sorry if this comes across as harsh.”
          .
          Don’t worry about that with me. I do my research.
          .
          I’ve heard all that, read all that, and discussed all that many times. But yet I *see* funded companies that are “still finding their market”, “getting their idea right”, “trying to get an MVP created”, etc. I’ve talked with start ups that have a two person team, no MVP, no technical partner but yet they have received funding.
          .
          You’re on the investor side and I understand you want to eliminate risk by having a start up as far along as possible while still buying in cheap. You want proof of concept or if possible *profits*. I’m diggin’ it.
          .
          I hear though about how much capital is available everywhere. But I can’t seem to tap into it even for a start up that is planned and ready to go. When I say plan I don’t mean “though about it” I mean a plan done from experience that takes the start up to needing funding to move forward. I have enough experience to be able to do that. Many start ups would get to that point and be in the situation where they would need capital or close up. I can see that situation ahead of time through proper planning.
          .
          Good response and thank you. But you’re not talking to someone who can’t see the rough road ahead. You’re regurgitating the same stuff told to people who are new to start ups and need funding to learn how rough it can be. People needing to learn how to get to the first rough patch.
          .
          I’ve created huge software systems. You can’t get those done with one or two volunteers. Sometimes you can’t get an MVP done that doesn’t cost $1M. What you’re doing here is fitting my needs into a sales package for an often losing plan.
          .
          I’m trying to create something great! I’m trying to ensure the company doesn’t fail. I’m trying to build a great product. I’m trying to be able to give people enough of a salary to eat and have shelter from the cold. I’m trying to break down barriers to entry. I’m trying to show investors that you can get good returns without putting people into a position where they want to commit suicide.
          .
          Again thank you Meng for the response. But you can save the sales pitch. I’m here to reach an objective. I’ve heard the sales pitch for start up programs a thousand times. I think some of them are great but I’m not in this for that.

          • OK, now I’m intrigued; I’d like to troubleshoot this one with you. You’re right that there are plenty of startups which get funded, even if all the laws of the universe say they shouldn’t. But let’s look at your case; why isn’t it getting funded? To start: can you talk about the concept? It could be about the business case – sustainable competitive advantage; size of market; nature of innovation (Peter Thiel’s Zero to One says some useful things about monopoly business vs competitive) that just make VCs think, “ok, that’s not a business I want to get into.” Like, it could be a crowded space, or just not sexy, or there could be no acquirers, or a hundred other reasons that the business isn’t as backable as some other concept.

          • Peter Verrillo

            Rick. I know you without knowing you. I meet you guys all the time. “I have a billion dollar idea and no one will fund me, boohoo.” Mark Cuban calls you a wantrapeneur.

            If you had a startup in you, you would be in a startup, whether or not you could get funding. I begged, borrowed, bootstrapped and stole to fund my first company. Because I had no other choice. I couldn’t take it anymore and had to do it.

            Fuck every other startup and their $5M seed on an uncapped note.
            If you have a startup in you, it will come out of you. No matter what.

          • Rick

            “I begged, borrowed, bootstrapped and stole to fund my first company.”
            .
            Definitely doable for some but not a professional way of proceeding. That can lead companies down the wrong path. Like to suicide of founders and other team members. Lost homes and lost employees. Financial ruin of many of the players involved.
            .
            Don’t get me wrong I’m an adrenaline junkie just as much as the next guy. But the tough guy wannabe approach doesn’t carry favor with me. I’ve seen the path of destruction left behind by tough guys. I’ve also seen the great things built by people who took the time to do things right.
            .
            I believe the US is a great country that can take on the problems start ups face and fix them. Business plans that require funding to build something great by people who can see a long way down the path and can plan for the problems they’ll face are good plans. You don’t need to make yourself feel like an arrogant tough guy to succeed.
            .
            What you should do Peter is look at Meng’s response above. I don’t know Meng but that’s a professional. Maybe not in experience, maybe not in success – I don’t know he could be a gazillionaire in the start up world. But see how he didn’t say oh forget your problems. He immediately went into analysis to move things forward.
            .
            While your team members would be looking for a job so they won’t have to endure your lack of planning. Mengs team members are happy to stick with him because he’s not about being a tough guy. He’s about working together to reach an objective!!!

            .
            Lastly… I’m glad you stuck it out. I’m also for start ups doing lean and bootstrapping if the market and model fits that. But there are many that don’t.

          • Rick, my impression from the limited interaction here is you are more talk than action. At a minimum your username should link to a web site, even if it’s an About.me page. You can also create an interesting three-slide deck in Google. Maybe you have, but there’s no evidence of any of that from your comments. Rather, your comments seem to blame other people for your problems.

            Also. most “adrenaline junkies” I know are not actually adrenaline junkies. Rather, they get flow from the experience. To me the best feeling in the world is when I’m working hard, in a focused way, usually at my comptuer. “Highs and lows” (which really are about other peoples’ opinions) are fleeting at best. The experience of creation is what matters.

          • Rick

            I actually have lots going on everyday. I like putting in a 16 hour day 7 days a week.
            .
            I’m not big on self-promotion. I like doing my work and I like working with others. But I don’t need a spotlight on me.
            .
            Websites come and websites go. Meh.
            .
            You were close on one thing. I’m more thought than directionless action. In other words I’m a bit older now and going off half-cocked is not my way. In years past the whole of my plan would be “I’m gonna’ go ahead and do that.” But time has taught that me that the adage “If you fail to plan. You plan to fail” holds true.
            .
            I take responsibility for not being able to find answers to various problems. But I also have enough wits about me to see when others cause problems.
            .
            Everyone on this planet has things they can control and things they can’t. Blaming yourself for the things you can’t control is foolish. It’s better to blame the one responsible. Then maybe they will see the error of their ways.
            .
            Thanks for the input. I’ll work harder on making sure I know where my faults are!

          • Would you be able to share more about the concept? If you don’t want to share the concept, I respect that, but (for the sake of my flowchart) can you describe the reasons you’d prefer not to share?

          • Rick

            Now to your comment… Allow me a bit of time to think. I want to ensure I’m as focused and prepared to have a good productive discussion as you are.
            .
            Thank you Meng for your response.

          • Another question professional investors ask: “given the business idea, what is the best possible team to execute?” I like to point to lexmachina.com as an example of the dream team. Howard Hartenbaum tells the story of how he decided to invest in Skype based on the team. So, that’s another thing: if the idea is good, but the team pitching it isn’t the right team to win, then VCs will pass. Or should pass. De gustibus non disputandum est 🙂

          • Rick

            Since we’re analyzing this together we’ll get to that.

          • Rick

            OK. I have many ideas with plans for each. But first let’s describe the objective we’re talking about: Take an idea that isn’t your normal bootstrap-able idea. But one that is common enough to be able to plan fairly well and confidently. Create a plan and secure funding at the idea, planned idea, stage.
            .
            Given: We can easily create a legal entity for the idea and can find developers that have experience in what we’re doing. There are platforms and other tools proven to work that provide a way to quickly develop what is common but also provide ways to create what is unique to this idea.
            .
            So what we then have is: plan-able, doable, and calculable. What we don’t have is an MVP or other system *before* funding because we have too many hours of work for one or two volunteers to complete in a reasonable amount of time.
            .
            The uniqueness resides in the psychology of the product and the appeal to the user. What are your thoughts so far?

          • Rick

            Meng where are you?
            .
            It’s easy to regurgitate processes from memory and tell others to find an objective that fits those processes. But it’s a whole different story to have someone state the objective then try and figure out the process to reach the objective!

          • Sorry for the delay, I was trying to diagram a flow chart framework to answer your questions but that turned out to be a task for another day…

            I understand that your plan is definitely doable and that with the right funding you can make it happen. I think the obstacle now is a Catch-22: investors want proof of market demand before they write a check; the common way to prove market demand is by putting a product in front of customers; but until the investors write a check, you can’t build the product!

            The way out of this conundrum is to demonstrate market demand through interviews with lead customers. There are a couple of books that talk about this:

            http://www.amazon.com/Getting-Right-First-Time-Innovative-ebook/dp/B000QUTTT2/

            http://www.amazon.com/Running-Lean-Iterate-Works-OReilly-ebook/dp/B006UKFFE0/

            If customer demand is so evident that they’re willing to write you a check even before the MVP is delivered, then maybe you can skip the fundraising step entirely 🙂

            If you can demonstrate sufficient market demand to investors, and you can demonstrate that your proposed innovation is defensible and likely to be proprietary to your startup, then you’re a lot closer to that check.

            The next question (related to my comment about “are you the right team?) is: even if you disclosed all the insights on which your startup is based, would your team remain the best team to execute? Investors want to see teams who truly have nothing to worry about in terms of competition, simply because nobody else out there can do what you do you, the way that you do it.

      • Nick Ambrose

        Build something ?

  • I think that Federal regulation since 2000 has a lot to do with behavior. First was SarBox which created disincentives to publicly list. Prior to that, startups could list their shares at lower valuations. Sharp investors like Andy Kessler could do their homework, buy shares in new tech or what they believed were undervalued companies, and make big money. No longer available. Then came Dodd-Frank and a host of regulations that put community banking out of business. Combine that with social networking and we are seeing very disruptive tech in lending. Platforms like Angel List are awesome-and create less friction in investing. Additionally, if the Feds would allow anyone to invest (and not limit it to accredited investors) we’d see a further boom. Add in Bitcoin and financial services silos are going to be severely disrupted. Corporations are going to be left in the lurch-so they have to figure out a way to compete. Corp VC, and splitting the only way. Unbundling of themselves.

  • Victor Chua

    I would think that there is nothing “old” in investments. But there are new tools that help investments to be done in a more innovative way.

    • There is a lot of old in investments. For example, the typical term sheet looks almost exactly the same way a term sheet looked in the 1980s!

      • Agree. But I do think it is because venture capital is an asset class with a lot of mature players (VCs with long track records) and it is only until recently where there are the new bunch of entrepreneurs-turn-VCs stories. This could be a push point for the “new” in investments. Yet again, if this emergence of “new” goes out of hand, people might revert to the “old”.

  • Great post. I remember those cycles as well. I don’t want to say “this time it’s different” when it comes to the economics, but I do think it’s different when it comes to knowledge distribution. Way back in the nineties when you were making those investments, who knew besides you, a few other investors, and the companies who got your money?

    The amount of information available these days is so much better than in version 1.0. So at the very least we can read posts like this and prepare for when the shit hits the fan.

    The first time I went out and raised capital (around that same time), I spent a considerable amount of time explaining why email was an important technology. Seems like 100 years ago.

    • It does seem like 100 years ago. It’s hard to believe is was less than 20!

    • Interesting thing that happened today in the market…the world just declared the US the strongest economy by far, money came flooding into US markets in a way that hasn’t been seen….ever. Kind of throws our cycles out the window a bit, or at least postpones them…this time does appear to be different

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