We recently closed an angel round a couple of weeks ago, and I thought that I’d share my thoughts on the process.
As a first-time entrepreneur, you will initially be judged by proxy. The main criteria people will use to evaluate you and your business is what other people think about you and your business. Frustrating? Sure. But the people you are most interested in pitching are the ones with the least time to spare–which is why Ron Conway only meets people on referral. Getting the first bit of outside validation is the most difficult part of the entire fundraising process. (Note: signing up advisors doesn’t count as outside validation.)
We went to a lot of meet-ups, presented at various start-up competitions, and took every meeting we could get, but by far the best resource we found to jump-start the process was Open Angel Forum. They do an incredible job vetting the applicants, and the angels that come are earnestly engaged and actively looking to make investments. It was here that we got our first commitments, from Joshua Schachter, Cyan & Scott Banister, and Jason Calacanis–all of whom we’re grateful to have on board!
With this validation in hand, we turned to Venture Hack’s AngelList. There is no better way to get into the inboxes of quality investors–truly, they’re all on AngelList. But as they stress on their application, already having the buy-in of respected players is really important.
I honestly don’t know how we would have raised our round without OAF and AngelList.
As for actually pitching angels, here are my take-aways:
Show product. This is especially true if you’re a consumer-facing product. The first concern for potential investors is can this person get quality product out the door? Don’t use a PowerPoint presentation. Spend whatever face time you have walking through the product you’ve built and the vision for where you’ll take it.
Tell a story. Describe a problem or inefficiency in today’s world and how you’re fixing it. Sell people on your version of the future.
Write your own term sheet. You have a lawyer already, right? Great. Get them to write you a plain-vanilla term sheet that has all the normal rights and provision. The people you are pitching have seen hundreds of these–this isn’t a place to be innovative. It turns out that you don’t need a lead for an angel round.
Expect it to take longer than you think. Then be patient when it takes even longer.
When we were first getting started, I kept wondering about the value of advisors. Every company proudly displays their advisors somewhere in their about us (and so do we). But I couldn’t quite understand what, exactly, advisors brought to the table. Were they primarily intended as a signaling mechanism? For introductions? For domain experience? After a couple of years, I have a tentative answer.
One thing is for sure: the signaling aspect isn’t worth very much. Future investors will judge you on your metrics, opportunity and team, not who you’ve convinced to sign a piece a paper in exchange for some equity–regardless of their byline.
However, the introductions and domain experience that advisors bring to the table can be game-changing. And helpful introductions are really an outgrowth of genuine domain experience.
To give an example, Denis Grosz has been invaluable in helping us devise and execute an SEO strategy. It’s not that there isn’t a ton of SEO information already out there–there’s more than you could ever process. The issue is that it’s incredibly hard to evaluate what’s important to focus on and what’s not. And there’s also the fact that SEO is a zero-sum game. The people at the top of the SERPs have no interest in giving away their insights to their competitors. Having Denis as an advisor helps us surmount the inherent selection bias that exists whenever you get advice on topics like SEO: people who really know don’t share, and people who share don’t really know.
Recruiting advisors who have relevant domain experience and giving them a vested interest in your future is the best way to get long-term, valuable and actionable advice. Equity is an incredible way to align incentives.
We’re used to seeing long-tail requests over here, but last week we had a request that surprised even us:
I am looking for a professional makeup artist to transform me and my friends into the blue Na’vi people from Avatar for the morning of the bay to breakers race. I’m guessing this will involve some sort of airbrush.
Bay to Breakers is a hallowed San Francisco tradition–think early morning drinking, metallic spandex, tutus and nudity and you’ll get a pretty good idea. Our user wanted to go as a character from Avatar–so without the budget for stereoscopic technology, he did the next best thing and posted his request on Thumbtack. He got a few bids, and ended up going with Oui, Three Queens Productions. Evan, the artist behind Oui, Three Queens, specializes in fantasy bodyart and did not disappoint.
Update: A follow-up from the Na’vi:
I wasn’t quite sure who to turn to when I needed to be painted blue in my apartment at 6am, so I posted on Thumbtack and within hours, I had a professional, well priced bid in my inbox. Communicating with the service provider was a breeze since Thumbtack’s messaging system is set up to synch with my email– allowing me to be in touch with the service providers without giving away my personal email contact info. Because thumbtack verifies all of its service providers, I received zero spam or “sketchball” emails that I might receive on other classified sites. The makeup artists went above and beyond expectations, and a fantastic time was had by all.
So here is a speculation: The time may come when most tax lawyers are replaced by expert systems software, but human beings are still needed–and well paid–for such truly difficult occupations as gardening, house cleaning, and the thousands of other services that will receive an ever-growing share of our expenditure as mere consumer goods become steadily cheaper.
From Technology’s Revenge, an article about technological change and income inequality.
It has always been harder to find the right person than the right fact. Human experience and expertise are the most valuable resources on the Internet — if we could find them.
I would go further and say that human experience and expertise are the most valuable resources our planet has, full stop.
Last night we were fortunate enough to be invited to pitch at Open Angel Forum‘s first San Francisco event. It was awesome.
Jason and Tyler did an incredible job vetting 100+ applications — the quality of the start-ups they invited was top-notch and spanned everything from a high-tech algorithmic photo-tagging company to novel iPhone controlled toys.
The angels that got invited (they had to apply too!) were completely engaged, making for a thoughtful and spirited Q&A session. Best of all, it was clearly a group of people that simply loves start-ups, and they seemed to be there as much for us as for themselves. I was blown away.
Matt Galigan of SimpleGeo had a great comment on Chris Dixon’s post on the “geo stack” the other day:
I definitely think that the price of venue data (much like the prices of apps in general) is going to be a very quick race to the bottom. There are very few “big” players in this space: InfoUSA, Acxiom, Localeze, Navteq and a few more. Each of these big guys charge an unbelievable amount of money (at least when it comes to getting developers to use it).
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The truth is, anyone that has a slightly more crowdsourced (including Google) approach to this will get inherently better data. This coupled with the fact that the data itself might be free in the next few years spells potential doom for the “big guys”.
This is definitely what we’ve encountered in the local services space as well. One problem is that these databases often don’t have key data for travel area and licensing information. But the biggest drawback is that these directory resellers have a lot of data but no genuine connection to the business or provider behind the content. And it’s this relationship that is so valuable for building a vibrant ecosystem. That’s why Thumbtack is focused on crowdsourcing our information directly from those businesses — it gives us better data and a relationship with the owner.
IAC’s ServiceMagic reported today that it saw a 51 percent boost in 4Q revenue, growing from $25.3 million in 2008 to $38.2 million in 2009. The boost was accompanied by a 21 percent growth in the number of home and trade providers that pay for its leads; and a 46 percent gain in service requests.
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Profits, however, were low at $1.2 million. They were held down by increased marketing efforts, including an expanded sales force and a major advertising campaign.
Consumers are clearly searching for and sourcing local services online more and more – here‘s one report pegging local searches as 1/4 of overall search volume — and ServiceMagic has done a great job capturing the home improvement slice of these leads. But who is going to aggregate the long-tail of services remains to be seen. This morning we got one more reminder as to just how big this market is when we generated a lead for this Farrier in Magnolia, Texas.
The Bulletin Board is the official blog for Thumbtack.com, the premiere marketplace for local services.
Here you'll be able to find various announcements relating to Thumbtack as well as random musings on starting and building a new business in a the new and ever-expanding segment of online services.
