I do like the idea in general and feel there's a lot of room for improvement between the (VC / bootstrapping) extremes.
However, the middle path from the article presumes the existence of VCs willing to join you on that path. The article waves this away with:
> angel investors are generally more open to a 2-3x ROI
For a $1M round you'd need to find 10-20 such angels (assuming $50k-$100k average check size) willing to accept small upside, for which you'll have convince them there's commensurately smaller risk. This will probably mean you have some revenue and some sense of where PMF might lay or some kind of brand/pedigree.
Do not underestimate the value of YC brand and being able to present on Demo Day gives you. A random Jane from Ohio building her tech company would have a lot harder time finding those 10-20 angels, to put it mildly. I'd be more careful when extrapolating path-dependent success into a general strategy.
That said, my gut feeling is there's room for the next Paul Graham to fill that space - somehow.
That is what I was wondering as well. Where can I find investors willing to invest up to $1M with an expected 2-3x ROI on typical VC terms? In particular, for pre-revenue ventures. And how can you keep that 90%+ equity with 10 angel investors?
Yeah, unless they're your friends or rich uncle, these investors don't exist.
When the OP raised money, it sounds like he was still planning on going the VC-funded route, and that's the assumption investors would have been operating under.
In the end, they were probably okay with a 2-3x ROI because they expect most of their investments not to work out, and 2-3x is better than 0x. But I doubt they would have invested if the plan all along was to aim for a 2-3x return.
> This will probably mean you have some revenue and some sense of where PMF might lay or some kind of brand/pedigree.
> Do not underestimate the value of YC brand and being able to present on Demo Day gives you
Except to get into YC you also need to have very good traction and a plan to 10x that quickly
The two exceptions to that I’ve seen are: 1) you’ve had a good exit before, 2) you graduated from Stanford, Yale, Harvard, or similar
So for people with neither of the above, finding 10-20 angels might actually be more doable than getting into YC. Although, once you’ve done that, YC is a lot more likely to take you in
I can't speak for YC, but as an operator: the primary reason to go to YC is to smooth a path for later fundraising, and if you plan to fundraise, you need something like a 10x trajectory, because VC portfolio math doesn't work for companies without it.
For smaller amounts of monies such as £250k or £1mm, it is much easier to get funding, since a decent amount of countries offer tax relief to the investors for example in the UK through EIS, SEIS, or even VCT. These offer advantages to angels over the VC's.
In addition the whole point of this piece is that you are generally looking to grow slower, thus having smaller capital requirements and burn rate.
Also almost always angels profit either from secondary in next rounds from VC or acquisition or IPO. In general it is very hard to return back 2-3x in say 2-3 years without going to VC for next round.
However, the middle path from the article presumes the existence of VCs willing to join you on that path. The article waves this away with:
> angel investors are generally more open to a 2-3x ROI
For a $1M round you'd need to find 10-20 such angels (assuming $50k-$100k average check size) willing to accept small upside, for which you'll have convince them there's commensurately smaller risk. This will probably mean you have some revenue and some sense of where PMF might lay or some kind of brand/pedigree.
Do not underestimate the value of YC brand and being able to present on Demo Day gives you. A random Jane from Ohio building her tech company would have a lot harder time finding those 10-20 angels, to put it mildly. I'd be more careful when extrapolating path-dependent success into a general strategy.
That said, my gut feeling is there's room for the next Paul Graham to fill that space - somehow.