Investor 2.0

Posted on January 20, 2008 
Filed Under The Startup

Welcome to Webgenome - it is our goal to map the face of the web! I strongly recommend to subscribe to my RSS feed to keep updated with the latest progress. Thanks for visiting!

The Idea

One of my current projects focuses on web 2.0 startup company with two partners out of the Bay Area. Myself being in Thailand with access to highly skilled and intelligent developers from the US and UK who don’t mind working, but prefer to sit in front of the river while coding. My two partners being

Between the two of them and my jungle labor force, we are throwing our hat into the 2.0 goldrush scene. The fact is anything we attempt in life has as good as a chance to fail as to succeed. Most recognize this. I think the successful people in this world are those who only attempt things that have a very high payoff.

So if you win the Web 2.0 game you win big, and if you lose, well you can still get a job with Yahoo or move to Thailand with me and put up lots of little sites. Sounds like a good playground for the entrepreneur. no?

So to get to the point, we have a dream and a vision. Its not particularly revolutionary, however its something that in all of this social web madness has been particularity overlooked. Its a better way to <insert2.0verb> via <insert2.0process>

Its not the best idea in the world, however everybody involved agrees very clearly on two things

These things are all true however it all hedges on the fact to get people to use the application. As it depends on user population in order to attain ‘usefulness’ we will find ourselves in an interesting position of

So eventually we are going to address how to build up this initial firebase of content and users so that it becomes a self-perpetuating snowball rolling all the way down Sand Hill Road.

But first we need to get this point. To do this we need moolack

The Investor

Enter the investor. A acquaintance and sometimes friend that I have known for many years to date. He has previously been a good buyer on some of my retail antique projects so we are used to doing some business together.

I call him and tell him that we need $XX,XXX to develop this idea into proof of concept and get a working Alpha/Beta up on the market, at which point we would be able to approach Traditional VC funds to get proper investment.

The money would almost exclusively be used to pay our team of US and UK developers that all live in Thailand and will work for significantly less than the market rate just because noodle soup is cheaper than Sushi. To hire this same team in the Bay Area would cost approx 4x the amount not to mention the difference in overhead, rent etc….

So we were essentially offering the value of a $XXX,XXX for $XX,XXX just because we know how to use our money effectively.

The Issue

During the pitch and initial meeting, we laid out very clearly where we were and where we wanted to go. This things included

At this stage, he was very interested and agreed that this was an excellent concept and could be extremely successful if implemented correctly. he stated that before investing, he would have to discuss with a family member who was involved in investment banking and managing stock portfolios.

This is where I get to the point of this discussion.

In the investment banking world, if a team of people come to an investor with an idea, the investor will give the money and the people will build it and the investor will own most of the company, as the Team was functioning as more or less employees with performance bonuses for the investor.

For example, lets say that I am a broker and wanted to take a position on Mexican Corn. I would goto Mr. Rich Pants and tell him that within the next year the price of Mexican Corn is going to double. Mr Rich Pants would agree to put up the money and I would set up a company and warehouse and purchase as much Mexican Corn as I could possibly stuff and wait for the price to go up.

If I was correct, then Mr. Rich Pants has just made even more money and me as the person responsible for coming up with and implementing the idea has made some, but not nearly as much as the Already Rich Guy.

The idea is that all the risk is on the investor, so of course they get all the rewards. This is of course a little diffect than the SV angel method.

The Way of the Angel

The Web technology Angel investor invest for a number a reasons that can include

The most important trait of an Angel investor is that he believes that by investing in a project, that he is doing good and that whether the projects succeeds or fails, he will still be satisfied.

Now from a black and white perspective, this does not seem like a sound investment stragtegy, but it is the way that it is.

The Conclusion

The conclusion of our little story is that my friend did not invest in the startup which turned out to be a blessing in disguice. We were able to negotiate with our programming staff to take a pay cut so that we would be able to fund out of our own pockets. In exchange we gave them the equity we were going to give to the original investor.

This is a blessing because now we have a whole staff of people working on this project who know very well that if this is successful ,then we will all be wealthy beyond our wildest dreams. That in itself is already a success

Comments

One Response to “Investor 2.0”

  1. Allen Taylor on January 20th, 2008 10:43 pm

    I found your site on technorati and read a few of your other posts. Keep up the good work. I just added your RSS feed to my Google News Reader. Looking forward to reading more from you.

    Allen Taylor

Leave a Reply