Low margin marketplace businesses, confidence in capital-raising ability, capital-intensive business

On that front, I respect that founders know their business the best, that they receive a lot of input to synthesize, that decisions take place with in an evolving environment and uncertainty and that founders will discard a lot of the input and advice they get from people like me, so I am perfectly fine if you discard some or all of what I say and challenge things. If it's alright with you, I will send things that I think of in advance of our talking. I was thinking today that your business is a capital-intensive business in the sense that -- to win in your market, a company will need to get to scale quickly. To a significant extent, it's a race, similar to ride-sharing. I think a lot of investors will be thinking about that risk / opportunity with the business when thinking about investing. I was thinking a few related things: - that a micro-VC would want to be confident that they could help to either bring in a large investor in the current round or in subsequent rounds. - angel investors might want to see a micro-VC who can help with the above or a larger VC fund in the current round. This type of opportunity poses extra risks to angel investors. Their capital is less helpful in the sense that it gets a company less distance than with something like software, where $500-1,000K could create something that gets the start-up through significant milestones and even to the point where it could be acquirable. If it's useful to get a data point re what angel investors think, I can say that I have held back on opportunities where the opportunity made sense and the team was strong, but it wasn't clear how the big, non-stop capital infusions to stay operating and get to scale would be achieved. Even with product companies such as business SaaS, there's a good argument that the market leader will raise the most money and create the biggest distribution network vs. the best product. Relatedly, the ideal team consists of -- a proven sales/marketing/distribution person, a proven industry/product leader, a tech person, someone who can scale operations and someone on the team or in the investor group that can raise a ton of money if necessary. These could be things that 2 people or 5 people cover as a team. Most teams won't have these all. But, some will. That's key because entrepreneurs can find themselves having meetings with the right people a good VC firms, and then the VCs will say, this all makes sense, but is this the team? This was a challenge with a business I was just working on -- our industry distribution guru left, and it made it hard for investors to see us as a complete team. The real competition for getting investor dollars are the other deals that an investor may see. They could be in complete unrelated markets. I need to think about the $500K v $2M. It's a dilemma that many of us face -- what looks like it might be a quick path to survival v something that is a bigger ask and has it's own questions. My personal take is that I would view investing in something that merits and needs $2M and is raising $500K as risky. I'm not sure what percentage of angels think about that though. I need to think about the micro-VC and large VC perspective.

On the format of the round, my personal strategy is to say "we'll do what makes sense for our lead investors, either a priced round or a note with a discount, cap and acquisition kicker." If you're doing $500K, most people will recommend a note for the reasons you mention and because it's customary. At $1.5-2M, then I think it doesn't matter. Either way you'll price it -- with a cap or as equity -- and you'll have the money to pay for it.

I don't know many folks who've made similar investments, but I will look into it and followup.

Thank you much. I appreciate the offer of help! Likewise, I look forward to meeting you too. I'm sure we'll exchange emails or talk via phone in the interim.

#Investorbehavior #Marketselection