Joshua Schachter / Image by Joi
We recently dived into Joshua Schachter’s “Ask Me Anything” at HackerNews to learn more about the founder of Delicious and the way he invests as an angel investor. He calls himself a “junior” angel who’s trying to figure out if he wants to become a professional investor someday, but the way he thinks and vets deals are very similar to those of sophisticated investors. You can too, if you hang out with the right people and educate yourself on angel investing!
Schachter has invested in “34’ish” startups to date, including mouth-watering deals like Foursquare, Square, and Bump Technologies – deals that definitely not your average “junior” angel can get into.
Find out what motivates Schachter to invest, how he got access to proprietary deal flows, and how he “filters the crap” in Del.icio.us Founder Joshua Schachter: Not Your Average “Junior” Angel Investor.
Here, let’s check out the kind of deals he’s into and his opinions on small angel round.
The team, product, and market are all important to Schachter. Specifically, he’s interested in new things in interesting spaces that have a comfortable competitiveness climate, as well as those that have the potential to exit in 5 to 10 years via acquisition or IPO.
He looks for strong people
He adds that the “evidence of having built something is better” than having a fancy business degree.
When asked about raising US$200,000 from angels, Schachter notes that pre-revenue companies raising less than US$500,000 “are making a huge mistake.”
“The point of raising funds is to hire people who can accelerate the growth of the business.” He explains that startups “should spend most of it on people and the rest on other constraining resources.” US$200,000 gets the company “a person or two, which doesn’t do very much.”
So the founders find themselves “raising again pretty much immediately.” The fundraising process is a colossal waste of time. Entrepreneurs going this route are “not making good trade-offs.”
“In my experience, most of these companies fail,” shares Schachter.
If a small US$200,000 round is enough, “it smells like a lifestyle business.”
Some may disagree with Schachter but it’s definitely food for thought. One thing is sure – savvy investors don’t invest in lifestyle businesses.
However, companies raising from Y Combinator, which usually invests US$11,000 + US$3,000 per founder, are an exception. Schachter argues:
If YC were just investing the dollars, it’d be a terrible deal. But it’s doing a great deal more.
Like all seasoned investors, Schachter favors priced rounds over convertible notes: “I’m investing now, let me price it now.”
He then shares his observations on the use of convertible notes (or “convertible debt”):
I’ve noticed that both very hot and very cold deals are debt. Hot because they can demand it, and cold because they can’t scrape a real round together.
What are you wearing?
I am wearing a red “foo camp” tee shirt from 2007, jeans possibly from j-crew, and white gym socks I bought at Wal-Mart.
A year or two ago I threw out all my mismatched pairs of socks and bought all identical white socks. Now I do not have to match and fold the socks when washing them. I just pile them into the drawer.
Was the recent stock market plummet your fault? Did you sabotage the investment banking industry on your way out?
You can’t prove anything. I have an alibi.
Do you talk to yourself often?
Yes, I do talk to myself.
What do you do at Google?
Press buttons, mostly.
* For series, references are published in the last installment of the series.
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