Valuing is the process of placing a price on a stake in a company based on the future potential capital returns. Value is what you are willing to pay in exchange for something that you want. Throughout the early stages of the investing process you are weeding through the vast expanses of potential opportunities. In this stage your focus shifts towards determining what the potential gains can be and what a fair price is based on your growth expectations. Depending on the industry and the needs of a startup this investment can come in different forms. While capital is among the most common, some other forms of investment may include time, name recognition and the opportunities you may forgo in favor of this opportunity.

               When it comes to determining the value of a start up there are numerous ways you can go about it. In the book “Winning angels, the 7 fundamentals of early stage investing” we are given 12 strategies that are recommended. These range in complexity and time requirements and ultimately come down to experience and personal preference. Among the 12 outlined, 2 stand out to me as the most interesting. The first is $5 million limit valuation method. This method states that an investor looking to make the typical growth of 5 times their invested capital shouldn’t invest in companies that are valued at above 5 million dollars. For an investment to grow by 5x, the overall value of the company must also grow by 5x. In larger companies that are already worth over 5 million this growth becomes less likely. The second of these methods that I found particularly interesting is the venture capital method of valuation. In this method, a user combines the multiplier method and the Discounted cash flow method to reach their desired return on investments. This method requires the entrepreneur to consider the industry and its context against the potential growth of the firm to determine whether it would be worth the risk of the investment. As I stated before, among the many methods offered, it is up to the angel to determine which of these methods they are most comfortable using.

               There are many key factors that should be considered when looking at an investment. These are described in the novel as switches that must all be turned for an investment to result positively for the given investor. The first of these is the proper sourcing and evaluation. As I have described in previous entries, these methods require the investor to devote a large amount of time to determine whether they are a good match for the firm. They also require the investor to evaluate the different aspects both internally and externally for potential risk. Secondly, the deal structure can become a critical misstep if not properly managed. Clear legal protections on acquired equity will prevent potentially catastrophic losses in capital. The price paid is another key factor in the investment. The evaluation of the firm will ultimately determine the potential pay out once the investment has reached maturity. This should be weighed against the potential for dilution depending on what round of investment the start up is in at the time of the valuation. The investor should attempt to legally protect themselves by providing a stipulation that allows them first access to protect their share in the startup if future rounds of investor capital is required.  In the end, an early round investment comes with the highest risk. These angels are risking the complete loss of their capital and thus will come with higher costs to the business. The equity must reflect the risk and offer the investor large potential returns.

               Outside of the financial calculations, there are many considerations that can lead to large gains in the future. Within the context of the deal, inexperienced investors may attempt to be stingy with investments or become greedy. This is what I would describe as “penny smart and dollar stupid”. For experienced angels, some of the most lucrative deals are facilitated through past dealings with smaller steaks. One way this occurs is through the entrepreneur themselves. In many cases, investors are just as concerned with the person behind the curtain as they are with the potential startup. These driven and innovative individuals can turn into important contacts and opportunities down the road if the investor can create and maintain positive relationships within their business dealings. During these investments the angel might also learn important industry information. This information can become invaluable in investments within the business sector down the road. The other professionals surrounding these deals also can become tools for the entrepreneur. These can come in the form of new co-investors, new strategic partners or even attorneys or accountants. Finally, the better the relationship that is built within the valuation process, the better the chance of gains through the later rounds of financing. Overall this process should be treated as a chance to expand your network. This can lead to new referrals later.

               This stage is one that can either open or close many doors. If the angel is well studied and understands the people and industry that they are dealing with, then they can turn one opportunity into many. Additionally, this valuation process can be key in understanding what numbers and metrics you are comfortable using when evaluating future investment opportunities. If properly handled, valuation can easily streamline the structuring and negotiation processes.

Evaluation is the lengthiest and most time-consuming phase of an investment. It requires the entrepreneur to traverse the many complexities of the business and its surrounding context to create a concrete idea of the potential gains and risk its associated with.

            One of the first and major evaluation criteria considered by any investor is the people involved. This ranges from the entrepreneur that is actively running the business, to the management team and to all relevant steak holders that contribute to operations and the broader context of the industry. The entrepreneur Is easily highlighted by angels because of their potentially large holdings in the firm and the power that subsequently gives them over business pursuits. The management team hired by this person is also a major concern for the angel. These two groups are responsible for the overall functionality of the firm and thus must be properly vetted. Some of the major components include their experience and capability in the given industry. Investors need to believe that the people that are running the firm have the required skills and knowledge to guide the firm into profitability. Another key factor is the commitment of these individuals to the future growth and exit from the venture. If an entrepreneur is not fully invested and willing to dedicate a large amount of their time and resources into the firm, then how can they expect an investor to feel confident about the project. Finally, these investors want to see that the entrepreneur has the confidence and the proven track record of success. This can come in many forms but in any given industry a competitive personality and tenacity are required in order to be successful.

            There is a framework put forward in the novel “winning angels, the 7 fundamentals of early stage investing”, that describe some of the major contributors to an investor’s evaluation of the opportunity. These are size, model, customer and timing. The model of the business is the factors that describe the business’ strategy for making money. This is a more concise description of how the business plans to gain customers, maintain them, and then generate a profit serving them. Investors like using the model because it avoids the errors that are bound to come as a result of forecasting in a business plan.  Customers are the next piece and are perhaps the most important piece of the evaluation. A business that sells a product, no matter how innovative, will fail if there are no customers that are willing to purchase it. Market analysis experimentation therefore must be done before the launch of the business. Understanding the people that you wish to serve and tailoring the business to specifically meet the unfulfilled need is the essence of a successful startup. Timing is about reaching the customers within the market at the perfect time. A common misconception by many within the entrepreneurial field is that you must be the trail blazer in order to become the market leader. Though seizing the early adopters and becoming the pioneering business in the market has its advantages, it also comes with increased risk. This new product in a new market is often viewed as high potential but has a large amount of variation and therefore discourages some investors from entering. It is therefore not about getting your product to market first but being that one that captures and provides the best value for customers at the ideal time within the emerging or existing industry.  Finally, the size of the investment and the size of the firm are codependent and key variables. Experienced investors tend to look for big investments that produce “homeruns”. These investments are often large and come with a reasonable amount of risk. For smaller businesses this may not be the correct ask for newer entrepreneurs. Smaller investments that are one-time contributions may be all that is required at a given time. These deals can be beneficial to the investor by providing them with a hands off and low capital investment and to the entrepreneur by providing additional paid in capital without giving up an unreasonable amount of equity and control within the firm. These factors should all be considered together to give insight into the risk and the overall need of the business at any given stage within their development.

            There are different types of investors that are also key to consider. This means that the chosen investor may be able to provide additional resources or key knowledge that can benefit the firm in its development. The coach or mentor for example can invest within the business and provide it with advice and support that would otherwise have to be learned through trial and error by the entrepreneur. In contrast, the silent partner can be helpful for building credibility of the firm through name recognition, without losing the control that many entrepreneurs seek to maintain. When considering which business to invest in, it is just as important to turn the camera around on yourself and ask what additional value you can bring to the firm. This can be used as a bargaining tool as well as an incentive to your contributed capital.

            Evaluating is a complex and rigorous process that takes up a majority of investor time. If you recall from the previous section on sourcing, newer investors are advised to attempt a quantity investment strategy. This allows them to see a large amount of varying investment prospects and learn quickly from these opportunities. Time is an entrepreneurs most crucial resource; this means that improving one’s efficiency in the evaluation process can become one of the best ways to boost your potential work output.

Investments are the life blood of the business world. Some would argue that those that invest are taking advantage of entrepreneurs and the system rather than contributing themselves. This is of course a false notion, as anyone that has considered the multifaceted realm of finance can attest. With liquidity among assets being one of the prime reasons that new businesses fail, the attraction of these individuals is paramount to success. What isn’t as obvious is that these investors may be as attracted to your business as you are to their backing. An entrepreneur must place a hefty weight on understanding the procedure and thought process that accompanies investments.

            Sourcing is the first step of the investment process, focusing on the identification and organization of potential opportunities. There is a large amount of variation among strategies and tactics available to the investor, allowing the angel to personalize his/her methodology. In the book “Winning angels, the 7 fundamentals of early stage investing”, David Amis and Howard Stevenson outline 18 potential approaches that vary in duration from 30 minutes to several years. They also provide strategies that require consistency and perseverance in order to be effective. The task of choosing which one of these strategies works best for your portfolio or angel investment may seem daunting, but these are tools that are meant to provide a person with a superior understanding of their own inclinations and interests within the investing community. Consequently, a strategy recommended for early investors is quantity, rather than focusing on quality. The novice angel investor must pursue many ventures in order to become adept at knowing their proclivities. This method is equally concerned with understanding personal aspirations and penetrating the market for novel and exciting opportunities. In contrast, seasoned investors are notorious for their stubbornness in general investments. These individuals are willing to let unappealing prospects pass, if they are unable to see a substantial amount of merit or a vibrant role that they can play in the progression of the startup.

            Networking is a crucial skill for investors and business minded individuals. It comprises all the relationships that are forged and sustained throughout one’s career. Of the 18 activities that were mentioned in the sourcing activities by Amis and Stevenson, 13 of them are directly involved with the function of expanding, maintaining and focusing on one’s network. These relationships become the best means of exposure to new opportunities, while mitigating the amount of time that is required to encounter them. Referrals are essential to investments because they save that crucial resource, TIME. Referrals from a trusted network connection allow the entrepreneur to circumvent the rigorous and time-consuming intricacies required to comb through the jumbled world of startups. These are recommendations from reliable entities that are personally tailored to your specific interests. By steadily building and maintaining your network, you are opening the door to abundant latent opportunities. This stage of investing is concerned with personalization and goal consolidation. Understanding what you are looking for and showing genuine interest are mutually dependent factors in partnerships and potential investments. They both derive from developing one’s sourcing methods through experience and experimentation.

Is higher quality worth it to consumers if consistency is lacking? In the case fast food, the answer is clearly yes. Just look at the amount of revenue generated by giants such as McDonald’s and Taco bell and you’ll see that the key to customer satisfaction in this market seems to be centered around the guarantee of product uniformity. A burger from a major chain such as Chili’s, Apple-bee’s or Buffalo Wild Wings undoubtedly has a higher ceiling when compared to that of McDonald’s, but the risk of mismanagement or poor temperature control will ruin the premium product in a way that the heavily regulated McDonald’s food cannot. Some chains have found a way around this, Chipotle for example controls their quality by limiting and heavily monitoring their franchise locations. This limits the overall profitability of the business but maintains the quality and provides the consistency that seems to be at the forefront of consumer decision making. Of course, price is another major driver in this market but again the uniform low-end product offers both a lower price and the higher consistency. In addition, these chains are a more scalable and lucrative option for franchising entrepreneurs. In the end premium products seem to appeal to niche markets but the broader market has and will continue to gravitate towards these simple, consistent and affordable options.

For this post I thought I’d talk about something that’s been bothering me. With the Corona virus and the stimulus packages rolling out a big question is being asked by many people that are struggling. With the schools being closed and children being taught online, should schools return a portion of the property taxes they have collected to help families? While teachers are still holding online classes many of the administrative and maintenance staffs are no longer necessary in day to day work. In addition, bussing companies, lunch staff and coaches are no longer filling a role. While we want to continue to provide payment for these people in trying times there is also the question of where the money that is normally spent on replenishing school resources is going.

              One suggestion I heard was that schools should use the extra money to provide tablets or portable computers to students to assist the creation of a school atmosphere at home. In New Orleans for example, there is a backup of the laptops and mobile hotspots that students have access to. With families relying on limited resources during this time it may become necessary for the federal government to step in to either cancel the school year or stimulate the flow of these resources. Though some schools have the resources and have already spread this technology, others are requiring parents to pick up worksheets in person throughout the remainder of the year. This means that areas that have a disproportionate level of inequality are being forced to educate their children themselves. This can become a problem as many older individuals lack the ability to navigate the rapidly advancing realm of education and technology.

              Another suggestion is that schools’ districts should be opening their doors in early august assuming that the pandemic has ended. This would provide students the time to reacclimate and learn the crucial information they otherwise would be missing. This also would allow parents to regain their sanity by getting the children out of the house.

Whatever the solution we chose to pursue, we must come together and be decisive. These children are the future of our country and it is important that no matter their location or economic status, we are providing the best possible educational opportunities that we can.

It’s no secret that the lack of information regarding Covid-19 has managed to make American consumers panic like never before. Just go to any social media site and you will find videos of people fighting over toilet paper and canned goods like they’re the cure. In these tough times, it is without a doubt much safer to stay home and stay safe. The question then arises…

How does one stay sane while locked in close quarters with their love ones?

When the usual distractions are no longer available our innovative minds must be applied creatively in order to survive. Throughout this isolation my roommate and I have discovered several effective ways to outlast the boredom.

1. Watch Netflix

This one comes as no surprise to many of you. The problem comes when you finally finished the show that has been lasting you months in the first day of isolation. This has led many people to become desperate enough to obsess over shows such as Tiger King. There are however several shows and movies that fly under the radar. Instead of re-watching the office for the 15^th time try checking out some of the lesser known gems.

• Cooking

Over the last couple weeks my roommates and I have perfected our steak sandwich recipe. This isolation has given us plenty of time to slowly cook the same dish in multiple batches rather than all at once. These small experiments lead to our new love for garlic butter and Cajun seasoning. If anyone has suggestions for other recipes, I would love to hear them!

• Clean the house

All this time is perfect for getting ahead of your spring cleaning. There is nothing worse than spring sunshine coming through the window and revealing your disastrous hibernation chambers. This is the perfect time to get a jump on that cleaning and get the house ready for guests once we survive this pandemic. Its also a great idea to regularly sanitize the areas that people congregate in to prevent further spreading of illnesses.

• Hiking or Biking

This is the best way to social distance and get the summer body that future you will be proud of. Though some parks are closed, many secluded trails offer a great opportunity for fresh air and sunshine. This will help lift your spirits and get you out of the house.

• Reconnect with family and old friends

Just because you can’t see someone face to face doesn’t mean you can’t chat. We live in a globalized world where our contacts are available at the touch of a button. Everyone is bored at times like this and a simple phone call or text message can brighten their day. You never know what could happen so pull together while you socially distance.

What ever you do, stay safe and stay healthy…

And share some toilet paper with the rest of us!!!

With the federal government recently signing into law a stimulus package I thought it would be a good opportunity to talk about some of the relief it will provide. Social media is exploding with individuals already deciding how they will spend their $1,200 without reading the fine print. It’s no secret that a majority of social media users are younger and therefore may be under parental dependency. This oversight on the part of many young individuals will come as shock in the coming weeks. According to the bill, these checks will be provided to those with 2018 tax returns that show they’ve made less than $75,000 in that year. What many don’t consider is that dependents will not receive any income in the days to come. In contrast some major industries, such as the airline industry, are receiving massive portions of the overall stimulus spending. The moral questions here is whether individuals and families that do not qualify should be propping up industries that have for years offered low wages and high consumer prices.

              Small businesses are being offered loans that will be forgiven at the end of the national emergency under the condition that they continue to pay their employees their expected normal salaries. This leaves the entrepreneur in an odd situation as any company outside of the essential industries are also being barred from operating. Throughout the country we are seeing mass unemployment and small businesses closing their doors. The questions are being asked as to whether the precautions and social isolation will untimely cause irreversible damage to these sectors while the federal government is continuing to prop up larger corporate competitors. Americans also seem to be pretending to socially isolate as they continue to shop regularly and inhabit public spaces. State governments in certain parts of the country, such as New York, have even gone as far as arresting and writing tickets to people that ignore state instructions. This crisis will either spur a new generation of innovation and entrepreneurship or cripple the world economy for the foreseeable future. Only time and entrepreneurial drive can determine this countries future.

One of the most interesting sections of Christensen’s book dealt with the idea of economic systems that focus on disruption in the global context. These would include countries that place a high value on competition and allowing new innovations to spring up in existing markets. It also explains why countries like the United States has managed to maintain a position of dominance in the global economy.

               To understand this system, we must first understand the cycle that all existing firms go through. As with the business cycle, new firms enter as disruptors and experience success. As the success continues these firms will begin to seek up market opportunities to increase their revenue production. Once they make this move and experience their growth, they should become the incumbent in the industry. This is when growth stops, and firms tend to lose their dominant position. In the case of many Silicon Valley companies, management from incumbents, that were former disruptors, branch out and become disruptors themselves. This cycle continues with each new firm supplanting the previous and pushing technology further. The question then is what the United States do specifically to maintain control over this cycle.

               Christensen suggests that there are 6 factors that predict a countries proclivity towards encouraging disruption. The first is the market for talent that is flexible and encourages entrepreneurship. Economic mobility must remain fluid if a country wishes to provide the proper motivation for its citizens to innovate. The second is an investment mindset among entities outside of the banking system. Debt based financing can become a death sentence for entrepreneurs as the inconsistency of disruption does not create consistent revenue streams to cover debtor obligations. The third is the access by the disruptor to overshot or non-customers within the industry. As explained in my previous posts, non-customers and overshot customers are created by asymmetrical motivations between firms existing in the industry. Both groups are untapped and unsatisfied with current solutions. The final 3 factors are supportive infrastructure, vibrant competition and intellectual property protection. Among these the IP protection is the most important when a competing as a disruptor. Major firms must by out smaller companies if they wish to remove the risk for displacement. If this system isn’t in place the larger incumbent can easily copy the smaller firm’s success and produce the given product or service in both cheaper and more convenient ways.  It is important to understand that United States patents and protections only apply in our own country. This means that firms seeking to go international with their brand must either file the proper paperwork if possible or have the resources to beat out potential competitors that will simply copy the IP.

High barriers of entry due to expertise disparities and a lack of transparency makes one of the largest industries in the American economy difficult to predict or react to. With doctors and high-ranking chemists possessing all the bargaining tools and the average American desperately needing their services prices are often astronomical. Despite this protection provided by governmental boards and an ever-growing pool of information are beginning to pull the curtain back on the medical industry. Christensen talks about 3 major reasons that the average person may believe that disruptive innovation doesn’t have a place in the medical industry.

The first of these reasons is the idea that consumers blindly trust their doctor’s judgement. This states that if medical professionals are aware of the tools and practices the price of health care will naturally decline. Technological advancements in the field therefore should be centered around the previously existing trends currently set by industrial leaders. This of course is objectively false and disproven by the constant advancements that we see in the availability of medications and first aid supplies that previously would’ve been much more expensive. One must only look throughout the local pharmacy to find the ever-growing supply of over the counter medications that can be used to treat minor illnesses. By pairing this with the almost unlimited information at the consumers disposal through the internet, a person can self-diagnose and treat themselves in a way that was almost unthinkable previously.

               The second factor is the myth that customers are risk averse with their health. Unlike some tangible goods this idea states that people are less likely to partake in risky behavior when it effects their health. This can be disproven by the plethora of activities that many of us participate in every day. Anything from not wearing a seatbelt to drinking and smoking all negatively affect our health. People are willing to risk their health if they understand the risks or believe they do. Entrepreneurship saves lives in the medical field everyday through studies and advancements in technology. The final idea put forward is the idea of the social good. Health care should not only be as widely available as possible, but the care should also be the top quality. It is important to consider how the definition of quality changes based on the type of treatment that is needed by the patient. In the case of major illnesses, in depth care and accuracy is required. In the case of smaller injuries and illnesses convenience and price become more important. One solution I have to this problem would be creating a larger pool of professionals with the capability to prescribe non controlled prescription drugs. This can be done by allowing pharmacists and nurses to treat patients and using doctors for referrals on more difficult cases. This would increase the supply of treatments and thus decrease the price. Insurance then should only be used specifically for acquiring prescription medications and for serious injury or illness. This would essentially make health insurance like car insurance. Rather than using your insurance every time you need an oil change you could use it when you have an accident. This would reduce monthly and annual spending in the health care industry and give consumers a better idea of the costs of treatments.