Felicis Ventures Blog

Want to Fix the Economy ? Think Immigrant Entrepreneurs

There is a plethora of ideas on how to revive the economy. To me it boils down to one simple strategy: Support the entrepreneurs, especially the immigrant ones. The stimulus grants the government is handing out to different industries remains a band-aid solution and basically just re-allocates existing resources. Supporting the entrepreneurs, on the other hand, is likely to result in new jobs, create *new* capital (ie new resources). Google is a phenomenal example with nearly $100 Billion in market capitalization created in about 7 years along with 20,000 employees. According to Economist,US is the only country in the world, where start-ups generated net employment gains after 2/4/7 years from their foundation. Again, the same report highlights that 10-35% of all US companies were founded by immigrant entrepreneurs.

Immigrant founded companies in the US created $500 Billion in market capitalization while companies started by foreign-born entrepreneurs generated nearly $ 17 Billion in sales and employ 220 thousand people in the US. That's just the immigrant entrepreneurs.

There's increasing sentiment in our community that supporting entrepreneurship is a much more preferable way to reviving the economy than bailing out large dinosaurs like GM which need to go into bankruptcy to reorganize so they can become viable companies again. Thomas Friedman certainly defends this perspective in this post - arguing for funds to be directed to venture capital. Don Dodge, goes a step further, and posits that just spending $1B in incubators like Y Combinator or TechStars would yield not only immediate employment but probably even more potential upside in terms of wealth to be created. He also lists several government programs like R&D or seed capital tax credits that, if applied with less strings attached and more uniformly across states, could turn into great solutions.

There's no doubt in my mind that the writing is on the wall and the numbers tell a story. This is a country built by entrepreneurs, in fact, mostly immigrant ones. There's no doubt that the same group is key to reviving our economy.

Angel Investing Basics - Insights from Y Combinator's Angel Conf

It's very hard to distill insights gained on angel investing over a period of 3 years into a talk of just 7 minutes. So I thought it would help to re-summarize those lessons in writing. Here's a pretty comprehensive list (though not exhaustive) of what I think is key to be a good angel investor:

• Pick a Goal - Picking a goal as an angel investor is important: decide if this activity is a hobby, philanthropy or the next professional step in your career. Maybe it's one or all of those, but it affects the outcome and your investment style.
• Pick a Focus - Everything else being equal, investing in an area of expertise, based on a field of experience or knowledge is key in reducing the risk while increasing the chances of success. It also allows you to know your segment and your companies better than others.
• Be Social - Woody Allen once said that "90% of success is showing up"; the best foundation of angel investing is a solid personal network, which is ideally built one connection at a time. It's also important to always be nice & helpful to the entrepreneurs as well as your co-investors, referrals produce often the best investments
• Be Transparent - It's OK to pass on deals, in fact, it's necessary to decline a lot more investments than proceeding with them. But doing so in a transparent, timely, helpful and polite way is very important.
• Be Different / Build a Brand - There is no shortage of capital, even in this economically challenged times we're in. Putting in the extra effort and paying attention to details will pay off big over time. Building a strong personal brand is key to attract the best entrepreneurs and have them choose to work with you. It's also key to creating a "proprietary deal-flow" which is the most important success factor in angel investing
• Understand and Pay Attention to Terms - At times this could be the difference between losing your investment and generating a positive outcome. While lawyers can help here, so can being part of a reputable, professional and good investment syndicate
• Use numbers to your advantage - having a portfolio of a reasonable size (larger than 10) is pretty essential in several ways:
  • it helps spread the risk
  • if you are helpful to your portfolio companies, their teams become your champions. The more companies and people speak positively on your behalf, the higher are your chances of discovering extraordinary founders and start-ups
• Have fun - Enjoying what you're doing will reflect positively in your attitude. Working with founders you like on ideas that make a difference and seeing those companies grow can be extremely rewarding. Enthusiasm is contagious.
• Know that it's not a picnic - A great portion (1/3 according to Ron Conway) of the companies in your portfolio is likely to fail; in fact it's expected. Remember this is about making bold bets, and with those come often losses, and the pain of seeing companies close their doors. Tolerance for losses is a necessity not an option.
• Pattern recognition / Supply and Demand - Seeing a very high number of deals and having a portfolio is key in training your pattern recognition. Angel investing is not an exact science, it's an art. The best way to perfect that art is exposure to as many data points as possible. Equally important is understanding that with most early stage investments, data is scarce and information is opaque. So valuation is often determined by the supply and demand. However, popularity of a deal is rarely correlated if an outcome is positive or not.
• Structure - If you're doing angel investments professionally, structure might be important. Make sure to look into decent legal help regarding forming a legal entity to make the investments through (for liability reasons), or putting the investments in a retirement plan for future tax benefits. These details might not be obvious at the onset, but might become critical later on.