Paul Singh (500 Startups)

From ‘Ask Paul anything on Angel Investing’ : Is it fair for angels to have tranches linked to milestones?

Last week we announced a new section on Pluggd.in forum, i.e. ‘Ask me’ and we have Paul Singh of 500Startups answering all your questions related to angel investing.

Quickly, here is a recap of a few questions that were asked by entrepreneurs:

Is it fair for Angels to have tranches linked to milestones?

@Paul Singh: In general, you should avoid tranched deals. If you need the money, take the initial chunk but remove any clauses related to the tranches.

If you need money later, you’re better off raising on an entirely new note… because, well, you’ll have some new traction to show right? :-)

How much equity to give away for a V0.1 product

How much equity to give away for a V0.1 product – i.e. when market validation hasn’t been done yet. Typically for a funding range of $20K – $50K?

Here in India everyone want to travel on the running train, no one really help pushing on while you are starting.
My question is how to get your very first Investors convinced in the Idea stage so as to arrange small funds to build in excellent MVP later. What factors count in most ?

@Paul Singh: Sorry to burst your bubble but no one should be investing in ideas. If you can’t build a prototype of your startup on your own, you’re already starting on a bad foot. There are simply too many other prototype-stage companies to look at.

@sinha@ishan and @william: The market determines the pricing. That being said, my advice to founders is that you should generally dilute 12%-18% for 12-18 months of runway. (To be clear, that’s just a rule of thumb – your traction has to justify the investment.)

What should be valuation of a my product 1.0 with glboal users and paying customers?

Qn: I am a solo founder and built and launched version 1.0 of the consumer facing product. we got some global response from one of the top 10 rock bands in US using it to launch their music album. Also, approached by Spain’s football team(FIFA World #19) and they’re interested in using it. I am shortly closing on my first paying customer.

@Paul Singh: First off, you don’t want people investing to become cofounders (please tell me if I misunderstood what you said there). Don’t ever do that.

In the US, valuations for early stage companies is in the $1M-$3M range. In India, it’s usually lower. At the end of the day, the market determines the prices. It’s your job as the founder to make that market… usually by demonstrating traction and capability.

What are some of the first things investors consider before investing in a team?

@Paul Singh: The first thing I look for is referrals from people I know — ideally people I’ve worked with in the past (either as an investor, coinvestor or advisor).

The next thing is a *clear* story. I love it when founders start with a traction stat, follow it with a crisp definition of the problem they’re solving and then end with a simple explanation of what they’re solution is.

Here’s a simple template:

“Today, X people used my product Y times and that’s worth $Z to them. The problem is [BLAH]. We solve that by [BLAH].”

You should be able to say everything you need to say in less than 3 minutes.

And a lot more.

If you ever had any questions related to angel investing, hop to Pluggd.in/forum and ask Paul right away.