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Angels And Twitter: Dropping Knowledge 140 Characters At A Time

When you think of Twitter, it’s often relatively inane 140-character updates interspersed with highly relevant content you don’t have to traverse the web to find any longer. It’s that dichotomy that has led to Twitter’s meteoric rise – effectively mirroring the schizophrenic nature of how we consume information. And every once in a while an ultra-relevant conversation breaks out among 3-5 folks on a Saturday afternoon, which was the case last weekend on the continuing topic of investments and startups. The discussion was led by the ATDC's Keith McGreggor, who used his own startup BackNoise as a real-life example in discussing the finer points of raising money versus bootstrapping. There was also significant conversation about the mechanics and business drivers of angel investing. Good stuff all around!

You can read the article that started the multi-day conversation, along with multiple posts on Lance Weatherby’s Force of Good blog. While the conversation was specific to Atlanta, the lessons are spot-on for virtually any startup town that’s not Silicon Valley – from Raleigh to New Orleans.

Enjoy an instant replay of the Twitter stream below:

lance
Is it the investors or the startups. Let's find out. http://bit.ly/aOxKZo
10:39 AM Jul 24th via bitly
keith
Ok, @lance I'll bite: would you fund BackNoise? All of your criteria are met. Could easily get a valley deal.
10:45 AM Jul 24th via Twitter for iPhone in reply to lance
colin
@keithmcgreggor Better question: would you fund BackNoise?
10:46 AM Jul 24th via Tweetie for Mac in reply to keithmcgreggor
keith
@colinake I already do.
10:48 AM Jul 24th via Twitter for iPhone in reply to colinake
keith
In fact, I'll go one further: Backnoise is ready to grow (not that it's stagnate... It's not). Next step is...?
10:52 AM Jul 24th via Twitter for iPhone
keith
Based on what you know about it, what funding round/level should BackNoise seek? (Presume the ability to get a conversation with anyone.)
10:56 AM Jul 24th via Twitter for iPhone
jeff
@keithmcgreggor hard to answer without understanding how to get to key next milestones for the business.
11:03 AM Jul 24th via TweetDeck in reply to keithmcgreggor
keith
Will you sign an NDA, @jbmcconnell ? :) :) :)
11:09 AM Jul 24th via Twitter for iPhone in reply to jbmcconnell
keith
Kidding aside, an excellent point, @jbmcconnell ...
11:10 AM Jul 24th via Twitter for iPhone
keith
I'd begin my answer with a question: How valuable is a secure private conversation?
11:12 AM Jul 24th via Twitter for iPhone
lance
@keithmcgreggor It has nothing to do with me. Does BackNoise have a team?
11:45 AM Jul 24th via web in reply to keithmcgreggor
lance
This is about to get fun.
11:45 AM Jul 24th via web
keith
@lance team: yes. Very experienced. Past 8+ figure exit. Also, extremely technical shogun.
12:16 PM Jul 24th via Twitter for iPhone in reply to lance
greg
Spectator... this should be fun... RT @lance: This is about to get fun.
11:49 AM Jul 24th via TweetDeck
keith
@jackgfoster don't just spectate! Jump in.
12:19 PM Jul 24th via Twitter for iPhone in reply to jackgfoster
lance
@keithmcgreggor If said team were going full-time @backnoise might be angel fundable. $250k on $500 pre.
12:25 PM Jul 24th via Tweetie for Mac in reply to keithmcgreggor
keith
Continuing the dance with @lance ... We'll stay hypothetical here.
12:46 PM Jul 24th via Tweetie for Mac in reply to lance
keith
Remember: this is hypothetical. I am exploring the dueling theses of @lance and @davewaltersatl/@techdrawl
12:48 PM Jul 24th via Tweetie for Mac
bryan
@keithmcgreggor is BackNoise secure?
12:24 PM Jul 24th via Nambu in reply to keithmcgreggor
keith
@bryanwiltgen trivially so.
July 24, 2010 12:48:24 PM EDT via Tweetie for Mac in reply to bryanwiltgen
keith
Ok, @lance, assume the team is full tilt / full time on BackNoise. Now, what's next in the assessment?
July 24, 2010 12:49:42 PM EDT via Tweetie for Mac
keith
Working Lance's checklist: * product demo? http://backnoise.com/?atdc * team? asked and answered. * social proof? >700k pvs this year.
July 24, 2010 12:55:50 PM EDT via Tweetie for Mac
keith
* further social proof: people use it, tell their friends, then their friends use it. All marketing of backnoise has been word of mouth.
July 24, 2010 12:57:56 PM EDT via Tweetie for Mac
keith
* traction: repeat users, bounce rate less than 25%, time on site > 30 minutes. * traction: surprising uptick in classroom usage.
July 24, 2010 12:59:11 PM EDT via Tweetie for Mac
keith
as @pfreet mentioned: * premium version with a clearly articulated, readily achievable revenue stream
July 24, 2010 1:00:15 PM EDT via Tweetie for Mac
keith
* differentiation: ease of use/speed/scale key. Several near competitors in the free market, with varying degrees of social integration.
July 24, 2010 1:02:38 PM EDT via Tweetie for Mac
keith
So, @lance, a clearly social pure-Atlanta deal.
July 24, 2010 1:04:07 PM EDT via Tweetie for Mac
keith
A C2C and B2C play that's been operating 2.5 years, proven, with a B2B or B2C premium model in the wings.
July 24, 2010 1:06:33 PM EDT via Tweetie for Mac
lance
@keithmcgreggor If said team is going to work on it full-time $250k on $500k pre.
1:06 PM Jul 24th via Tweetie for Mac in reply to keithmcgreggor
keith
Now for the speculation, @lance. What do you think the deal would be in the valley? (Remember, a conversation could be had with anyone.)
July 24, 2010 1:08:06 PM EDT via Tweetie for Mac in reply to lance

knox

@lance Just stepping in. Valuation?
1:09 PM Jul 24th via web in reply to lance
keith
A critical conversation for us is whether such a deal, clearly fundable, should seek funding, or bootstrap onward.
July 24, 2010 1:10:21 PM EDT via Tweetie for Mac
keith
This is the Atlanta startup conundrum: how do the growth needs of a startup reconcile with the area's ability to fund for scale?
July 24, 2010 1:15:21 PM EDT via Tweetie for Mac
keith
I realize that the conundrum comes down to the risk aversion question, but I want to take it more toward the thesis of @techdrawl...
July 24, 2010 1:17:10 PM EDT via Tweetie for Mac
keith
... which seemed to be that C2C or B2C startups do not get funded because the town's heavily B2B (a simplification I know).
July 24, 2010 1:18:48 PM EDT via Tweetie for Mac
knox
Am digging the theoretical scenarios post-Sig.
1:18 PM Jul 24th via web
keith
So, with respect to brain drain, why would a startup seek local funding if valley funding results in a higher val., given affinity?
July 24, 2010 1:19:56 PM EDT via Tweetie for Mac
lance
@keithmcgreggor Given that I am pretty sure I know who the founders are the only option is to self fund until valuation goes higher.
1:20 PM Jul 24th via Tweetie for Mac in reply to keithmcgreggor
keith
Set the actual identities of the founders aside for a moment, @lance. Given the particulars, could/should this startup get ATL funding?
July 24, 2010 1:24:06 PM EDT via Tweetie for Mac in reply to lance
knox
I think that the B2C, B2B, C2C, etcetc conversation (re:angel investing) is misguided
1:23 PM Jul 24th via web
knox
Deals that have strong leadership from investors usually get funded
1:24 PM Jul 24th via web
keith
I actually agree, @atlantatech ... just drawing in the distinctions raised in the two (or three) recent blog posts.
July 24, 2010 1:24:49 PM EDT via Tweetie for Mac in reply to atlantatech
knox
@keithmcgreggor "should" or "can" ?
1:25 PM Jul 24th via web in reply to keithmcgreggor
knox
Also, investors that have deep resources (John Imlay) make the deal easier to complete
1:27 PM Jul 24th via web
keith
@atlantatech let's go with both: "should" and "can" ?
July 24, 2010 1:27:50 PM EDT via Tweetie for Mac in reply to atlantatech
knox
@keithmcgreggor Lance's valuation should get it funded. It can get financed if strong leadership from investor standpoint.
1:29 PM Jul 24th via web in reply to keithmcgreggor
lance
@keithmcgreggor Need to remove market risk by showing revenue and customers must articulate why they are buying.
1:31 PM Jul 24th via Tweetie for Mac in reply to keithmcgreggor
knox
Recent blog posts are theoretical in nature. Nice to think about...
1:32 PM Jul 24th via web
knox
@lance $250 on $500 would get a he** of a lot of deals funded in ATL
1:33 PM Jul 24th via web in reply to lance
keith
I happen to agree with both Knox and Lance.
July 24, 2010 1:38:41 PM EDT via Tweetie for Mac
keith
So, 250k in, 500k pre => 750k post. No pref.
July 24, 2010 1:40:44 PM EDT via Tweetie for Mac
keith
Let's carry this a bit further, because we're getting close to the crux of the matter in town.
July 24, 2010 1:41:57 PM EDT via Tweetie for Mac
keith
250k round equates to probably a 2-5 angel confederation (presuming - at least from my own stance - a 2x holdback for pay-to-play subsequent
July 24, 2010 1:43:10 PM EDT via Tweetie for Mac
knox
@keithmcgreggor Common ain't gonna happen IMO. Investor takes capital risk, needs an incentive. Easy to do clean term sheet.
1:42 PM Jul 24th via web in reply to keithmcgreggor
keith
This is where I'm headed, @atlantatech. The devil's in the details, where the deed is done.
July 24, 2010 1:44:41 PM EDT via Tweetie for Mac in reply to atlantatech
knox
@keithmcgreggor 5-10 these days, 2-5 if ur lucky. Yes, make sure (if you can) that angels can re-up 2-5 years downstream.
1:46 PM Jul 24th via web in reply to keithmcgreggor
knox
There's just less cash and less appetite for risk than there used to be. Guess you can call it a problem. Reality more like it.
1:47 PM Jul 24th via web
keith
Let's assume the number is 5 angels, in for $50k (and hopefully holding back $100k for downstream).
July 24, 2010 1:50:20 PM EDT via Tweetie for Mac
keith
Assume that those 5 are not just in this deal, but in sufficient deals to cover their bases. How many bets per angel concurrent? 10?
July 24, 2010 1:52:15 PM EDT via Tweetie for Mac
keith
Where I'm headed is that this is an eggs-in-the-basket problem, a variation on @lance's premise about fundable deals.
July 24, 2010 1:53:19 PM EDT via Tweetie for Mac
knox @keithmcgreggor Prob 2-5 deals per, 10 max, with Sig/Imlay an extremely rare exception July 24, 2010 1:56:29 PM EDT via web in reply to keithmcgreggor
keith How many fundable deals must exist for an area to support a healthy angel investment community? July 24, 2010 1:57:23 PM EDT via Tweetie for Mac
ben Re current topic: Making a full day of presentations on a B2C Internet play Monday, but not to the usual suspects, and not all local. 1:58 PM Jul 24th via TweetDeck
keith I think it's beyond safe to assume that not every angel can see or be offered a spot in every deal. July 24, 2010 1:59:07 PM EDT via Tweetie for Mac
keith Spot-on, @lance. The rules of engagement are clear about accredited investors (and these are the sorts of angels a startup would want). July 24, 2010 2:00:30 PM EDT via Tweetie for Mac
lance @keithmcgreggor Well before we go there an angel needs a net worth of $15 million for that type of activity. 1:59 PM Jul 24th via web in reply to keithmcgreggor
knox @keithmcgreggor You need ongoing exits (personal and investment) for angel community to thrive. ATL has far fewer than 10-15 yrs ago. July 24, 2010 2:00:02 PM EDT via web in reply to keithmcgreggor
keith An oft-quoted heuristic is that for 10 bets placed, 1 or 2 are big winners which mitigate the net damage done by the other 7 or 8. July 24, 2010 2:02:46 PM EDT via Tweetie for Mac
knox @keithmcgreggor In theory, yes. In reality, if only local deals, prob 1 in 20 July 24, 2010 2:05:33 PM EDT via web in reply to keithmcgreggor
ben Also working on B2B deal, but investors must know data center issues to appreciate. Again cherry picking accordingly. 2:06 PM Jul 24th via TweetDeck
keith So, what's the Atlanta angel investment stance? July 24, 2010 2:06:25 PM EDT via Tweetie for Mac
keith The math I'm doing seems to suggest that the available angel risk capital pool is small with respect to the number of startups. July 24, 2010 2:08:55 PM EDT via Tweetie for Mac
keith Thus, a blooming trend to pure bootstrap for otherwise fundable companies. July 24, 2010 2:09:58 PM EDT via Tweetie for Mac
keith Where bootstrap here means FF round, max'ed credit cards, fast to revenue, ... July 24, 2010 2:10:58 PM EDT via Tweetie for Mac
knox Or the angel capital available is large with respect to number of fundable startups. Back to starting point, I see? lol 2:10 PM Jul 24th via web
ben @keithmcgreggor @atlantatech With current econ trends, money advisers probably allocating ever lower % of portfolios for angel-like risk. 2:10 PM Jul 24th via TweetDeck
keith Right again, @atlantatech . So, are we healthy? July 24, 2010 2:11:44 PM EDT via Tweetie for Mac in reply to atlantatech
keith More money into fewer deals (not sure how to characterize that overall risk). July 24, 2010 2:12:29 PM EDT via Tweetie for Mac
ben Angels must not be so wealthy that wins don't move the needle, unless they are purely investing for sport. Ideal angel is still striving. 2:13 PM Jul 24th via TweetDeck
knox @keithmcgreggor In flux. Denial that Sig is leaving, shock that he actually is, etc 2:14 PM Jul 24th via web in reply to keithmcgreggor
keith I'd concur with @BenJDyer with respect to % of portfolio allocated to high-risk capital. July 24, 2010 2:14:08 PM EDT via Tweetie for Mac in reply to BenJDyer
keith A great observation: an ideal angel is still striving. High risk yielding significant individual impact for the angel investor. July 24, 2010 2:15:32 PM EDT via Tweetie for Mac
knox @BenJDyer Well, if that's the case, each city on average would have about 3 angels 2:16 PM Jul 24th via web in reply to BenJDyer
knox @keithmcgreggor Yes, I think you are right. For now, working smartly on fewer deals. No more eHatchery stacks of checks... 2:17 PM Jul 24th via web in reply to keithmcgreggor
keith Do we need Sig 2.0? Is it an essential that one or more folks bring deals together? July 24, 2010 2:17:46 PM EDT via Tweetie for Mac
keith That "still striving" observation was from @BenJDyer ... wise! July 24, 2010 2:18:41 PM EDT via Tweetie for Mac in reply to BenJDyer
keith Must. Resist. Urge. To. *MISQUOTE*. Shakespeare. ("I've not come bury @secretsig, but to praise him. The good that men do lives...") July 24, 2010 2:22:04 PM EDT via Tweetie for Mac
matt @keithmcgreggor That has been the @Stormpulse experience (which is why I was [sorry] butting in to your tweetstream). 2:14 PM Jul 24th via TweetDeck in reply to keithmcgreggor
keith @mattwensing and I am a fan of Stormpulse (but I think you knew that already!) July 24, 2010 2:23:00 PM EDT via Tweetie for Mac in reply to mattwensing
keith Actually, the best line from that speech is "O judgment thou art fled to brutish beasts, and men have lost their reason." July 24, 2010 2:26:08 PM EDT via Tweetie for Mac
keith Where's the answer lie? I've heard @lance talk about the dearth of fundable deals. I've heard startups talk about the dearth of angels. July 24, 2010 2:28:55 PM EDT via Tweetie for Mac
sig @keithmcgreggor if you can get a higher valuation somewhere else look at it. also look at the risk/cost of moving there and then do the math 2:29 PM Jul 24th via TweetDeck
keith Welcome, @secretsig, to the conversation! July 24, 2010 2:29:25 PM EDT via Tweetie for Mac
keith Clearly not an easy issue to untangle, even when presented with something concrete. July 24, 2010 3:12:26 PM EDT via Twitter for iPhone
keith Enjoyed the conversation here and on the two blogs today. July 24, 2010 11:12:23 PM EDT via Twitter for iPhone
keith On BackNoise itself ... stay tuned. July 24, 2010 11:15:12 PM EDT via Twitter for iPhone

comments 

 
0 # Keith McGreggor 2010-07-27 15:29
If I'd known you were going to capture it, I'd have pressed even harder into the details! I guess I'll have to do part two via Twitter shortly.
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0 # GFRRTDEFF 2010-07-27 18:40
Thanks for delving further into the topic, and using your own entity as the case study to spur discussion. Great points and deeper discussion in 140 characters. Twitter conversation > semi-linear blog comments. Alert me to part two in the event I'm off writing some other tome :-)
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