Hello!
The comments on this profile are unclaimed and thus are unverified.
Do they belong to you? Claim these comments.
Rhody
Is this you? Claim Profile »
11 months ago
in Un-Fundable: Lifestyle Busienss on The Angelsoft Blog
The term "lifestyle business" is condescending and, quite frankly, it's nonsense, and by using it the author has managed to insult a major percentage of the entrepreneurial population. Really, there's no such thing as a "lifestyle business." Hardly anyone goes into business with the intent of not eventually growing it and maximizing its value, including the owner of the concierge business he cites. The author takes the example of the designer who works from home and therefore insinuates that all talented professionals who start their own company from home aren't interested in growth. The vast majority of entrepreneurs that I know who have started working from home only did so to keep fixed costs low - they weren't interested in "lifestyle." They were interested in working hard and making their companies as successful as possible. What about the partner from a big law firm who leaves to hangs out a shingle? What about the woman who opens a food cart in downtown, selling specialty salads and sandwiches? Or the home-based entrepreneur who starts a catalog selling imported furniture? Do you think these people are only interested in supporting a "lifestyle"?
If the author has decided to overlook home-based entrepreneurs for investment than that is his prerogative. He is missing out on some remarkably talented, hard working and driven business owners. But what he shouldn't do is insult them while declining to invest with them. Unfortunately he's managed to do just that in this posting.
If the author has decided to overlook home-based entrepreneurs for investment than that is his prerogative. He is missing out on some remarkably talented, hard working and driven business owners. But what he shouldn't do is insult them while declining to invest with them. Unfortunately he's managed to do just that in this posting.
2 replies
Mark I LaRosa
Rhody,
We are in no way slamming those entrepreneurs that decide to build what is referred to in the industry as a "lifestyle business." In fact, MANY successful companies are indeed that - and those hardworking entrepreneurs should be commended.
However, angels invest in companies to make a return on their own money, and are not doing it to help the entrepreneur build a business that does not have tremendous growth opportunity. So, while a hardworking woman might start a very successful clothing store and make a very nice living for herself, it wont generate a return for an angel that makes it worth their time and money. However, if she were to start a company which has explosive growth because of some amazing new idea that hasn't been tried before - that's something that is potentially of interest to angel investors and VCs.
The question is not whether entrepreneurs should or should not create a lifestyle business - the title was "unfundable" and VCs and Angels will NOT invest in lifestyle businesses. These type of business should seek loans and other means of funding their business.
We are in no way slamming those entrepreneurs that decide to build what is referred to in the industry as a "lifestyle business." In fact, MANY successful companies are indeed that - and those hardworking entrepreneurs should be commended.
However, angels invest in companies to make a return on their own money, and are not doing it to help the entrepreneur build a business that does not have tremendous growth opportunity. So, while a hardworking woman might start a very successful clothing store and make a very nice living for herself, it wont generate a return for an angel that makes it worth their time and money. However, if she were to start a company which has explosive growth because of some amazing new idea that hasn't been tried before - that's something that is potentially of interest to angel investors and VCs.
The question is not whether entrepreneurs should or should not create a lifestyle business - the title was "unfundable" and VCs and Angels will NOT invest in lifestyle businesses. These type of business should seek loans and other means of funding their business.
11 months ago
in David S. Rose interviewed by Tech Confidential on his NY investor ecosystem on The Angelsoft Blog
I've been to that building. It's a big dump, a 21st century high tech sweatshop. Rose gets a bunch of eager college grads or MBAs, pays them meager wages, and promises them getting shares in his various angel deals/scams.
- -1 points
- Jump to »
innonate
Rather strange comment, Rhody, but glad the AngelSoft team doesn't feel the need to delete it.
As Evan said above, the building certainly has its character, but the working space is pretty lively and full of people who enjoy what they do.
Most people here are self-lead entrepreneurs (workers in their own sweatshops, I suppose), while the employees of companies here (from AngelSoft to PerformLine) work for the companies because they believe in their mission and enjoy it.
It's a highly competitive industry and City -- folks work here because they choose to!
As Evan said above, the building certainly has its character, but the working space is pretty lively and full of people who enjoy what they do.
Most people here are self-lead entrepreneurs (workers in their own sweatshops, I suppose), while the employees of companies here (from AngelSoft to PerformLine) work for the companies because they believe in their mission and enjoy it.
It's a highly competitive industry and City -- folks work here because they choose to!
"Lifestyle business" is NOT a pejorative term. Rather, it is a well-known and generally accepted expression (see <http://en.wikipedia.org/wiki/Lifestyle_business> and <http://www.powerhomebiz.com/vol100/lifestyle.htm>.
It describes the perfectly valid goal of creating a business that is fulfilling economically and spiritually for the entrepreneur and his/her family. I know dozens, if not hundreds of lifestyle entrepreneurs who would not change their jobs if you offered them ten million bucks: the homebuilder who loves being out on the job and creating a hand-crafted, perfect house; the picture framer who works six hours a day at a relaxed pace and knows every one of his customers by name; the personal shopping consultant who delights in finding just the right outfit for the perfect occasion...even the top VC who quit his job at Accel partners to move to Maine and start a mail order business specializing in a cappella music.
All of these businesses comfortably support the entrepreneur, each of the entrepreneurs receives great personal satisfaction from his or her business, and each is contributing to society...but not a single one of those enterprises is "venture (or angel) fundable". The point that Jason and the others are making is NOT that there is anything 'wrong' or 'tacky' or 'less desirable' about a lifestyle business, simply that the economics of it mean that it needs to be financed in some way other than risk equity. That can mean bootstrapping (usually the best option), personal savings, friends & family loans, or personal debt.
The fact is, because early stage, high-growth businesses are so incredibly risky (to expand on Evan's point, only 1 out of 100 businesses looking for venture/angel funding actually gets it, and five out of ten of those go bankrupt), seed and early stage investors need to maximize the potential return. I recently led a seminary discussing the somewhat complicated math involved (see <http://www.centernetworks.com/angel-investing-s...> for a look at the key slide), but what it boils down to is that EVERY deal into which a smart angel invests money needs to have the POTENTIAL to deliver a 20:1 or 30:1 return on the invested capital.
To run through a bit more of the math (and to make clear just how unbelievably tough that is), take an entrepreneur who comes to New York Angels seeing a $1 million investment and valuing his or her company at $4 million (this is a pretty typical profile for the kinds of businesses we see.) In order for the angel investor who contributes, say, $25,000 to the round to end up with an annual return of about 25% (which is about twice what you would hope to get from a hedge fund, and is commensurate with the risk being taken; remember the odds are 1000:1 that this will be "the one"!) that little startup company needs to be sold within six years for [I hope you're sitting down] ONE HUNDRED FIFTY MILLION DOLLARS.
And since there simply is no way from now to the end of the universe that this is going to happen to a sole proprietor home builder, or a local picture framer, or a personal shopper or even a mail-order a cappella music label, THAT is why those perfectly valid, great businesses, run by wonderful, smart, entrepreneurs (all of whom happen to be friends of mine, by the way) are "lifestyle" businesses and not appropriate for angel or VC financing.
So that is why it is really, really important to figure out at the beginning exactly what one;s personal goals are in starting a business, and what kind of financing (from bootstrapping to venture capital) is appropriate to support that goal.