106. What angel investors REALLY need to know about tech

Even the smartest professionals who don’t have backgrounds in digital businesses make the same mistakes when it comes to tech start-ups.

They often want vanity metrics, as opposed to what truly matters, and because they don’t know how a tech product gets made, they don’t know how to properly evaluate an opportunity. 

In this episode you'll learn 3 core tech concepts and how they apply to early stage investing.

Learning notes:

• There are fundamental differences between software products, that are especially important at the early stages. This is because, when a product is very new, it is still in development mode. This is why understanding product development is vital at the early stages.

  For example, evaluating Airbnb as a listed company focusses on typical investment metrics: revenues, costs, growth etc. These would have been unavailable when Airbnb first launched, so investors must look for other signs.

• Tech products are always evolving. For example, YouTube started as dating site. Its evolution was not an act of randomness, but a series of product and growth experiments. 
• Product metrics are not business metrics, and they change over time. Traditional investors are used to putting business metrics into Discounted Cashflow Statements. This system does not work in early stage tech start-ups. 
• Marketing is part of product development. Growth is part of the discovery process, and the growth hacker and product manager are often the same person in an early stage business.

This means investors need to know how to include marketing spend in product development cost.

Resources mentioned in this episode:

• How I got into deep tech investing (with Colin Beirne, Two Sigma Ventures)
• How to burn $2 billion

To learn more, join the

Introduction To Tech For Angel investors course

You will learn:

1. Core differences between tech & traditional businesses
2. Which metrics are important at which stage
3. Who does what on a product team
4. How much different stages of development cost

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