Domestic hot money flows to Silicon Valley, exposing four types of traps

Venture Silicon Valley headline investment

The first quarter of domestic hot money further into the Silicon Valley, in the practical level, the titanium media found that there are more carefully designed more subtle traps waiting for the first to Silicon Valley investors. For example, the Pepper Angel investment is bound to face a round of death, investors are all Chinese projects may be well-designed financing Bureau, disguised as a variety of role of the FA, seemingly objective actually has the interest to relate
Valley

Titanium Media Note: Earlier, titanium media had covered the four pitfalls of investing in Silicon Valley's early projects (see article "Four Pitfalls in Silicon Valley: Founder, rate of return, quality, valuation"), entering 2015, the first quarter of domestic hot money, especially the initial to Silicon Valley, the number of angel investors further growth in the practical level, Titanium Media has found that there are more elaborate designs for more subtle traps waiting for investors to come to Silicon Valley early.

Want to steer clear of these investment traps? See the special interview of Titanium Media for Silicon Valley career investors, Ph. D., investment partner of the US Yong Group, to warn investors who first landed in Silicon Valley to beware of the following four types of traps:

Trap one: Pepper Angel investment is bound to face a round of death

In the eyes of the domestic angel investor, Silicon Valley's early projects have the appearance of high technology, good team background and relatively low valuations, so, in the first quarter of 2015, the number of domestic investors who landed in Silicon Valley continued to grow, as did investors or unprofessional investors in the transition to the traditional sector.

At present, these investors in the Silicon Valley has gradually formed a project to invest 5 to 100,000 U.S. dollars, a large amount of investment in the project style, the industry's image is likened to "Pepper" style of investment methods. In this respect, the Silicon Valley professional investors, the United States China Economic and trade group investment partner Dr Yong said that in the long term, this investment strategy will inevitably face a round of death problem.

Yong points out that the pepper approach can only work if there are significant industry opportunities and trends are clear, such as the 2000 Internet or about 2010 years of mobile internet. At present, in the absence of a prominent industry trend, many of the new angel investors to enter the industry to choose "Each small amount of investment, investment in a large number of enterprises" strategy to avoid risk, seemingly dispersed risk, but actually reduced investment standards, will soon encounter a lot of investment enterprises face a round of death problem.

"One of the topics of recent industry heat debate is a round to C death, in fact, from the probability, it must be a round of dead enterprises far more than B round and C round, while the domestic funds in the Silicon Valley pepper angel investment practices so that investment earnings back to a gambling probability problem, further aggravated a round of death phenomenon. "Yong said.

In fact, Yong further admits that ordinary people are not really suitable for angel investors. "Angel investors from the beginning of their concept, first of all, an industry veteran, such as Lei, and so on, most of the business has been successful, and in the spirit of the younger generation, the way to gain investment income to become angel investors." This kind of angel investors with a very deep industry background often only invest in the industry, and only a limited number of people, so that there is enough energy and resources to help them grow. At the same time, the cast of these people are mostly related to their own networks, so that not only their investment success rate is high, and each other can form mutually supportive matrix situation. In contrast, the majority of Chinese angels active in Silicon Valley are not lei or Peter Thiel their resources and relationship accumulation, in the case of lack of grasp of the industry across the field, spread the risk of massive investment, can be foreseen, the failure rate will be very high. ”

Trap Two: Investors are all Chinese projects may be well-designed financing Bureau

The first time a domestic investor landed in Silicon Valley, it was of course the Chinese Founders ' project, but these "one-man" projects tended to hide many risks and pitfalls. In this respect, Yong to remind domestic investors, especially to be wary of those investors are all Chinese projects, may contain valuations and speculation, such as multiple traps.

At present, a more common phenomenon in Silicon Valley is that many Chinese entrepreneurship projects, although the founding team background is very good, the project technical content is also very high, but in the Angel wheel and pre-a round stage investors are all from domestic funds, but only the Silicon Valley local mainstream angel investors and VC figure. For a domestic investor who first landed in Silicon Valley, it must be carefully judged before investing in such projects.

"A popular project in Silicon Valley in the Angels, Pre-a especially a-round phase, there is no local mainstream investors to participate in, this is a very strange thing." Because, if this is really a good project, to find local VC is a double win--start-up companies for the U.S. market needs the local mainstream VC resources support, and local VC proximity can more clearly judge the U.S. market demand, and use their own resources to help the start-up company's busy. Conversely, when you find a Chinese founding team project for the American market, no investors in the investment round, investors are all the new domestic background angel funds, and no one has to make a full adjustment before, then, whether it is a good project, you need to play a question mark. "Yong to titanium media.

Yong suggests that for such projects, investors need to take a detailed look at the project market potential, competitive advantage, customer situation and so on, and then make investment decisions, "there are only a few of these types of projects in Silicon Valley that are purely rip-off, and more often these entrepreneurial teams use a variety of commercial means to wrap themselves up, And the use of domestic funds to the U.S. market and investment environment is unfamiliar, to obtain higher valuations and more favorable conditions.

Yong further pointed out that, in fact, even if the study ultimately proved that this is a good project, but because the project early investors are domestic funds, in a round of financing will also face the dilemma of the Silicon Valley mainstream institutions. "To the" a "phase, the Silicon Valley local institutions first on the Project Angel Wheel do not understand, and second to its exclusively domestic angel investors do not know, then how can they have the power to take in the a round to the panel? ”

Trap three: The FA, disguised as a variety of characters, seems objective and actually has an interest relationship

The third thing that domestic investors do early in Silicon Valley is the FA (Financial advisors), disguised as angel investors or third party platforms, which appear to be neutral, but actually have a stake in the start-up companies they recommend.

Introduce projects to investors, after the success of the Commission--FA business model is understandable, there are many successful FA company, but the current situation in Silicon Valley is that many of the FA's individuals or organizations will not voluntarily disclose their FA identity, but disguised as investors or third-party platforms, Recommend projects to newcomers to domestic investors.

The first is that FA disguised as investors. It is normal for investors to exchange and recommend projects with each other. But Yong to the titanium media, the Silicon Valley has some investors and even investment institutions in fact, as FA status, "such as a project plan to finance 1 million dollars, an investor himself contributed 50,000, but at the same time he helped the start-up company to find the remaining 950,000 of the funding side, And after the successful financing of a certain percentage of commission. In this case, he is in fact the dual status of FA and investor. As a result of this level of interest, then his recommendations on the project is a matter of objectivity is worthy of scrutiny.

In fact, third parties that recommend investment projects or stocks to other investors, both at home and abroad, must pass a disclaimer (disclosure) to disclose whether they have an interest in the person being recommended. U.S. regulators explicitly require all FA in the US market to pass the Series 7 test and get broker license to do such activities. But now in Silicon Valley, many investors who are invisible FA status do not have such licenses and will not directly tell you about the financial advisers he has with the recommended start-up companies. Such activities not only violate local laws, but also mislead and cause investment losses to domestic investors who first landed in Silicon Valley.

In Silicon Valley, another major category of project referral agencies is a third-party platform, such as many demo day organizers, financing platform, entrepreneurship competition. Yong suggested that domestic investors in contact with these platforms, you can also be aware of the platform and start-up companies there is a FA agreement, for decision-making reference.

"In foreign countries, if they do not take the initiative to disclose, usually the default is no interest, but in the Silicon Valley in the actual operation of the Chinese community is not the case, it is worth the new admission of domestic investors pay more attention." "Yong to titanium media.

Trap four: Early investment in a tight situation, are you sure you want to go against the trend?

Angel investment needs to catch the trend, the current domestic investor's another misconception is that now is the best time to enter Silicon Valley for early investment. In this respect, Yong also reminded the investor "the risk has been raised, the admission needs to be cautious".

Mattermark, a professional organization focused on start-up data research, said in a recent analysis that in the fourth quarter of 2014, the volume of investment in US start-ups had fallen to 2011 levels, especially as the seed-wheel investment fell sharply; The volume of a round has remained flat for many years.

In this regard, Yong to the titanium media that the data shows that the mainstream U.S. investment agencies have realized that the current Angel stage investment risk is high, for early projects, they take a cautious attitude and shrink the scale to control risk.

"In fact, the tightening of seed-wheel investment by US local investment agencies and the relative stability of a-round investment deal are just a show of a lot of bubbles in the early stages of Silicon Valley investment, which the US local investment agency has clearly recognized and is starting to control risk." Then in such a macroscopic environment, the new admission of domestic funds should be more cautious, do not become the last bar of the ticket. Of course, quality early projects will always exist, and domestic funds can circumvent the current seeds, angelic bubbles and uncertainty risks in Silicon Valley by investing more in a-round investment. "(This paper is the first titanium media)

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