Omnidrive: Lessons In Angel Investing And Entrepreneurial Tenacity

I’ve quietly followed the swirl of online storage startup Omnidrive down the proverbial gurgler for the past 6-8 months, but it now seems like its finally been flushed. As pointed out by ReadWriteWeb, Omnidrive.com has expired.

This has prompted one of the company’s angel investors, Clay Cook, to (excuse the continued metaphor) open up the sewer. He has written a lengthy post on one of his sites setting out his investment history with Omnidrive and the aftermath. He also provides copies of email correspondence – in which legal action is mentioned (I’m not sure of the wisdom of airing potential legal evidence, but it sure takes “discovery” to a whole new level of openness).

There are a whole array of points for discussion regarding Omnidrive and Nik Cubrilovic and the situation as it currently stands, but I only want to touch on two main ones, firstly the nature of an angel investment and secondly entrepreneurial tenacity.

ANGEL INVESTING

Angel investing is an art.

The hardest parts are the decision to invest and the decision to walk away from a failed investment.

A practised angel should be able to make a completely dispassionate decision to invest or pass. Many novice angels jump in because someone they know, or admire, has invested. Similarly, many novice angels make investments based purely on gut decision and emotion. Both instances usually end in pain.

I agree that angel investing is mostly an investment in people. Note my use of the plural – “people”. How good is the team, not an individual. Note also that by team I mean committed team – lining up the former CxO of Name.com to come on board at some yet to be determined inflection point should be completely discounted – committed, passionate people make a team.

That said, angel investing should not amount to simply throwing money into an unstructured, or yet to be set up entity, on the basis that the team is a good one. Make sure the right structures are in place to minimize risks, even if you have to put those structures in place yourself.

It may seem trite, but it bears repeating: angel investing is that it is by nature very high risk. An angel usually has little chance of getting a return should the venture not pan out. Unless the angel has preference shares (giving a preference over others when the company is wound up for any $ that the liquidator can hand over to creditors), or has some form of security in place there is little likelihood that a call on a convertible note will produce a return of capital.

It is worth noting as well that convertible notes are falling out of favor amongst well seasoned angels at the moment.

ENTREPRENEURIAL TENACITY

In my last post, I pointed to an interview with Y Combinator founder Paul Graham. One of Paul’s points was that entrepreneurial tenacity is a key attribute of a successful company founder:

I think the key quality is determination. The founders who do the best are the type of people who just refuse to fail. Most startups have at least one low point where any reasonable person would give up. That bottleneck is the reason there are so few successful startups. The only people who get through it are the ones who have an unreasonable aversion to failing.

I’m not going to delve into Nik Cubrilovic’s antics over the past few months other than to say that from all accounts he seemed to be tenacious and trying to do everything in his power to keep his business going. In this post I’m interested in exploring the role an angel plays in supporting this tenaciousness.

At what point does an angel investor open up the sewer. In the case of Omnidrive, who is to say how close Nik had come in selling off the company’s IP – for this he would not have needed to renew the domain. Has Clay Cook’s open letter affected any potential sale? Would Clay have been better off seeking closure in a less public fashion?

There are some important lessons here for entrepreneurs and investors alike.

UPDATE: If you are interested in hearing more about this saga check out ReadWriteWeb, where some of the key protagonists, including a customer or two, open things up further.

Hey guys, we’d be happy to host a Metarand Unplugged no holds barred, duke em out session in the interests of teaching entrepreneurs and investor types some tips.

[Picture courtesy of Poofy]