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📰 Today's topic: That "3x markup" might not mean what you think

You open your fund update and one of your companies got marked up. Nice. Your $5k looks like it's worth more now.

Before you start mentally spending it, ask one question: is that markup audited, or is it just paper?

Because those are two different things. And most new angels read them as the same number.

First, what is a markup?

A markup just means somebody decided the company is worth more than it was the day you wrote your check.

That's it. It's a new, higher valuation sitting on top of your position. It is not cash, and it's not a sale.

And there two flavors of markups:

1. Paper markup. A new round priced the company higher, so on paper your $5k now "shows" as more. Nobody outside the fund independently verified anything. It's a number in a spreadsheet that looks great.

2. Audited markup. A third party actually went in, checked the valuation, and confirmed it holds up. Same kind of number, way more weight behind it.

Funds carry both at the same time. You'll literally see a portfolio where some positions are audited and some are paper-only, sitting right next to each other.

So why should you care?

Say your $5k is marked at $15k. Feels like a 3x. Feels like a win.

If that's audited, you've got real reason to believe it. Somebody whose job is to be skeptical looked at it and signed off.

If it's paper only, you're looking at a snapshot. It's based on whatever the last round priced at, which could move, soften, or sit frozen for years before anything turns into actual money.

Neither one is fake. Paper markups are genuinely useful signal. A scrappy company getting repriced higher is good news. Just don't confuse the signal with the payout.

Also note that you can't spend a markup.

Not the paper kind, not even the audited kind. A markup is the scoreboard, not the bank account. Your $5k is "worth" more, sure, but you don't see a dollar of it until there's a real exit, a secondary sale, or a distribution.

This is also why a fund showing early markups can honestly tell you things are going well and not send you a check. Both true at once.

So next time an update lands and a number jumps, do the boring thing. Check whether it's audited or paper. Then file it under "encouraging" instead of "rich."

– Brian from Angel Squad

📕 Startup term you should know

Ever heard of Churn Rate?

Ever notice how some customers stick around forever while others ghost you after one visit? That's churn. The percentage of customers or money you lose over time. There's customer churn (people leaving) and revenue churn (cash disappearing). For SaaS companies, staying below 2-3% monthly churn is the goal.

My insider scoop: Lincoln Murphy notes that "churn rate is the silent killer of SaaS businesses - 2% monthly churn means you lose 22% of customers annually." For angel investors, focus on cohorted churn rates rather than blended averages, as early cohorts may have different characteristics. Also distinguish between gross churn (customers lost) and net churn (revenue lost after expansions)—companies can have negative net revenue churn even with positive customer churn.

Overheard in SF…probably

“User feedback is just noise. Steve Jobs never used focus groups, so why should we listen to our customers?”