3 ms·

Unfortunately angels rarely do due-diligence. The fees to do this for a portfolio approach (which VC's model is) are much too high.

by mbesto 11y ago

jacquesm 11y ago
The amount of money you spend on a due diligence should be related to the size of the investment. Under 100K investment 5 to 10% should be enough to keep you out of trouble. A couple of hours (or a full day) of an expert in the field that you're going for would amount to maybe $1K to $3K depending on the field. Easy money for the expert and a very cheap insurance for someone putting down 20 to 100K of their hard earned money. The funny thing is they don't bat an eye at spending that kind of money on a lawyer but to actually get a good look at the material it is suddenly 'a lot of money'.
- shin_lao 11y ago
  That's because they know they can't do the lawyer job but believe they are inteligent enough to understand the field without the help of an expert.
- mbesto 11y ago
  I don't disagree, but there aren't enough "experts in the field" to supply your proposed demand. In a typical diligence round, you usually have financial/accounting, legal, commercial and ops/tech diligence. Are you suggesting they find a finance expert, a ops/tech, and commercial expert and pay them $1-3k each and on each investment?
  - jacquesm 11y ago
    Assuming the angel has at least one of those skills will save some money and assuming that it's not a single person funding the round yes, that's precisely it, whatever skills the group of angels does not bring to the table they'll have to farm out. Otherwise you might as well go to the casino and put all your money on 'black'. Better odds that way. I used to work quite a bit for angels (I'm priced out of their range now I guess) and contrary to A rounds the number of bad deals proposed to angel investors is substantially higher. By the time you get to an A round there has already been a significant shake-out, all of which means some angel or group of them have lost a bunch of money. Contrary to what people believe angel investments are a lot harder to get right than later rounds. There are many more start-ups that die prior to receiving an A round than afterwards and the amounts are low enough that doing proper due diligence is not in the cards. But an abbreviated dd is (much) better than none at all.

Unfortunately angels rarely do due-diligence. The fees to do this for a portfolio approach (which VC's model is) are much too high.

by mbesto 11y ago

Unfortunately angels rarely do due-diligence. The fees to do this for a portfolio approach (which VC's model is) are much too high.

jacquesm 11y ago

The amount of money you spend on a due diligence should be related to the size of the investment. Under 100K investment 5 to 10% should be enough to keep you out of trouble. A couple of hours (or a full day) of an expert in the field that you're going for would amount to maybe $1K to $3K depending on the field. Easy money for the expert and a very cheap insurance for someone putting down 20 to 100K of their hard earned money. The funny thing is they don't bat an eye at spending that kind of money on a lawyer but to actually get a good look at the material it is suddenly 'a lot of money'.

shin_lao 11y ago
That's because they know they can't do the lawyer job but believe they are inteligent enough to understand the field without the help of an expert.
mbesto 11y ago
I don't disagree, but there aren't enough "experts in the field" to supply your proposed demand. In a typical diligence round, you usually have financial/accounting, legal, commercial and ops/tech diligence. Are you suggesting they find a finance expert, a ops/tech, and commercial expert and pay them $1-3k each and on each investment?
- jacquesm 11y ago
  Assuming the angel has at least one of those skills will save some money and assuming that it's not a single person funding the round yes, that's precisely it, whatever skills the group of angels does not bring to the table they'll have to farm out. Otherwise you might as well go to the casino and put all your money on 'black'. Better odds that way. I used to work quite a bit for angels (I'm priced out of their range now I guess) and contrary to A rounds the number of bad deals proposed to angel investors is substantially higher. By the time you get to an A round there has already been a significant shake-out, all of which means some angel or group of them have lost a bunch of money. Contrary to what people believe angel investments are a lot harder to get right than later rounds. There are many more start-ups that die prior to receiving an A round than afterwards and the amounts are low enough that doing proper due diligence is not in the cards. But an abbreviated dd is (much) better than none at all.