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You can't have too many angels
- jacquesm 5y agoThe 'malicious' bits are typically covered by good shareholder agreements, the ones with teeth in them. Angel investors that intend to 'do tricks' tend to bail out when they come across terms like that so a good shareholder agreement not only serves you well for the shareholders themselves but can also serve as a filter for prospective shareholders. Of course the more angel investors you have the bigger the chances that you draw someone who does not have your interests at heart. So you will still need to vet them, the easiest way is to contact founders of other companies they've invested in. With a lot of first time angels flooding the scene this is of course not always possible. A good way to deal with having a lot of angel investors is to create a separate 'angels' vehicle where angels participate, this vehicle then participates in your company. That way you have all of the benefits and none of the drawbacks of having a lot of smaller early stage investors. You can roll your 'friends and family' round if you have one in there too. Edit: Ah, the author mentions the 'roll-up' vehicle at the end of the article. Good.
- wdaher 5y agoDefinitely +1 on needing to vet no matter what--no amount of clever corporate structure or legal agreement will save you from someone being a pain
- jacquesm 5y agoOr worse: to find out that you have someone on board that causes other investors who do their homework to pass on your investment. Not all potential angel investors got their money in a legal/ethical way. So you definitely want to know who you are taking on board.
- ta1234567890 5y ago+1 on getting a good shareholders agreement from the start, even without investors. It’s good practice in case there are issues between the founders. However, in regards to angels, the shareholders agreement won’t work if they invested money through a convertible note. At least before converting, during which time they are creditors of the company and not shareholders, which actually gives them some additional leverage. Hence, I recommend using something like a SAFE if needed, instead of a convertible note.
- yumraj 5y ago> The 'malicious' bits are typically covered by good shareholder agreements, the ones with teeth in them. Any examples of the language that you’re referring to. First time hearing about this so curious..
- Animats 5y agoWell, if you have too many, you've done an unregistered securities offering and the SEC will come after you. At 35 investors, the rules change. Read up on Regulation D.
- huac 5y agoUsually angels invest in an SPV right? So technically the SPV holds your shares, they hold shares of the SPV, and you only have one investor?
- Aperocky 5y agoDread it, run from it, encapsulation always arrive.
- tobyjsullivan 5y agoForgive my ignorance. "encapsulation" is a new term for me in this context. What does it mean?
- Aperocky 5y agoPersonally, I feel like many/all software principals can be applied to other subjects, and it has a tendency to make things simpler. Sometimes it's a joke, but other times it is quite fitting.
- icedchai 5y agoNot in the startups I'm familiar with. You have individuals investing anywhere from 10K to 100K+.
- edoceo 5y agoSPV may take $10k from 50 investors and then make one $500k investment. Then the company as SPOC but the network effect of a larger group. And maybe that investor group makes many SPV, so each player is making 10, $10k plays rather one $100k play
- TruthWillHurt 5y agoWell you now have 44 people looking over your shoulder, giving you advice based on half-baked opinions formed on partial information, and freaking out whenever you do something that slightly surprizes them. congrats.
- jacquesm 5y agoThat's complete nonsense. A good angel-company relationship is not driven by the angels but by the company management. It's on their terms that advice is sought, evaluated, and quite possibly rejected. If you let your angel investors drive your company you are doing it dreadfully wrong. As a participant in well over 20 investments now I've yet to see this go wrong even once.
- TruthWillHurt 5y agoAnd what happens when an investor and your cofounder disagree? What happens when they turn one founder against the other? what happens when they pressure the board? If you haven't seen one of the above than I doubt you've been involved in more than a couple investments, let alone 20.
- antonzabirko 5y agoNice try angel investors. On a more serious note, investors need more companies to invest in. What does this post spread but propaganda? Why exactly should we take more money early when the real question is efficacy and speed of growth? Throwing more money at this issue likely won't fix it, so a headline like this is misleading. Less angel investors is better, and it's better to be picky about them and get better terms if possible. The opposite of this article.
- peter422 5y agoYou think you are going to get better terms as a founder by being pickier about which angels you let in? You do understand that most angels invest in a company because their friend did. If you keep rejecting angels you aren’t going to get good terms because you’ll have nobody interested in your deal.
- antonzabirko 5y agoMaybe not by rejecting them all, but you won't get better terms if the sentiment in articles like this one becomes dominant.
- ylere 5y agoDoes anyone have experience with Angelists RUV? Is it worth the costs? Does it make it in any way harder for an angel to invest?
- jacquesm 5y agoAs a founder I would be quite weary of an entity such as Angelists running the roll-up vehicle, I'd rather have a small committee of trusted angel investors (usually the larger ones) do this instead of some commercial entity.
- sroussey 5y agoYou can choose who to add yourself. Then let them manage the paperwork, etc.
- wdaher 5y agoI've been on the receiving end of one three times now, but have never "hosted" one myself. As an angel, I'd probably always prefer to invest directly, but if my alternative were "RUV or you can't invest," I wouldn't object to the RUV. The process itself is slightly easier because I don't have to tediously type in wire instructions into my bank's website :) The creator of the RUV can decide whether the company pays the fees or whether the investors pay the fees. The ones I've done so far have been "company pays the fee," in part I think to help avoid the perception that you're getting a worse deal via the RUV.
- ylere 5y agothanks!
- tonyhb 5y agoJust closed a pre-seed and my angels all used the RUV, with one exception. Overall, would _definitely_ use again as a founder. It's incredibly simple and it costs us ~$8K. To the angels, no cost no carry, so it's v similar to investing directly. Also _should_ simplify our life with lawyers in a series A.
- paxys 5y agoThe article skips over the obvious point that each investor = an additional chunk of your company you have given away. Cash from 40+ different individuals might be essential to get your company off the ground, but realistically it probably isn't. In the current environment there is an unlimited number of investors with large pockets and a tiny population of capable founders. Use that to your advantage as much as you can.
- jacquesm 5y agoYou have not 'given away' a chunk of your company. What you will have is starting capital and that can be the difference between getting off the ground or not starting at all. Capital is the lifeblood of early stage start-ups, you either need a revenue stream, your own capital or you will need investors. There aren't that many alternatives. If you are happy with slower growth, then of course you don't need to get outside investment. See: https://jacquesmattheij.com/three-roads-to-the-top-of-the-mountain/ https://jacquesmattheij.com/three-roads-to-the-top-of-the-mo... An oldie, but still quite applicable to the start-up scene today.
- wdaher 5y agoThe other framing of the problem is: If you're going to raise a fixed amount of $X, is it better to raise it from a large number of angels (each writing smaller checks), or a small number of firms (each writing larger checks)? I'd go for "larger number of participants," for the reasons I mentioned.
- paxys 5y agoSure, but that is unrealistic. If I get an angel investor who then says "hey my buddy wants to get in as well", they aren't going to agree to split their own share by half.
- wdaher 5y agoThis is definitely anecdata, but sometimes they will. In particular, I've definitely been asked to reduce my own allocation to let someone else in.
- urbandw311er 5y agoThis is just a puff piece to sell AngelList
- wdaher 5y agoPost author here — I'm not affiliated with AngelList at all, though I did invest via one of their RUVs once and was a fan of the experience. (I'd largely written the post before even being aware of that offering, which is why it's kinda tacked on at the end.)
- jacquesm 5y agoThat's not a nice thing to say, it doesn't come across like that at all. Just like not every article mentioning Docker is 'a puff piece to sell Docker'. Roll-up vehicles are simply tools available to companies seeking investors.
- sroussey 5y agoAL is but one (large) player. Groups of friends use Assure and others (I’ve participated through a few of these companies, and I’ve seen more).
- candiddevmike 5y agoAny tips on finding angel investors in the Midwest? Unless you're manufacturing, agriculture, or research no one wants to invest. My contact info is mike<at>candid.dev.
- sroussey 5y agoThere are many in the Midwest. You can also jump on Clubhouse which has some.
- mmastrac 5y agoBetter to just do a road-show in California or somewhere you can find better angels. If they are sparse where you are, your terms are going to suck and your chances of drawing bad investors goes way up.
- htrp 5y agoMost angels are willing to do remote #ThanksCovid
- dustingetz 5y agotwitter is flooded with angels, and any regular person who worked in usa big tech for 10+ years is an angel (they just won't tell you that unless they like your company)
- alfiedotwtf 5y ago> Don’t raise money from a ton of angel investors because it’ll clutter the cap table and be a big administrative pain in the butt I was at a startup that had over 100 angels... their cap table was messy and it definitely had an impact on raising.
- 1e-9 5y agoI strongly disagree. 1) Increasing the number of investors, increases a CEO’s effort required to maintain the same quality of investor relationships. 2) An investor doesn’t need to be malicious to be a major problem. Misunderstandings, misinformation, and disagreements are more likely with larger groups of investors. One disgruntled investor in a shareholder meeting can do great damage to perceptions, which can harm your chances of reinvestment from the other investors. 3) If you want to remain a private company, you must keep the number of investors below 2000.
- joshu 5y agoDownside: another founder's transformational angel might be your malicious angel.
- andrewljohnson 5y agoThis sounds like a story.
- Dolores12 5y agoTrue angels are the ones that helps, what left are devils and investors.
- fairity 5y agoIMO, the author has a valuable insight, but a sub-optimal solution. The valuable insight is that, invariably, there are domain experts whose help can completely transform your business. As a result, it's worth investing time/resources to find and incentivize them to help you. However, these experts may or may not be angel investors. If you narrow your search to only angel investors, you'll more often than not miss out. Conflating the goal of locating expert counsel with the goal of raising money is more often than not going to waste of your time. Raising money is a long, distracting process, as-is. Just get it done as quickly as possible on fair terms with a trustworthy party.