How Many Angels is the Right Number

I got the following question via email today:

All things being equal and all things being perfect, is it better to have more or less ‘angels’ in the mix? I can come up with reasons for both more and less. Also, it seems to me that more and less are very relative – but, in this case, Ohio has a limit of 25 investors before exemptions no longer apply (we’re still investigating that one), so that is the absolute upper limit. I’m thinking “more” is in the range of 4 – 10 and “less” is in the range of 3 or fewer — allowing more growth later, if needed.

My quick answer is three or nine, since three is my favorite number (and multiples of three are good, especially 3 * 3.) Before I started doing venture capital, I participated in about 21 angel financings (and led about 9 of them.) As a VC, I’ve had angel investors either prior to our investment or as part of our investment (when we invest in the Series A or first round) in about 51% of the investments I’ve done. It turns out that either a small number (three) or a moderate number (nine) is best (or – to be simple, 3 <= angels <= 9.) Angel rounds need a lead investor, just like venture rounds. Most lead angels drag along a couple of their friends. I like to look for this lead group to take between 40% and 100% of the deal. So - if you can get a small angel group to take the entire deal, you can probably get away with three-ish angels. If you are at the 40% level, you are probably at nine-ish angels. Remember that angels can (and should) bring a lot more than money to a deal, so the actual number is less important than the value you are getting. You won't get 100% participation (at best - you'll get 50% - more likely less than 33%) - most angels talk a good game but few deliver because they've got other priorities and interests. This is another argument for a larger number (nine-ish.) So - while there is no right answer, a multiple of three feels pretty good to me.