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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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Second Order Impact of FG Angels

Comments (5)

If you’ve been following along at home, you know that we recently created an AngelList Syndicate called FG Angels. Our goal is to make 50 investments through AngelList before the end of 2014. We’ll contribute $50k to each investment; our FG Angels Syndicate will contribute up to $450k.

Shortly after doing our first few investments, I got a really nice email from a member of Impact Angel Group, a Colorado-based angel group that organized an investment in the FG Angels syndicate. It shows a second order effect of what we are trying to accomplish with FG Angels. I thought it was worth sharing.

I just wanted to say thank you for all of your work in breaking through the red tape to put together FG Angels. I believe all of our committed members have completed their investments as individuals and we have made our first investment through the LLC we put together.

We really appreciate the time you spent to answer our questions and work through the details. I thought it might be helpful for you to see the positive impact you are making for our small group, which I’m sure can be multiplied a hundred times over. As you all know, herding angels and getting new angels to actually pull the trigger is not an easy task. FG Angels has helped us address all of our major angel-herding challenges through the following:

  1. FG Angels increased the amount of capital our group has committed since our official founding in 8/13 by 103% which will certainly help us with deal flow, member acquisition etc.
  2. 18 of our 37 angels pledged to participate and 14 are actually participating. Our members have a variety of different backgrounds and interests, so this is the largest participation rate for one deal that we’ve seen to date. 
  3. 15 of the 18 had never visited AngelList prior to researching FG Angels.
  4. 6 of the 18 who pledged and 4 of the 18 who participated are never-ever angels. 
  5. 7 of the 18 are making their first investment as Impact Angel Group members.
  6. 2 angels are considering creating their own AngelList syndicate as a result of their experience.
  7. We created an LLC of 145k to allow some of our newer angels to participate at smaller amounts. 1% of the carry will go to the Entrepreneur’s Foundation of Colorado. 1% of the carry will go back to us to help us support angel investing in Colorado.
  8. I learned an incredible amount about SEC regulations, crowdfunding and the logistics of AngelList.

 

AngelList Syndicate Feedback From An Experienced Entrepreneur

Comments (22)

We recently funded Blinkfire Analytics using our FG Angels Syndicate. The CEO and founder, Steve Olechowski, was co-founder / COO of FeedBurner, which Google acquired in 2007. I was an investor and on the board of FeedBurner, which is how I got to know Steve.

If you don’t know the FeedBurner story, there were four FeedBurner founders – Dick Costolo (now CEO of Twitter), Eric Lunt (now CTO of BrightTag and until recently a board member at Gnip, which Twitter just acquired), Matt Shobe (now at AngelList), and Steve.

In addition to bootstrapping his new company forever (since he’s a multi-time successful entrepreneur), Steve could easily raise an angel round any time he wanted to. So, we were psyched he was willing to do an FG Angels Syndicate with us.

Steve had some unsolicited comments for me, AngelList, and angels as a result of the process. I asked him if I could post them – he said yes. Following is a thoughtful set of reasons AngelList is so powerful, along with some constructive feedback for us to consider.

1) Some of your backers are really good citizens.  When it was oversubscribed they kept their syndicate commitment, but offered a much bigger investment outside the syndicate.  When 50% of the money didn’t close, they went back and put it back into the syndicate.

2) You have a bunch of “shadow backers” who seem to follow your investments, and then try to go direct to invest to avoid paying your carry.

3) There are some backers that request an awful lot of due diligence for a $1000 investment.   If they are that worried about losing $1000, perhaps AngelList isn’t the right place for them to be investing.

For us, the benefits of the syndicate are:

1) Access to capital we wouldn’t have otherwise been able to raise on angel list, and offline

2) Keeping the number of entries on our cap table relatively small

3) Though #2, we still have the transparency of knowing who the “LPs” are, and can mine them for help if needed

For the investors, the clear benefits are:

1) Access to deal flow they wouldn’t otherwise get

2) Ability to diversify their funds without a huge minimum ticket

3) Piggybacking on an investment thesis without having to do the research

The only negatives so far are the days of uncertainty where do you don’t know how much is going to get filled and if you need to generate more demand or turn people away on a daily basis.

Will A Different Approach to Search Work?

Comments (15)

Google dominates search. Sure, there’s a thing called Bing and a few other choices out there, but everything ends up being the blue and purple link thing curated mostly by machines.

In an effort to experiment with a different approach, we recently led an AngelList syndicated investment in one potential search challenger, a Kansas City based startup called Leap.it who is taking a different approach based on the belief that machine-based algorithms can only get you so far. They hypothesize that by injecting social and real-time data, along with interactions with real people, your search results become much better.

When you first visit Leap.it you will immediately notice that they completely do away with search lists. Instead, their search results are presented in cards that include web, video, social, and image previews.

What I find most compelling are Leap.it Perspectives. With Leap.it, anyone can collect, collaborate, and share results on any subject and then have them show in future, related search results.  I have a few of my own Perspectives that highlight my background:

If you find something missing from any of these perspectives, you can add to the perspective once you’ve logged in.

Fundamentally, Leap.it is trying to integrate the notion of search directly with the real-time web and the extended social network faciliated by services like Facebook, Twitter, and LinkedIn.

Give it a try, create a perspective, and tell me what you think of it.

Will A Different Approach to Search Work?

Comments (15)

Google dominates search. Sure, there’s a thing called Bing and a few other choices out there, but everything ends up being the blue and purple link thing curated mostly by machines.

In an effort to experiment with a different approach, we recently led an AngelList syndicated investment in one potential search challenger, a Kansas City based startup called Leap.it who is taking a different approach based on the belief that machine-based algorithms can only get you so far. They hypothesize that by injecting social and real-time data, along with interactions with real people, your search results become much better.

When you first visit Leap.it you will immediately notice that they completely do away with search lists. Instead, their search results are presented in cards that include web, video, social, and image previews.

What I find most compelling are Leap.it Perspectives. With Leap.it, anyone can collect, collaborate, and share results on any subject and then have them show in future, related search results.  I have a few of my own Perspectives that highlight my background:

If you find something missing from any of these different perspectives, you can add to the perspective once you’ve logged in.

Fundamentally, Leap.it is trying to integrate the notion of search directly with the real-time web and the extended social network faciliated by services like Facebook, Twitter, and LinkedIn.

Give it a try, create a perspective, and tell me what you think of it.

The 99 Investor Problem

Comments (59)

When the JOBS Act was finalized, one of the rule changes that had a lot of fanfare around it was the increase in the number of shareholders a private company could have. Prior to the JOBS Act, it was 500, after which point the company had to register and report to the SEC just like it was a public company (even if it hadn’t gone public.) This was a major issue for many fast growing companies that either went through strange contortions not to have 500 investors, or filed with the SEC to get no-action letters. There were plenty of nuances around this rule and I was in the middle of several situations that structured around it legally. Each time it was a lot of overhead for the company in question, none of which added anything to the system except fees to the lawyers.

Lifting the number of investors to 2000 seemed to make sense. In the situations I was involved in it would have immediately solved the specific problem. So that’s good.

But ever since we started working with AngelList on FG Angels, we’ve been wrestling with something called we’ve been referring to as the 99 Investor Problem. We structure our investment in companies via an LLC that has all the individual FG Angels syndicate members in it. This simplifies life for the company as they only end up with 1 investor – the FG Angels syndicate LCC – rather than a bunch of individual investors. At this point we have 217 backers in our syndicate, so with us each company would end up having 218 separate investors if we didn’t use the LLC.

If everyone was on the cap table, the company would have to chase down 218 signatures for everything. Instead, using our approach, they have effectively two investors – our FG Angels syndicate (one investor) and Foundry Group (another investor). Two signatures. Much easier. We handle the Foundry Group signature. AngelList handles the syndicate signature.

Except it doesn’t work that way. The SEC limits an LLC to having 99 investors. So we can only have 99 of the 217 syndicate members participate. Now, there’s a nuance that excludes “qualified purchasers” (QPs) – individuals with $5M in assets and firms with $25M in assets – from the 99 investor count. Overall our QPs + the top 99 investors in our syndicate represent $321,000 based on committed amounts to FG Angels. If you include the balance of the 237 members, we end up at a syndicate of $439,000. The company then gets our commitment of $50,000 on top of that.

As a result of this 99 investor limitation, we have two disappointing problems. First, we have over 100 investors who would like to invest in our syndicate with us who get excluded because of the 99 investor rule. Next, there is $118,000 per investment that we’d like to include in each syndicate that the companies we are investing in won’t get. Bad for the companies and bad for the investor.

We’ve spent lots of time over the past 60 days trying to solve the 99 investor problem. At this point, we’ve run into a dead end. We’ve tried multiple LLCs – that doesn’t work as they end up getting viewed as a single entity. We’ve tried other structures – that doesn’t work. We’re certainly open to ideas at this point.

In the mean time, until we solve this, AngelList is making the following changes to their Syndicates product.

- Qualified Purchasers: AngelList will include all Qualified Purchasers (individuals with $5M in assets and firms with $25M in assets) in each syndicated deal as they are exempt from the SEC’s 99-investor limit. We will soon email your backers to determine if they are Qualified Purchasers (QPs) and we will update your syndicate management interface to indicate the QPs.
- Top 99 Backers: The next time you syndicate a deal, we will include all QPs and the top 99 non-QPs by commitment amount. You can override this default to include specific backers who are not in the top 99. The top 99 backers will change dynamically as backers adjust their backing amounts.
- Funds: We are working on new funds products to allow additional investors who are not in your top 99 backers or QPs to participate in your syndicated deals.
- Notifying Backers: Finally, we will notify your backers of the SEC’s 99-investor restriction this week and give them the opportunity to change their backing amounts.

We are bummed about this because part of our goal is to build a very large angel network as a result of the FG Angels activity. The 99 investor rule directly undermines this, and limits the amount of investment and support for the companies we are investing in. It’s another example of the challenges of the JOBS Act and another discovery on our part of the “miss” between the goal of the new law and the implementation.

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