« swipe left for tags/categories
swipe right to go back »
We had a fascinating week trying to get everything figured out on our FG Angels initiative with AngelList. Our syndicate, which we are going to max out at $450,000, is currently right at $300,000 after one week. We are humbled by all the support and interest.
We’ve chosen our first deal to do. But we aren’t ready to pull the trigger yet – probably early next week. We’ve spent the last few days wrestling with some legal / compliance issues. The AngelList gang has been AWESOME to work with. We aren’t surprised that we are having to figure this stuff out – we knew the new JOBS Act rules, 506 compliance, and the ambiguity around a bunch of stuff would be problematic. Yeah – the problems are obscure ones generated by our government, and there are moments where it seems like the SEC simply doesn’t want any of this to actually work. But that’s part of the fun of it.
I continue to be mildly amused and amazed by the prognostications from the sidelines from a variety of folks (angels, angel groups, VCs, and entrepreneurs). Some of the strong opinions are based on virtually no data, or misinformation, or a complete lack of perspective. And others are based on a lack of understanding of dynamic systems. Either way, when asked, I continue to tell people our mantra – the best way to learn about stuff like this is to participate.
So – if you want to participate with us and learn a bunch in the process, join our syndicate.
I think AngelList is awesome and I’m a huge fan of what they’ve done. Nivi wrote a great post celebrating their 1.5 year anniversary today: 1.5 Years Of AngelList: 8000 Intros, 400 Investments And That’s Just The Data We Can Tell You About.
One of the powerful constructs of AngelList is social proof. It’s become an important part of the seed / early stage venture process as very early stage investors pile into companies that their friends, or people they respect, are investing in. AngelList does a nice job of exposing and promoting social proof during the fundraising process in a way that is both legal and non-offensive.
However, as one would expect, entrepreneurs focus on taking advantage of every opportunity they have. As a result, I’ve been getting a request on a daily basis to either “follow” or be listed as an “endorser” for various companies. These requests fall into two categories: (a) people I know and am trying to be helpful to and (b) random people.
I’ve decided to say no to both categories unless I’m investing in the company. And I encourage everyone involved in AngelList to do the same. I think the concept of social proof is super important for something like AngelList to have sustainable long term value. I don’t ever want to be on the end of a conversation with someone who invested in a company on AngelList, runs into me, and says “things are sucking at company X – why did you ever endorse them” and for me to say “I have no idea who you are talking about.”
As with many things in life, the key lesson is to do your research. It’ll be interesting to see how AngelList copes with things like this over time – I expect Nivi and Naval will stay one step ahead of the problem. However, if you are an investor or entrepreneur – help by having some discipline on your end – it makes things better for everyone.
I’m on an Acela train between Boston and New York (listening to Boston’s More Than A Feeling – how recursive) on my way to the TechStars Boston 2010 Investor / Demo day. I wasn’t able to make it to Boston yesterday for the Angel Boot Camp as I was running around NYC with the CEO of a company I invested in last week introducing him to a bunch of potential customers and partners.
It sounds like Angel Boot Camp rocked. My long time friend and co-angel investor Will Herman wrote a post titled Angel Investing that summarized some of his advice. Will is finishing up his 31st angel investment (we’ve done a bunch together – including my very first one – NetGenesis in 1994) and he walks through what he’s learned from 16 years of angel investing. Don Dodge also has a great post up titled How to be an Angel Investor…and make money.
On the eve of the graduation of the TechStars Boston 2010 class, I thought I’d weigh in with some additional advice to anyone who either is or wants to be an angel investor. Some of this repeats what Will and Don said, but I’ll try to be additive (and specific). For context, I’ve made over 75 direct angel investments primarily in two time periods – 1994-1996 and 2006-2007. I’m out of the angel business as all of my investments go through Foundry Group (the VC fund I’m a partner in) but I’m an investor in a number of “super angel funds” as well as a co-founder of TechStars and I continue to regularly make seed investments from Foundry Group alongside of angel investors.
So – here’s the advice:
1. Be promiscuous: To be a successful angel investor, you have to make a lot of investments. I generally made about one investment a month when I was active as an angel. While this pace may not be right for everyone, if you are doing less than four investments a year, I don’t think you are making enough. Play the field – it increases your chance of hitting a monster and it’s a lot more fun.
2. Have a long term financial strategy: Early on I decided that I was going to write the same size initial check in every angel investment. In the first phase (1994-1996) this was $25k. In the 2006-2007 phase this was $50k (although I broke this rule by occasionally doing $25k or $100k and in several cases, even more.) I always assumed I’d double down on each investment before the company either raised a VC round or was acquired (so – when I put $25k in, I was really allocating $50k to the company.) Then, I decided how much I was going to invest over a particular time period. In the 1994-1996 time period I decided to invest $1m in angel investments. So – that gave me capacity for 20 investments (I did more – oops.) In 2006-2007 I allocated more (and did more). However, since I had a time frame and an amount per company, I had a baseline pace that I could go at before I got uncomfortable with how much I was investing.
3. Understand the difference between 0x and 100x: I’ve had two of my angel investments return over 100x each. Since I had a strategy of investing the same amount in each company, all I needed was one 100x to allow me to have 99 companies completely flame out and return 0 and I’d still break even. With two investments at over 100x, I now have a built in gain of significantly over 3x across all of my investments since I’m made about 75 of them and I’m now deliciously “playing with house money” on all of the rest.
4. Choose people over ideas: I have never regretted making new friends through an angel investment that failed. I have always hated working with people I didn’t like, or didn’t think were A+. It’s an easy filter – use it.
5. Decide quickly: My best investments as an angel were made after one meeting and I’ve often committed in the meeting. Sometimes it has taken me longer – usually a second meeting or a long meal. But there’s no reason for an angel investor – especially an individual one – to drag the entrepreneur through a long, protracted due diligence process.
6. Don’t torture entrepreneurs: Remember, you are supposed to be an “angel investor”, not a “devil investor.” If you really want to be a great angel investor, decide quickly and then help the entrepreneur get their financing done! Be a force for good in the universe.
7. Run in a pack: The best angels run in packs. They share deals. They love to work together. They don’t feel obligated to invest in each others stuff, but they often do. And they communicate with each other. If you run in a pack, different people will take the lead role in different cases – sometimes I’d be the lead investor in an angel deal and – with a $25k check pull together a $500k round. Other times I’d just be one of the $25k checks in the $500k round and pawn off the work on one of my friends. Either way, I have a lot more fun playing with others – especially when the companies win!
I’m sure some of these don’t work for everyone so I’d love to hear any criticism from other angels out there. And – feel free to add your own tips, especially about – ahem – working with VCs.