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How to Select Your Angels (notes)

On May 18, Orrick held a panel titled How to Select Your Angels, featuring Jeff ClavierJared HansenRob HayesMitchell Kapor and Naval Ravikant. It was an enlightening discussion and full credit to Orrick for putting it together. Below are the notes that I scribbled down. They are unedited and unorganised, but a few friends have found them useful, so I’m putting them up here in case they help somebody else. Enjoy!

  • Unique and hard to do is attractive
  • What strategies do you have not to fail?
  • Bar is higher. You need to have done more before you’re considered fundable – need traction
  • Stay away from trends and celebrity (daily deals!)
  • Mobile and cloud are good
  • Expect to see something that works and maybe evidence of revenue otherwise you’re at a disadvantage
  • There is so much supply of possible deals – up to the entrepreneur to prove
  • Won’t even take a meeting if there isn’t a URL to visit or social proof
  • Kick ass entrepreneurs and big ass markets – two ass-es
  • If you haven’t done it before, they need other ways to assess your ability
  • Structure of the team – expect developers and doers – a team that’s moving
  • 12 out 700 investments made in a quarter
  • Kick ass product – three ass-es
  • Interesting, differentiated, understand customer funnel
  • Admit they pass up good deals simply because there’s too many
  • Shouldn’t do a company unless you have an irrational passion
  • You can raise money, but that’s a prison
  • But you still need a good idea
  • Important for an entrepreneur to listen and take feedback
  • Even if you’re turned down you can learn from it
  • Do something hard
  • If you’re not getting funded, don’t sell harder, focus on your product
  • Incubators – get out what you put in
  • Access to mentors
  • Structured and fills the gap in knowledge
  • Not so good to meet investors but good for networking
  • Coworking is very valuable for the cross pollination
  • Incubators – there’s so many entrants that those who make it through are actually smart and interesting
  • Usually leads to higher likelihood of investment due to connections because you also learn
  • Not all are created equally
  • Inevitably you are shaped by the culture of the incubator so be aware and pick something that matches
  • Each has a Yoda
  • Beneficial to be in the same room as people with the same experiences
  • Incubators are like colleges
  • Their emergence point to the failure of MBAs
  • Sole entrepreneurs – its uphill
  • Investors admit it’s a obstacle
  • Get people as passionate and dedicated as you and smart enough to bring it forward
  • Not different to pitching investors
  • Keep your eyes and ears open
  • A lot of value in knowing when to stop and try something different
  • Valley is tolerant of failure if there’s learning
  • But sometimes its better to change course
  • Not a linear march
  • Often get it right second third time
  • What is the next set of meaningful milestones you need to meet
  • Works backwards from second round to work out first round
  • Always too optimistic
  • Add a big buffer because shit happens
  • But times are changing
  • Valuations are way bigger
  • Raise as much as you can because it will be harder to get more later and you have to meet the expectations
  • But sometimes too much money dilutes urgency
  • Prospect of running out of money concentrates the mind
  • Set out clear milestones
  • Only do what you need to
  • Raise accordingly
  • But a clear relentless plan is preferred
  • You can waste a lot of time in a failing idea
  • Less cash brings the issue to a head
  • You don’t want to get lazy / frivolous
  • Raise as little as you can get away with but know how much you need and include a cushion
  • Valuations are what the market will bear
  • Syndicates – seeing lots of people
  • Founders aiming to give no one control
  • But then who will stand by them when things shift
  • Know what everyones job is in the syndicate
  • Who’s gonna help build the team raise the next round
  • Traction determines valuation
  • There is no pattern, no mathematical formula to valuations
  • Initial syndicate is part of the startups foundation
  • Add value at different components of execution
  • Twitter followers are nice but experience and battle scars are better
  • Period of structural uncertainty
  • Three types – experienced angels, inexperienced that write checks, and VCs that are trying to reinvent
  • A big syndicate could add uncertainty
  • No one knows how they’re going to unfold
  • Understand that if you take a small investment from sand hill its only so they can put money in later – lack of alignment
  • The ‘new angels’ are great but they have no idea about pricing
  • The VC doesn’t care because its penny change
  • But the real angel has seen thousands of deals and will offer you less because they understand true value and can get you there and make the second round better
  • When you get a high valuation investors can feel like they have overpaid and results in negative relationship
  • Comes down to who you want to work with who has expertise not just money
  • If you’re in the position of deciding its good problem to have
  • Worry more about building a team
  • Select investors as you select a team
  • Strategic investors not until series c
  • Convertible notes popular 2 years ago
  • Now harder to raise because quality investors don’t want to
  • It lowers the potential investors available
  • Don’t mistake a fast start for a short course – still a long difficult process as always
  • Prefer equity but will do notes if its happening
  • Better to get terms out of the way early
  • Different every case
  • Sometimes you might want to defer the creation of terms
  • How much time do investors devote to the company?
  • Depends on the stage and need
  • Don’t really schedule
  • Early on establish a protocol
  • Sometimes better for someone in the network to help
  • Thinking about a social term sheet that sets up agreements for interaction
  • Fair for both sides to know what to expect
  • Particularly first time entrepreneurs should know what to expect from investors and what investors expect – for example metrics dashboard
  • Most successful companies struggled at some point
  • The differentiator for angels is how they handle shit hitting the fan
  • Access to other companies within the portfolio is a big feature
  • Investment is not a science yet, its an art
  • This is a lottery ticket business

If you enjoyed this post, you may also enjoy my notes on How to Choose the Right Incubator for Your Startup.

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