This week, we helped organize an Angel Bootcamp where some of Boston’s most successful angel investors shared their experiences and lessons learned to a crowd of aspiring angels and entrepreneurs. It was a terrific event with some really unique content and stories. If I were to give a talk at this event, I would have spoken on the following topic:
WHY BEING AN ANGEL IS BETTER THAN BEING A VC
In the informal conversations during and leading up to the event, I noticed a bit of a sentiment that angel investing was somehow less appealing or less interesting than being an institutional VC. While I can’t speak to the specific motivations around this, I found this somewhat puzzling. I suppose there may be a sense of prestige or credibility garnered by managing a fund of capital, but there are some major advantages to being independent. I think if one has the means to pursue angel investing in a relatively aggressive way, investing as an angel can be way better than being a VC. There are a lot of reasons, but it really boils down to two. Fist, the difficulty/ease of getting into a deal and second, flexibility across multiple dimensions.
#1: Difficulty/Ease of Getting Into a Deal:
The dynamics of a round differ case by case. But for angels that are writing relatively small checks (sub $200K, or perhaps much less), it’s relatively easier to get into an interesting deal than if one were a VC.
The reason is that most seed syndicates have room for 5-10 angels or more, but only room for 1-3 funds. If an angel is value-added and low-maintenance, it’s a relative no-brainer decision to allow that person to invest $50K into a company. In probably every investment we’ve made, if the founder asked us to make room for a high-quality angel, we would have done so without hesitation.
This dynamic is very different for VC funds, where there is often a struggle for allocation. We’ve faced situations where we’ve been unable to get our allocation in competitive rounds, but would have been able to participate fairly meaningfully as angels (which was decline as a firm policy). It’s a very different ball game.
Because of this, there is a lot of pressure for VC’s to get to an investment early, differentiate themselves meaningfully, and move with a huge amount of conviction. Great angels do this as well, but can be a little more relaxed about it and still get great results. As an angel, it’s possible to get to an investment a bit late, or follow the signal of a strong syndicate and still do pretty well. Even if an angel gets to an investment very early, one is able to hedge their commitment a bit by saying that they are “in for $X pending market terms and a strong lead.” This may seem like a bit of an annoying caveat, but I think it’s totally fair game for an angel that isn’t making investments for a living but wants to show early support (as long as you don’t go back on your word).
Finally, angels can also pro-actively go after rounds that are pretty close to closing. Because you are making decisions unilaterally, the ability to commit on the spot allows you to be very aggressive. Why not cold-email a founder and say “my name is X, I can help in these ways, if you’ll take me, I’m willing to commit $Z to this round right now. Your choice whether you want to do a call to check me out or not.” The best angels hunt for investments, but it’s much easier for them to squeeze into rounds than VC’s.
The last example above also highlights the second benefit of being an angel – flexibility. Most institutional VC’s present a coherent strategy to their LPs about how they will focus their efforts, what kinds of companies and rounds they will invest in, and how they will construct their portfolios. Most VC’s have target ownerships, target stages, target sectors, target geographies, target returns, target time frames, etc. They also should be doing due diligence of some sort. Angels can do whatever they want. Angels also aren’t investing a fund with a finite amount and time horizon, so he or she could think about each investment as an independent, money-making endeavor.
Some examples of stuff an angel could do:
- Invest $10K into an incubator (many VC’s have a policy against investing in any entity that charges an additional layer of fees)
- Invest in a bunch of angelist syndicates (most VC’s don’t want to follow other VC’s or angels blindly)
- Invest internationally (many VC’s are geographically constrained)
- Blindly follow other investors without even meeting the founder or doing any due diligence (most VC’s would get killed by their LPs for doing this)
- Invest in a company or entity that has great ecosystem benefit, but probably won’t yield a huge financial return (VC’s have a fiduciary responsibility to invest in a way that maximizes the return for their investors)
- Invest in companies or sectors “as marketing”, or “to learn”, or “to build relationships with syndicate members”
- Invest in a company to establish brand credibility to expand their network, even if the price or terms or other factors are crazy
- Invest any amount they want into any company (most VC’s care quite a bit about internal consistency and coherency of their strategy)
- Invest in companies that may never have a liquidity event (VC’s need to get their money out within 10 years)
- Invest in a company that is a very solid 4X, but has absolutely no chance of being a 10X+ (VC’s need to invest in outlier companies to move the needs on their funds)
- Invest in a hardware company, followed by a biotech, followed by a consumer product, followed by a consumer internet company (again, most VC’s care about consistency and coherency of strategy)
- Stop investing for any period of time for any reason without any accountability to anyone
As a VC, I do believe that having a very focused strategy is the best way to drive fund level returns and to fulfill our commitment to our LPs. But angels can manage multiple incentives, and the flexibility and independence of being an angel is a wonderful thing. There isn’t one obviously right answer for any person, but there are some major benefits of being an angel that should not be underestimated.
We held an awesome Angel Bootcamp yesterday at MIT. It was an amazing collection of speakers sharing their experience and wisdom around angel investing. It including folks like David Tisch, David Cohen, Paul English, Diane Hessan, Katie Rae, Andy Palmer, and many others. The full speaker group was here: http://seedboston.com/angelbootcamp/
Even though we are a seed-focused VC fund, we were very excited to help organize this event because of our belief that increased angel activity is critical to keep propelling the Boston startup ecosystem (and the local economy) further. More and better informed angels allow more founders to pursue ambitious companies, not just by providing dollars, but by doing so in a way that is as helpful as supportive as possible.
The content presented during the day was unique and amazing, and I’m still processing everything. But I took some notes along the way of my top takeaways from the talks. Here they were below:
1. Focus on founders that just won’t give up. This is something I’ve seen in my own investing experience. Of all of our investments, a large percentage will not work out. The founders that we are most likely to back again are the ones who just wouldn’t give up, and keep fighting. I remember personally a friend of mine giving a reference for a founder he had worked with, and his response was “he will fight to the death like a cornered badger”. That’s a good trait to look for.
2. You don’t necessarily need to like a founder to want to invest in their company. This is somewhat controversial, but a number of speakers talked about how some founders were amazing, even though they weren’t necessarily the people they’d want to have dinner with. Founders tend to be extraordinary people, which often makes them quirky, unusually aggressive, or awkward in other ways. If the founder is committed, effective, honest, and capable, does it matter whether or not you particularly “like” the person vs. just being confident you can work together?
3. SAFE docs are on the rise. These are financing docs that were pioneered by YC and is apparently starting to see some level of acceptance in Silicon Valley. There was fairly heated debate about these during the afternoon, with some very experienced angels (who spend more of their time in SV) saying that there was “no F*cking way” they would invest in one of those. The benefit of a SAFE is that it isn’t actually a convertible note. Which means no maturity (and thus, no ticking clock for a payback), no accrued interest (since it’s not actually debt), and preferences that are equivalent to the dollars invested vs. some multiple of that (for a discussion around this, see this from Mark Suster). Personally, I’m not a fan of notes and very much prefer equity financing. I think there is probably innovation to be found in simple equity financing documents that:
- simplifies the documentation required and keeps cost in line with that of a convertible note
- allows founders to close on cash quickly and sequentially
- establishes clean, fair terms for future financing rounds
Some of these docs exist, but for whatever reason hasn’t been adopted in a way that allow for low friction similar to notes or SAFE documents. But in my mind, if a founder and investor can agree on a valuation cap, agreeing on the simple terms for a plain vanilla equity financing shouldn’t be that hard, and aligns interest much better. That said, I’ve never been that dogmatic about this topic – I have a preference, but I think some of our objectives can be achieved through different instruments. It just ends up being more trouble that it’s really worth, typically.
4. Back founders who like talking about the hard parts of their business. This was suggested as a major lesson learned from my friend Eric Paley at Founder Collective. The idea is that you want to back founders that engage honestly, and with great depth on the biggest challenges of theirbe business. This is good because it shows that the founder has an appreciation for what is hard, embraces the challenge because they see it as a long-term competitive advantage, and is intellectually honest about the difficulties they are likely to encounter later. More specifically, founders that are able to do this well are a) able to have specific hypothesis that they are testing to address these challenges b) able to distinguishes between challenges that they feel can be overcome by sheer will or because it plays to their strengths vs. those that are more uncertain, and c) able to show vulnerability and uncertainty to investors while still earning their confidence. I think this is a great lens through which to think about founders.
5. Platforms on the rise. Two of our speakers were Jeff Fagnan and Alex Mittal. Jeff is a seed investor and founding board member of Angelist, and Alex Mittal is the co-founder of FundersClub. Both spoke a bit about the development of these respective platforms, how they have performed, and how one could get involved on them. What struck me overall was the scale of these platforms, and how successful they have been. Both platforms boast really extraordinary companies coming through their platforms and really impressive performance. In the early days of these platforms, there were major questions about adverse selection, essentially that “only the crappy companies would resort to a platform for their fundraising needs”. Given the progress so far and the direction these platforms are headed, I think those concerned are pretty far in the past.
6. Pro rata rights – much ado about something (and nothing). There were a number of heated discussion about pro-rata rights and what to do with them. Some investors are religious about insisting on them and capitalizing on them, others were much less dogmatic. At Nextview, we like to have pro-rata rights, because we want to be heavily invested in founders we believe in and companies that are outperforming. In our opinion, it’s reasonable for founders to make sure that the investors that believed in them early and were supportive from the beginning can continue to invest. On the flip side, the reality is that these right end up being somewhat helpful, but only partially so because allocations end up being negotiated at the next financing round pretty much independent of these rights. But again, I think it’s reasonable for seed investors to be put in a position where their ability to capitalize on pro-rata will be driven by their ability get a founder to fight for their rights, which usually means that they were supportive, responsive, and added a lot of value along the way. So in short, I think this is much ado about nothing. I think it’s right to offer these rights to your earliest investors and to put it into financing docs so that there is mutually agreement about expectations post financing. I also think it’s right for investors to have to show that they deserve their pro-rata based on how they behave post financing.
7. The best angel investors hunt. There is a misconception that as an angel, your job is to evaluate opportunities based on the companies that come across your table. But the best angel investors hunt. David Tisch mentioned that something like 80% of the investments he makes comes from some sort of proactive activity, and he’s an angel that gets a huge amount of inbound deal flow! Other angels talked about “not dabbling” and being “committed” to angel investing, which I think are some other versions of this. Being an angel can be very rewarding, but it’s more rewarding if you are involved in more interesting companies and more impressive founders. That doesn’t happen by accident.
There were many other nuggets of wisdom, but there were the first ones that came to mind when I got home tonight. It was a great even overall, and I learned a ton. Thanks again for our terrific Sponsors, Wilmer Hale, Jones Lang Lasalle, and Silicon Valley Bank for their financial support, and for Jon Pierce (the godfather of this event) and Jay Acunzo for their help organizing. And again, huge thanks to all the amazing speakers for donating their time and efforts to the day. It was really rewarding to help put it together, and hopefully we’ll see some great fruit for our labor in the years to come.
I’m pleased to announce that NextView is co-organizing an event on November 11 called “Angel Bootcamp” along with the event’s original creator Jon Pierce. The event will be held at MIT from about Noon – 7PM.
The first Angel Bootcamp happened several years ago. The goal was to mobilize and educate the angel community in Boston to become more comfortable and more active investing in early stage internet, mobile, and software companies. Both then and now, our belief is that there is a dearth of high-quality, angel and seed stage capital in the Boston market, and that it would be a huge benefit to the economy as a whole to motivate some of the capital sitting on the sidelines to participate in the innovation economy.
After a short hiatus, Angel Bootcamp is back! The content will be unique – consisting mostly of quick prepared talks on some specific aspect of angel investing or sharing personal stories. We have a packed schedule, and one of the most outstanding speaker lists I’ve seen in a long time. These are people who have been successful entrepreneurs and angel investors in companies that have touched hundreds of millions of people and created billions of dollars in value like:
Uber, Warby Parker, Instacart, Blue Apron, Kayak, GrabCAD, Angelist, Crashlytics, Coupang, Opower, and many others.
For angels or potential angels, this is a chance to hear some of the best in the business share their perspective on investing in the most raw but most exciting companies. For entrepreneurs, this event provides a unique lens into the way angels think and how and why they might get excited about a particular company.
Among the topics I’d expect we hear about:
- How David Tisch, one of the country’s most prolific angels got started investing at the very first Angel Bootcamp
- What to make of crowd funding, from the founder of Funders Club and a board member of Angelist
- How angels can make any money in hardware, from the founder of the best hardware accelerator in the country
- The perspectives of those who have been on both sides, like Andy Palmer, Diane Hessan, Paul English, Wayne Chang, David Cohen, and others.
It’s an amazing group of both local and out of town guests, and I’m super excited. You can see the full speaker list and further details here: http://seedboston.com/angelbootcamp/
Because of space constraints, the attendee list with be curated to manage an effective mix of angels, aspiring angels, founders, and students. Click the link above to request an invite, or shoot a note to myself, Jay Acunzo, or Jon Pierce.
Of course, this wouldn’t be possible without some terrific sponsors – many thanks to Wilmer Hale, Silicon Valley Bank, and Jones Lang LaSalle for generously offering to sponsor our efforts, and MIT for providing a terrific venue.
I’m excited to be able to unveil our recent investment in PaintZen. The company is a technology-enabled service marketplace for the home and commercial painting industry. They have gotten off to a torrid start in New York, and just announced their launch of San Francisco today. Check out more details here and here. What I think is really notable about Paintzen is that coupled with their rapid growth, their quality standards and subsequent referral activity is extremely high. Check out their yelp reviews here, and just contrast them to the reviews of other service marketplaces in some other categories, and you’ll see that the reception has been night and day.
A couple weeks ago, an essay was going around by Paul Graham that talked about how many entrepreneurs “play house”. The article describes entrepreneurs that go through the motions, read all the blogs and online resources about building a company, say all the right things, but are more interested in “imitating all the outward forms of a startup” vs. being deeply committed to building a great business. Mike, Justin, James, and the team at Paintzen is one of the most stark counter-examples of “playing house” that I have ever seen. No unnecessary flair or pretense. Insanely deep understanding of their vertical, as well as deep understanding of service marketplaces generally (the Mike and Justin previously co-founded MyClean in NYC as well, which is growing at a great clip). And simply building a great business with nicely developing economics, scaleability, and increasing returns to scale.
We were excited to join a number of previous co-investors in this round, including the good folks at Lerer Ventures, Quotidien, and others. Thanks in particular to Sean Black who re-connected us with the team and also joined us in this round.
Congrats everyone – onwards!
It’s the eve of Wayfair’s Initial Public Offering, and I’m so excited for the company. Big congrats to the entire team there, especially NextView Venture Advisors Niraj and Steve (who were among the first people to get behind NextView in the early days). Congrats also to my wife Nancy, who is VP of Brand Marketing at Wayfair, and was the first person to believe in me in the early days too And congrats to my friend Alex Finkelstein who led Spark’s investment in the company several years back.
Wayfair stands in stark contrast to so many other tech companies you read about. Where other companies chase hot sectors, Wayfair started in the midst of a burst bubble selling speaker stands online. Where others raised millions and millions of venture money before they had a business, Wayfair built a business on its own cash flow, and only raised money after they had profitably grown to hundreds of millions of dollars in revenue. While others chased the wealthy, or the hipsters, or the fashionistas, Wayfair eclipsed them all by focusing on mainstream consumers. While others loudly beat their own drums about vanity metrics, lavish perks, or bold claims of grandeur, Wayfair has allowed their results and execution do the talking.
What an amazing company.
As I said a week or so ago in a tweet, I think that the best years are still ahead for this business. The company is going after a near limitless market in home goods that has been very slow to transition online, and they have built a highly defensible moat around their excellence in logistics and operational efficiency at scale. And this is all bolstered by a humble, scrappy, and hungry culture that pervades the entire company.
Congrats Wayfair! I hope every employee and alum feels immense pride about having reached this milestone. But contrary to how I feel about most tech companies that go public, I think the future holds even more potential.
The best is yet to come.