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Top Lessons Learned From Great Angel Investors

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.

Rob Go

Thanks for reading! Here’s a quick background on who I am: 1. My name is Rob, I live in Lexington, MA 2. I’m married and have two young daughters. My wife and I met in college at Duke University - Go Blue Devils! 3. We really love our church in Arlington, MA. It’s called Highrock and it’s a wonderful and vibrant community.  Email me if you want to visit! 4. I grew up in the Philippines (ages 0-9) and Hong Kong (ages 9-17). 5. I am a cofounder of NextView Ventures, a seed stage investment firm focused on internet enabled innovation. I try to spend as much time as possible working with entrepreneurs and investing in businesses that are trying to solve important problems for everyday people.   6. The best way to reach me is by email: rob at nextviewventures dot com


    • Thanks for having me, I loved attending this event once again! It was outstanding.

      Yep, some take-aways for me were some of the areas that have slightly surprising differing viewpoints amongst angels and VC’s out there.

      1. pro rata rights kept coming up. I learned that some angels feel like it’s not their place to insist or even want them.

      2. working with people you like, or not: some investors want to back people they want to hang out with. others assume that their best entrep leaders who might make them the most $ may well be total psychos they wouldn’t want to invite home!

      3. SAFE. Don Dodge totally trashed this concept.

      4. (my biggest take-away) Boston startup investment culture is “earthy”. Boston investors seem to skew more “from the heart” and community driven than their counterparts in NYC or SF/Valley. I liked the comment from a panelist saying that if an investor pushes too hard for pro-rata, that the panelist would inform everyone he knows not to do business with that person again. It’s like he was offended, whereas I could expect the typical NY or SF counterpart to simply shrug!

    • Great article! You mentioned you like when entrepreneurs discuss their challenges, but is that mostly targeted towards your portfolio companies you already invested in, or do you prefer a company you’re considering an investment in also dive into their challenges? As an entrepreneur who recently completed an accelerator and who has been in the startup ecosystem for quite a few years, it seems like most entrepreneurs just highlight the potential/traction and almost never dive into challenges or difficulties they’re facing. Obviously all business face challenges, but how do you suggest an entrepreneur balance not scaring a prospective investor away by talking about challenges, while still showing the positives and potential of the business? When is it too early to discuss challenges with an investor you really want, or is it never too early?

      • robchogo

        That comment is focused on both prospective investments and portfolio companies. Beyond the first meeting (or during the first meeting) the conversation will inevitably get beneath the surface and focus on the hard problems of the business. I think that the positives are fine for first meetings or accellerator presentations, but when you are having a serious discussion with potential investors and partners, it’s beneficiail all around to talk honestly about the hard parts of the business.

        • Solid way to look at it. I’ve found that talking about both the strong and weak points aren’t the most important part. Instead having a planned execution plan to tackle the challenges post-funding is what “should” be at least IMO what piques an investors interest.