Counting Angels

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How many Angels do you want in your cap table?  Mark Suster wrote a great piece in July giving his answer: “If all else fails, angel-load away! If you can’t raise from a few strong angels, from seed funds or from a VC then raising from a ton (let’s say 20+) angels is a perfectly acceptable strategy. There. I said it. It’s not terrible, it’s just not ideal if you can avoid it. ”

Well said, Mark.  I often hear founders fretting about “too many Angels on the cap table.”  Everyone has a vision that one or two “Super Angels” will write million dollar checks and all will be well.  It’s good work if you can get it!

The reality is that many successful companies have more than 20 angels in the cap table.  MindBody (MB on Nasdaq), just went public with a $500mm market cap, and they had a significant number of Pasadena Angel as investors.  It hasn’t seemed to hurt them.

The key to managing your Angels?  A strong lead and experienced Angels help, as Mr. Suster noted.  Most reputable Angel groups can supply both.  I can’t imagine dealing with inexperienced investors–it’s hard enough with veterans.

One thing you can do is to communicate early and often.  You will create havoc if you fail to keep your Angels (or any other investor) informed.  Put yourself in their shoes–they are busy and have multiple investments.  They don’t live in your world.  In other words, they have no idea whether you are succeeding wildly or about to crater.  And yet they’ve committed their hard-earned cash and periodically wonder what is going on.  Take the time to shoot them a “what’s up” email monthly, and serious financial reports quarterly.  You will rarely hear from them.

One CEO I know did just that, and then got an irate call from one of his larger Angels.  It turned out that reality didn’t quite match the forecast, and the Angel wanted to know what the heck was going on.  Needless to say, he was initially annoyed and didn’t particularly want to deal with the issue, given that he has a complex business to run.  I reminded him that once you cash their check they have a right to call.

As we talked it over, he realized that he’d been working so hard that he hadn’t communicated for months and things had changed.  There actually was a tremendous amount of good news, but unless you heard it in context it could be easily misconstrued.  It will all get sorted out in a brief phone call, but the lesson was clear: no surprises.  Send that email.

And if you’re still thinking it would be easier with just a few larger investors, let me share a story.  The company I work for, Malauzai Software, was initially funded by a small group of industry insiders, and later rounds were all done with strategic investors.  No VCs, no flocks of Angels.  Sounds great, right?  It is great to have a small, knowledgeable pool of experienced industry veterans as investors.  The bad news?  They ask hard questions. REALLY HARD questions.  They know all the details and all the metrics because they are industry experts.  It’s a different kind of challenge, but it’s still a challenge to communicate business complexities to investors, regardless of their sophistication.

The answer is the same regardless of who funds you: keep your investors informed and close to you.  You took their money and you may need them again.

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