Angel deal 101
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Angel deal 101

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Focus on unit economics, not a business plan

Principals

It’s all about having the right fairies around

99% of the startups fail !!!

So the game is about increasing your chance of success. The key is to help the entrepreneur to have the right angels around his cradle.

20% in valuation or discount is irrelevant, getting top angels in the round can be a game changer.

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You are buying a share of their future. It’s a long run, not a trade deal so think long term

Reserve the same amount of money you put in for follow-on / bridges / any other kind of “emergencies".

Key terms

Founders vesting

Founder vesting is when founders agree that their founder’s stock will vest over some periods of time, normally four years.

The point of founder vesting is that it is not fair to the rest of the shareholders, particularly the other founders, if one founder leaves early during the life of a startup.

One or more founders continue to work at the company while one or more founders leave but keep all of their founder’s stock. It creates all sorts of problems with the remaining founders and shareholders.

🤕 🚑 Most common mistakes

Equity vs Convertible note / SAFE

The very early stage should always be in a form of convertible

1. An equity round is more costly and time consuming. 2. Convertible provide more flexibility for the founder to do the round over a

longer period of time. 3. it postpones the valuation discussion to a later stage.

Over dilution

It counters intuitive at first, but taking too much equity put you more at risk

1. A destroyed cap table is a turn off for the funds

  1. frustrated entrepreneurs who will ask for relution
  2. It shows uneducated angels therefore potentially difficult to manage
    1. for next rounds or exit
  3. more effort to close the deal and force cap table fixes.

2. An over diluted founder will develop a tendency to recoup part of her loss in the coming rounds by

A. raising less new rounds therefore increasing execution risks B. being more aggressive on future valuation putting deals at risk or with punitive liquid preference