May 27

Here’s a simple proposal: if you’re calling yourself an Angel Investor at an event, you should wear a standard name tag that gives an objective measure of some basic facts about your “nutritional content” as an Angel.

At least in AZ, the term “Angel” seems to have been co-opted by anyone who has ever bought a piece of real estate. After holding a piece of dirt and making money, these people are somehow magically imbued with divine powers to forsee why your technology startup won’t possibly work (and they’re happy to prognosticate about it).

I was at an event last night helping a friend pitch his company and one of the panelists (who shall remain unnamed) made the repeated feedback to the presenters that “you didn’t specify what my return will be.” Sir, frankly if that’s the only feedback you have for these entrepreneurs pitching their early-stage, pre-revenue technology startups, you do not deserve the title Angel.

Go buy a treasury bond and the bankers will happily explain what your return will be.

At this stage in the search for the repeatable scalable business model, companies have no f’ing clue what the return on your $50k is going to be. And it’s a silly tapdance you put them through when you force them to fabricate and justify one. The idea is to make it as big as possible – we all agree on that right?

If you’re a VC adding fuel to a finely tuned business model where the formula has been determined and tested, by all means ask the entrepreneur to calculate and substantiate what the return will be. At that point that exercise makes sense. But at this pre-revenue stage by asking this question you’ve self-identified yourself as being unsophisticated, focused on the wrong motivation of Angel-stage investing and frankly you’re not someone whose money I would want at that point. At the Angel stage the entrepreneur has demonstrated the ability to create a product which appears viable. You’re funding their search for the repeatable scalable business model, not putting gas in the engine of a working model. Think of it as a more interesting/rewarding alternative to throwing your $50k down on a craps table in Vegas. If you’re treating it like a blue chip stock and can’t afford to lose that money you shouldn’t be doing Angel investing.

Note: I’m not proposing regulation on Angel Investing, I’m proposing a standard for Angels self-reporting some basic traits to the folks who are pitching you. This objective label would do two important things: 1) for the budding entrepreneur, it gives him/her the ability to assign a level of credence to the words coming from the person telling them why they’re going to fail. 2) for the Angel, it forces them to admit publicly how many deals he/she actual does at the end of the day. The guy with the “Deals last year = 0” label on his breast pocket will likely think twice next time before he publicly craps on a guy starting a company for the first time.

3 Responses to “We need a "Nutrition Facts" label for Angel Investors”

  1. Chris Ayers says:

    Having been in the same company last night, i couldn't agree more. I know which judge you're talking about and he drove me crazy too. Actually there was another judge that actually mentioned how much he had funded in the last 2.5 years and i was underwhelmed. We have a lot of people taking on the title Angel Investor here in AZ, but perhaps i'm just not involved enough to know what are they actually doing. I'll have a side conversation with you later.

  2. Michael says:

    well, get used to these questions. Due to the market failure, angels repeatedly want more bang for their buck, and want to put 50-100 grand into companies who already have a scalable business model that is disruptive (patents applied for) with a product in the market making money and a creditable leadership team. Moan and groan all you want arizona, but the days of napkin funding are over.

    • Sean Tierney says:

      @Michael – Obviously the further along you are, the more traction you can demonstrate and the greater likelihood you have of convincing someone else to give you money. Nobody is suggesting Angels fund concepts purely off of a napkin- that's a complete perversion of what i said. 4/5 of the companies last night at CrowdPitch were pre-revenue. If Angels are entertaining deals at that stage then they should recognize it's all about assessing the viability of the product, the quality of the team, the market opportunity, etc and making a a decision whether they want to throw their chips down on this guy. The 3yr projections slide at this early stage is complete BS b/c the model will inevitably change at least 3 times by then. It's fine as an exercise to see they've gone through the thought process and what their assumptions are, but it's not anchored by facts and therefore is completely speculative. The Angels that expect a serious answer to "what will my return be" are delusional.

      BTW nobody is moaning. This is a proposal to have Angels self label w/ some objective measures so all parties involved can see basic facts about how legit they are.


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