Engaging with angel investors

I went to the MIT Enterprise Northwest event “Meet the Angels” last night and there was a lot of great conversation from the leaders of the local angel groups in Seattle. Most of you know I’ve been interviewing angel investors all over about how they angel invest for my upcoming book. The interviews have been great and have given me a new lens to view the comments from sessions like this. I hope that when the book is available it will help you to develop a new lens to look at angel investing as well.

One point at the event that caught my attention was the drastic difference of opinion about online angel platforms such as Angel List and FoundersClub. It was like someone farted on stage and everyone was pushing to get away from the online investment tools. It is amazing to hear the difference of opinions on how useful or not useful these platforms really are. Everyone running away from these things is claiming that there are plenty of deals in their local community (so why go online). While everyone embracing these things is claiming that the friction is lower online and that is the value (despite all the current excitement around super angel syndication on AngelList).

I am squarely in the latter camp – AngelList and other online platforms such as AngelMD are effectively bringing new transparency to small cap investing in a way that no small cap exchange has been able to provide. These online platforms also provide signaling and trend data for investors to make better decisions. I can now go online and see who else is building a social sharing app and compare that against the great entrepreneurs pitching me in person. Then… when I do decide to invest in a local or non-local company, I can have the process streamlined and managed online so I don’t have to jump through all the hoops myself and I can track the status of the company online in an easy to use tool.

For the entrepreneurs – these tools provide better insight into the competitive landscape (especially being able to determine funding levels of direct and indirect competitors who are also relatively new companies). This is huge and can drastically improve the story when you engage with angel investors. These tools provide the entrepreneur a mechanism to bring on many smaller investors in a single cap table entry, a single communication vehicle, and a standard set of documents that follow-on investors will get to know and understand.

Ignoring these things and saying we saw these in the dotcom bubble or I only invest locally is ignoring the fact that the world is not like it was in the 90s. Sure we all still wear Hypercolor shirts occasionally, but from a technology perspective we’re way past that. Startups from all over the country are assuming their total addressable market is at least within the US. I have never met a startup that has told me they are in a billion dollar business with customers ONLY in Seattle. Both entrepreneurs and investors need to understand who is building and backing businesses in their space all over the country and these online tools provide a mechanism to do that. They also provide a mechanism for entrepreneurs to tap into the investors around the country who are interested in their space. It is much easier to raise money for your flux capacitor if you can find people who have invested in things like flux capacitors in the past. When you start researching angels on angel list or other platforms, you’ll find that there are a number of people who share the types of investments they’ve made and this is incredibly useful.

Here is a good AngelList 101 deck that really applies to any of the online platform (and quite frankly applies to raising money in person as well). I think it is a good framework to think about planning a capital raise and touches on most of the points I’ve heard from the angel interviews I’ve had to date.