Paul Rosania

Hi! I'm Paul. I work at Slack.
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I can also be reached at paul@rosania.org.

Creating a "TheFunded" for Angel Investors

August 25, 2010

Adam Smith has a great post with many interesting observations about Y Combinator's most recent demo day. I latched onto one:

Do we need a TheFunded for angel investors?

I think the answer is yes, for three reasons:

  • Angel investors come at a critical time for the company
  • Angels’ reputations are not always well known
  • The role of the angel is on the rise

Angel investors come at a critical time for the company

The right investor can bring critical momentum to a fledgling startup. For the "mega-angels" this can be clout, but it can also be key introductions to potential clients and business partners. Experienced angel investors also know how to manage their relationship with the company in a way that increases the company’s likelihood of success, without getting in the way.

On the other hand, the wrong angel investor can pose a serious risk. Inexperienced or overly aggressive investors can be a huge distraction during the fundraising process, and putting the deal at risk. The pain can continue once they're in, as they chew up valuable time and energy.

Angels’ reputations are not always well known

VC firms’ reputations tend to be public. TheFunded is a valuable asset in this regard, but firms like Union Square Ventures and Sequoia are preceded by their reputations as well as the reputations of their partners. While the same is true for prolific angels like Ron Conway and Peter Thiel, it is not true for the many thousands of other angel investors clamoring for access to events like YC Demo Day.

The role of the angel is on the rise

More startups are trying to achieve profitability with less fundraising. Sometimes a seed round is all a company needs to get there. The financial climate is one factor, but movements like Lean Startup indicate a broader trend that will outlast the crisis, and pose a serious threat to the current VC model.

What this means for angels is they play a bigger overall role over the lifetime of the company. Instead of getting crammed down across Series A, B and C rounds, where VCs take control via equity and board seats, angels can expect to hold significant equity positions for a long period of a startup’s growth. As a result, startups need to be increasingly focused on identifying angels that can help move their company forward through introductions, rather than purely through investment.

Sidebar: ... but is it legal?

Defamation laws in the United States might pose a challenge to a "TheFunded for Angels." TheFunded is safe since it deals with organizations, but a review site for angels would by necessity contain reviews of individuals. While angel investors like Mark Cuban probably constitute "public figures", many lesser known angel investors would not.

The authors of negative reviews of angel investors might be exposed to libel suits, regardless of the reviews’ accuracy. The types of angel investors that receive low ratings are likely the same types of people who wield lawyers to deal with their problems, and this could torpedo the concept.

But otherwise, I love the idea.