Maximum number of angel investors?


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What is the maximum number of angel investors you could possibly (not theoretically, but realistically) bring in to finance your startup (given you have traction and exciting potential)?

I'm visualizing an angel round financing strategy ... and I was curious about the maximum number of angels I could possibly bring on; and how much equity each should receive.

Ex: you allocate 30% equity to raise capital, and bring on 30 angels @ 1% equity per $10k investment (so $300k in capital). Possible? Too many investors to deal with?

Equity Angel

asked Nov 27 '10 at 08:14
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Mr. Schwabe
147 points

5 Answers


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What is the maximum number of angel investors you could ... realistically bring in to finance your startup...

I would say 5-6 at the most, with the majority of deals done with 3 or less.

Ex: you allocate 30% equity to raise capital, and bring on 30 angels @ 1% equity per $10k investment (so $300k in capital). Possible? Too many investors to deal with?

Experienced angels and seed stage funds like Y Combinator almost certainly wouldn't take that deal.

That leaves you with what Guy Kawasaki calls "3F's", Friends Fools and Family. Keeping 30 needy inexperienced investors pleased would certainly be challenging.

I haven't seen any startups finance in this way, and my initial response is that it's a bad idea. And that's assuming that you can actually bring on enough 3F capital in the first place, which I doubt.

How about either:

  • If you're a bit optimistic about what your current market valuation actually is, maybe get into a early stage program like Y Combinator and learn a tonne, as well as getting excellent exposure to VCs.
  • OR if your current valuation is as high as you indicate, go directly to a venture capital series A round?
answered Nov 27 '10 at 18:47
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Jesper Mortensen
15,292 points
  • Great advice, I appreciate your two suggestions. To clarify your first point though, why do you think they wouldn't take the deal? Isn't 1% in an amazing company better than 0? – Mr. Schwabe 8 years ago
  • I think the average is larger than 3, more like 5. I can see deals with up to 10 angels, but definitely not 30. Unless you are talking about an angel group (angel forum, keiretsu forum), but in that case, they will create an LLC and it looks on paper like one angel. – Alain Raynaud 8 years ago
  • @Mr. Schwabe: Your "30 angels @ 1% equity" -- you cannot control how much equity each angel gets so finely. You'll have to work from a valuation, and then give Angels different ownership percentages, pro-rata to the amount of money the Angels choose to invest. BTW, see the comments from Alain and Apollo, they know this game well. – Jesper Mortensen 8 years ago
  • Sure if you're working with the valuation the angel comes up with. But IF YOU establish the valuation and set the terms, it seems you would have this fine control am I right? – Mr. Schwabe 8 years ago
  • @Mr. Schwabe: In principle, if you're a razor-sharp entrepreneur with excellent knowledge of the VC market, then you could set attractive deal terms and get away with micro-managing the equity percentage so you get many angels with each 1% only, yes. But: 1) if you're just a little off base, you risk scaring them *all* away, and b) why do this really? What does it win you? I like a traditional round better, with Apollo's proxy suggestion for the smallest Angels. Again, the hard part will be to **get** money in the first place, you cannot be too choosy. – Jesper Mortensen 8 years ago
  • "why do this really? What does it win you?" The reason why I suppose is control. And maximum leverage. If you can control exactly how much equity is being given away and for exactly how much; you can more tightly execute on a capital investment strategy to hit these objectives; and integrate these expectations with the larger scope of your product, team, and marketing goals. – Mr. Schwabe 8 years ago

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The simple fact is that if the deal is attractive enough to bring in 30 investors, at least a few of them will want to put in more than $10k. Plus, that brings you into the "too many cooks spoil the broth" concept, which says that the more investors you have, the worse your product will become.

answered Nov 28 '10 at 02:01
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Josh Sam Bob
1,578 points
  • Great point, yes it is likely that if you had the stuff to bring on 30 a few of them will want to put in more than $10k. And that I think, is a benefit of the strategy. Regarding the concept of "too many cooks spoil the broth" it doesn't really apply if your terms are laid out as a basic investment (ie- not giving away decision making power). A company on the NASDAQ doesn't sacrifice product quality for every share they issue right? – Mr. Schwabe 8 years ago

1

I would not limit how many angels you want in your round. Plenty of successful companies out there have 30-40-50 of them in. Sometimes it is better to divide and conquer. Bunch of small angels are easier to deal with than couple of titans, if you care about running your company.
But here is a caveat, you want to set a minimum investment level, that does not require management proxy. So say you set $50K individual investment minimum. Anyone under that have to be under proxy. This way, if you end up with 3-4 biggies and 10 smaller ones, you will not be too dragged down by investor management overhead.

Reality is many angels don't have large sums to invest anymore (and neither do VCs). You will find some groups doing DD on you and going through the motions, though when time comes to cough up the dough, they will walk, because members simply don't have cash. Some do it, to keep up the image. So don't get distraught, if you hit couple of those snags.

answered Nov 28 '10 at 05:25
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Apollo Sinkevicius
3,323 points
  • Thanks for the great advice Apollo. Do elaborate though on 'investor management overhead'. I'm not too familiar with this; perhaps because I'm coming from the perspective that each investor should know his role and the level of communication they should expect to receive. Why a proxy, why not just clearly define their scope in the investment terms? – Mr. Schwabe 8 years ago
  • You always have to manage the investors, their expectations, requests, etc. etc. etc. No such thing as "each investor should know". Everyone is a human with an individual ego, idea about their role, value, and impact of the money invested. It has been my experience, that the investor management can consume almost 100% of the CEO's attention (angel or VC, same thing). – Apollo Sinkevicius 8 years ago
  • Thanks for clarifying; good points. Though, if a CEO has to spend the majority of his time dealing with investors he has given up way to much leverage. – Mr. Schwabe 8 years ago
  • I don't think so. Investor management is one of the top 3 responsibilities of the CEO. Mismanaged investors cause a lot of problems, no matter how "angelic" and helpful those investors are. – Apollo Sinkevicius 8 years ago

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There are basic types of angel round - and different investors may work in one or more of these modes.

First, what you might call "find the angel." Here you are essentially looking at a single angel who wants to be your primary investor this stage. It's not uncommon for this individual to introduce co-investors, to share the financial risk or/and broaden out the skills/contacts brought to bear. This tends to come out of individual approaches or circulating pitches on broad-access sites.

Second, you may access a small 'choir' of angels. The start point here is often an angel network, and the end result a handful of investors from that network. We're talking a handful rather than a large number, and you can usually expect that one will act as the lead investor - so in terms of agreements this has a lot in common with the first scenario.

And finally, there's the full heavenly host! As we're on startups here, this isn't so likely to be the facebook-style product of a rolling snowball. So realistically, this is an extension of the '3F' round, for inexperienced or 'for fun' investors.

The issue in this latter case isn't that there are 'too many to deal with,' but that their individual voices aren't going to count for much in a later round, and as the latest round calls the shots, and no new investor likes long lists of unknown shareholders, their outcomes have a lot more downside than upside.

answered Jan 23 '11 at 19:01
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Jeremy Parsons
5,187 points

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I'd say 2-3 is max. You have to move forward instead of pitching that much amount of investors.

answered Nov 28 '10 at 10:16
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Vladimir Prudnikov
106 points

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