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