Lessons Learned from Angel Bootcamp

Yesterday was the second annual Angel Bootcamp in Boston. It brought many of the best and brightest investors out to share their knowledge and experience on angel investing.  It also brought out quite a few great entrepreneurs as this year's move to the Tang center allowed for more attendees than the previous year.  Many notables like Bijan, Dharmesh, and Ty Danco shared their thoughts on Angel investing. I'd like to share a few of the key takeaways I saw.

Diligence is for Dinosaurs

One of the concepts that was hammered home by almost every speaker was that in the angel/seed stage of a company, doing heavy diligence is both a waste of time and hurts the entrepreneur.  Over and over speakers talked about their philosophies for investment and it never included months of diligence.

Angel groups in Boston have a reputation for doing a great deal of diligence, to the detriment of entrepreneurs. After talking to a few members of that community, they were adamant that they're working to change that currently, so it seems one of our seed stage weaknesses may be disappearing.

In the end, every entrepreneur hammered home their desire for angels to make quick decisions. There's no hard feelings in getting a no, and it helps the entrepreneur move onto other angels that may be more interested. 

What Angels are Looking for: the Sponge & Stone

Dave Balter gave an awesome presentation talking about what he looks for in an entrepreneur, which he breaks down into two parts: the sponge and the stone:

  • The Sponge - Does the entrepreneur seek out all the information they can, find good peers and mentors and create an ecosystem for themselves where those around them really help? Are the humble and always learning? 
  • The Stone - Does the entrepreneur work harder than everyone else? Do they have a fearless conviction and persistence, an iron will to make the company a reality? Are they able to grind it out and make progress on their company when things get tough?

While that's a tough set of rules to follow, they fit well with what it takes in general to be a great entrepreneur.  Do you stack up?

Convertible Notes are Okay, Uncapped ones are not.

It was not that long ago that a convertible note wasn't popular in Boston according to entrepreneurs I spoke with. Luckily today, convertible notes were repeatedly approved of by speakers and panelists.  

For the uninitiated, a convertible note is a round of financing where the valuation of the the company is dictated by a future round of financing such as a series A.  This means that the cash put into the company by the angels has it's equity set by the valuation of the following round.  

For example, if 5 angels each put in $50,000 into a round with an uncapped convertible note (for a total of $250,000 invested), the percent of shares they get for their investment will be set by the value of the company at the next round.  If say a Series A is raised for $1 Million at a $5 Million valuation, the Series A investors will get 20% of the company (1Mn/5Mn = 0.2) and the angels will get 5% split amongst the 5 of them (250k/5Mn = .05).

This is also why all the angels agreed that an uncapped convertible note is unacceptable in our current climate. With rising valuations, it's possible that the next round could have a crazy valuation upwards of $10 million, which would mean each of the angels in the above example would get less than 1% of the company despite being the first people to put money into and take a chance on the company.

Different Angels Provide Different Value

Famed Boston investor Dharmesh Shah repeatedly told the crowd that the only value he provides is a quick decision making process and a check.  He has made 23 investments and is running one of the hottest companies in Boston, so he doesn't have a lot of time to mentor and help the companies he invests.

In contrast, serial entrepreneur Roy Rodenstein told the audience that he can provide only modest capital investment, but looks for companies he can make a real impact on as a mentor.  

Roy and Dharmesh represents different ends of the spectrum, which it seemed every angel had a different philosophy on what they bring, how they want approached and how they'd like to be engaged after investing. The key is to recognize this and make it part of the discussion as you look to raise your round.  Get the right people to fill the needs of your company.

You're Either Raising or You're Not. 

At Nantucket, one of the investors at a dinner I attended said, "You're either raising or you're not. If you're unsure when I meet with you, it means you don't know what you're doing."   

Brian Balfour echoed this sentiment on the panel he was on and it's a very important lesson.  You can go out and talk to investors only seeking advice, but *never* tell them anything that sounds like waffling on investing. Either you are raising and you know how much money and what you'd do with the money or you are not raising.

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Angel Bootcamp was an amazing day filled with great investors and entrepreneurs. The energy was amazing and really made Boston feel like a special place to be.  We have a lot of incredible momentum, which was best captured by Bill Warner's speech to close the event stating that Boston needs to find its voice and embrace who we are becoming.