Angels: the good, the bad, and the ugly
Hate to be corny, but this is not a euphemism. Not all angel investors are created equal and making the differentiation can crucial to your startup.
My initial intention was to use FFF (friends, family and fools) instead of bad and ugly angels. I decided against it because I my experience teaches me FFF can be pretty good at keeping silent about things they know nothing about, staying in line with everything that’s important, and actually giving you money. Maybe I’ll write more about that another time.
Now, let’s get to business. Good angel investors are, and this is very important, only people that actually built something significant in your space. In most cases, something significant means a big company. The rest are not good angels. You can scroll down for more on good angels and my personal experience.
Bad angels are people with no relevant experience, who do not get that this is the situation. They probably have money, they might have great achievements in other fields, and they don’t see the difference. I emphasize this point because if they would understand the difference, they wouldn’t think they can help. Best angels I know turn down promising investments because it’s a b2c company and they only did b2b. And that’s not even mentioning ridiculous stories I hear every week (owner of an outsource development agency, selling man hour b2b, wanting to angel invest in a sports tech, b2c, app based idea). The best way I found to spot the bad angels is by referring to the standard investment vehicle in your space. In tech startups this is a SAFE. If your designated investor is not familiar with the YC SAFE format, they are not a good angel.
Ugly angels are ill-intentioned people who try to trick entrepreneurs for equity. Lousy service providers, “finders”, “consultants”. I am not going to go into this because luckily I have seen those only from a far.
The value of good angels
The value of good angels is awesome. Someone that’s been there, in the ditch, fighting the same battles, is exactly what you want next to you if you decide to take the dive. This is the person that will answer your 2am text message, connect you to your next phase investor, tell you what nonsense to delete from your deck.
Israel specifically is abundant with amazing ex-founders, but you can find them in many other places. Silicon Valley of course, but also pretty much everywhere else.
In my company, I will be understating reality if I’ll say finding the right angels was like finding an oasis in the dessert. After months of stumbling through VC meetings with a bad idea and an ok pitch, we met a couple of post exit founders that felt we had potential. They approached us, and the first thing they did was to point out to us an enormous mistake our lawyer did. Saved us potentially millions. The second thing they did was to give us some context and help us understand why we’re not yet ready for VCs.
What came after was like mounting a spaceship for 3 months. With the right advice we zoned in, totally focused only on the people we were trying to sell to, not wasting time on anything else. We held over 200 interviews which got us to change the product and the value preposition, helped us sign the first customers and eventually complete a successful Seed round. There are a lot of factors that came into play, especially I would give credit to my 2 incredible co-founders. But at the same time, honestly I’m not sure it could have happened absent of the right people around us.
A quick mention of bullshit the good angels didn’t made us do: sign NDAs, spend time on complex investment documents, commit to anything but the SAFE before they wired the money, make presentation decks, make a business plan.
Two important things I mention here and will elaborate more on in another time: the importance of a SAFE (standard YC convertible note docs); and FFF investors (people you know, not professional investors, who can give you money in the very beginning).