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“Angels” that aren’t actually angels, and the problems that poses

blog.ycombinator.com

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Re: “Angels” that aren’t actually angels, and the problems that poses

#11

Post by tlb »

chews wrote: post #8

This is a bullshit article... ycominator is an “angel” who invests in “startups” like alpaca markets, a “free” trading platform. This “free” trading platform, isn’t a startup, it’s a front for the front running side of the business alpaca.ai, yes the users in this YC backed front, are just the inputs to a more elaborate Japanese trading firm that front runs US markets. You guys are Hippocrates.

Y Combinator is a seed accelerator, not an angel investor. They're quite distinct types of investors.

Your point about Alpaca is unclear to me. If you want to convince anyone, perhaps you should write a blog post, with sources and evidence, to explain why you think it's not a startup?

Re: “Angels” that aren’t actually angels, and the problems that poses

#13

Post by pge »

throwmeplz700 wrote: post #2

Throwaway account for obvious reasons: While the words of warning in this article may be true, they (sadly) sound like a thinly veiled complaint about competition increasing pressure on YC's investment turf. Founders should be grateful for, not skeptical of, increased funding and competition in early rounds as it should help them raise on better terms!

I read the article differently. At the end, the warning seems to be less about lack of disclosure (i.e. funds masquerading as angels) and more about the consequences of taking large amounts of capital under a safe or convertible structure. That is very much a legitimate concern, and a mistake I have seen a number of startups make.

Re: “Angels” that aren’t actually angels, and the problems that poses

#14

Post by akharris »

throwmeplz700 wrote: post #2

Throwaway account for obvious reasons: While the words of warning in this article may be true, they (sadly) sound like a thinly veiled complaint about competition increasing pressure on YC's investment turf. Founders should be grateful for, not skeptical of, increased funding and competition in early rounds as it should help them raise on better terms!

To me, more capital is a good thing. If that creates competition which forces us to improve, that's even better.

My point is that investors who hide their incentives by obfuscating that they have outside sources of funding are exhibiting bad behavior. Founders should know about this pattern so that they can make decisions with as much information as possible.

Re: “Angels” that aren’t actually angels, and the problems that poses

#15

Post by motohagiography »

Is it accurate to interpret from the article that if an angel investor is in fact backed by money from LPs, her fiduciary responsibility to her own investors is greater than the flexibility she might have toward the company if she were just running her own money, and therefore these incentives can put her interests at odds with founders?

Further, is there an implication that it's the SAFE itself that sets this up in the first place? The example I'm thinking of is an institutional LP who can't do risky deals like startup SAFEs, but they can buy into "established," funds where the risk is distributed over other partners who can, and this angel front gets them the startup portfolio exposure they need.

The downside is the SAFE explodes into giving up more equity than founders anticipated to their proxied angel, whose partners' risk appetite causes complexity and conflicts with potential A-round participants.

I've only read about this stuff, but what would you correct about these interpretations?

Re: “Angels” that aren’t actually angels, and the problems that poses

#16

Post by lann »

tlb wrote: post #3

Don't underestimate the value of the angel investor being a person you can talk to. I've made several angel investments, and sometimes the company needed to restructure in a way that a strictly profit-focused institutional investor would not have allowed. Since I invest mainly because it's interesting and it helps people, I've never said no to what the founders wanted to do. Of course, individual angels can be hard-a…

> institutional fund is legally required to be a hard-ass

What do you mean by this?

Re: “Angels” that aren’t actually angels, and the problems that poses

#17

Post by sansnomme »

lann wrote: post #16
tlb wrote: post #3

Don't underestimate the value of the angel investor being a person you can talk to. I've made several angel investments, and sometimes the company needed to restructure in a way that a strictly profit-focused institutional investor would not have allowed. Since I invest mainly because it's interesting and it helps people, I've never said no to what the founders wanted to do. Of course, individual angels can be hard-a…

> institutional fund is legally required to be a hard-ass What do you mean by this?

There are laws/expectations that state a company must optimize for profits (Dodge v Ford). Perhaps this what is meant.

Re: “Angels” that aren’t actually angels, and the problems that poses

#18

Post by logicallee »

tlb wrote: post #3

Don't underestimate the value of the angel investor being a person you can talk to. I've made several angel investments, and sometimes the company needed to restructure in a way that a strictly profit-focused institutional investor would not have allowed. Since I invest mainly because it's interesting and it helps people, I've never said no to what the founders wanted to do. Of course, individual angels can be hard-a…

Not to pry, but I'd be curious to know how those investments did for you, if you don't mind sharing!

Institutional investors often succeed at nabbing seed-stage investments then holding onto them through 10,000%+ profit. In fact, I heard that in most cases, a few outsize successes are responsible for most of an institutional portfolio's returns.

Re: “Angels” that aren’t actually angels, and the problems that poses

#19

Post by wtetzner »

sansnomme wrote: post #17
lann wrote: post #16

Earlier quoted context omitted.

> institutional fund is legally required to be a hard-ass What do you mean by this?

There are laws/expectations that state a company must optimize for profits (Dodge v Ford). Perhaps this what is meant.

Is that for all companies, or just publicly traded companies?

Re: “Angels” that aren’t actually angels, and the problems that poses

#20

Post by elcritch »

sansnomme wrote: post #17
lann wrote: post #16

Earlier quoted context omitted.

> institutional fund is legally required to be a hard-ass What do you mean by this?

There are laws/expectations that state a company must optimize for profits (Dodge v Ford). Perhaps this what is meant.

It's a common myth, and may be for certain states, but in general it doesn't appear to true in the US [1, 2].

1: https://www.nytimes.com/roomfordebate/2015/04/16/what-are-co... 2: https://www.nakedcapitalism.com/2014/05/guess-who-is-respons...

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