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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

#21

Post by herdrick »

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?

Fiduciary duty.

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

#22

Post by soup10 »

icedchai wrote: post #10
Tomte wrote: post #7

Earlier quoted context omitted.

I've never understood these terms. Is there a clear definition for those? Seed is very little money, angel is more money, but still small enough that a wealthy individual can provide it? Series A, B and C are pretty much the same, it just so happens that companies usually re-capitalize three times before going bust or IPO? (The whole space is very perplexing, the idea of diluting earlier investors sounds outright fra…

Angels are often part of seed rounds. Differentiating between the two seems pointless. Also dilution is part of equity. There is nothing fraudulent about it.

unwanted dilutions, share issuance dilution scams, controlling share dilution schemes, clawbacks... there's a lot of unpleasant things that can happen to minority stakeholders

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

#23

Post by chews »

tlb wrote: post #11
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?

Open tab to alpaca.markets Then Open tab to alpaca.ai

Look around on both that they share founders, and that one startup is used to power the other.

It’s like Robin Hood but sneakier. P.s. I work in the regulated finance space, finra compliance is my life now.

Edit: “PFOF” as it’s called :-( https://files.alpaca.markets/disclosures/library/Alpaca+PFOF...

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

#24

Post by [deleted] »

tlb wrote: post #6
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!

There is, of course, a potential conflict of interest anytime an investor gives advice about other investors. But not as much as you'd think, when the investors specialize in different stages. The rounds typically go: seed - angel - series A - series B - series C ... YC only does seed and series B onwards, so it can give unbiased advice about angel and series A. By the time a startup is doing series B, they should ha…

[deleted]

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

#25

Post by tuberelay »

Does anyone else think that angel investing seems like an odd concept in that it implies a single person investing a large amount in a very early stage business.

Most people with sub 9 figure net worth should probably steer towards investing in larger derisked businesses as they are unlikely to back the 100+ startups required to get the 1 really big winner.

In contrast, large VCs who have the capacity to invest in several hundred startups are much better suited to this form of investing as they can derisk by having a large portfolio size?

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

#26

Post by burnte »

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…

"But an institutional fund is legally required to be a hard-ass."

This isn't true in the sense most people think it is. It's true that management must act in the best interests of the shareholders, but the legal requirement is more about acting in an ethically or financially defensible way, rather than dollars above all else. It is perfectly legal for management or an investment bank to allow the entity to act in ways that benefit in the long term but not the short term. The greatest example of this in modern business is Amazon. Bezos sees that getting a large, long-term-viable business means putting profits right back into the company, and sometimes even running debt. No where in any laws and regulations is any manager or investor required to sell tomorrow in order to maximize profit today. If a founder in a startup has a wacky idea, but the board/ownership/etc. feel that the plan can work, they CAN permit it with no legal repercussion. Fiduciary duty is about ethical action, not profit, they can't knowingly in a manner that is deleterious to investors/shareholders. And even that low bar is very hard to prove in court.

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

#27

Post by tlb »

burnte wrote: post #26
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…

"But an institutional fund is legally required to be a hard-ass." This isn't true in the sense most people think it is. It's true that management must act in the best interests of the shareholders, but the legal requirement is more about acting in an ethically or financially defensible way, rather than dollars above all else. It is perfectly legal for management or an investment bank to allow the entity to act in way…

LPs aren't just shareholders. I wish. LP agreements are hundreds of pages long!

A complication with institutional funds is that they raise a new fund every couple years, with a changing set of LPs. So they can't make a deal like "we can write off the investment in your previous company, if you let us invest in your new company" because it's favoring one set of LPs over another. LPs get prickly about that.

So a company like Amazon can take lower profits now in return for bigger profits later, but institutional funds can't if they're into the next fund.

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

#28

Post by tlb »

logicallee wrote: post #18
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.

Better not to count the chickens before they hatch. In general, with companies that are doing well, I'm doing as well as any investor would. With companies that failed, I walked away with $0 and no hard feelings. There are some in the middle that an aggressive investor could have gotten more money out of in return for some hard feelings. But as you say, most of the returns come from the big wins so it's best to spend your effort on finding more of them.

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

#30

Post by nostrademons »

tlb wrote: post #27
burnte wrote: post #26

Earlier quoted context omitted.

"But an institutional fund is legally required to be a hard-ass." This isn't true in the sense most people think it is. It's true that management must act in the best interests of the shareholders, but the legal requirement is more about acting in an ethically or financially defensible way, rather than dollars above all else. It is perfectly legal for management or an investment bank to allow the entity to act in way…

LPs aren't just shareholders. I wish. LP agreements are hundreds of pages long! A complication with institutional funds is that they raise a new fund every couple years, with a changing set of LPs. So they can't make a deal like "we can write off the investment in your previous company, if you let us invest in your new company" because it's favoring one set of LPs over another. LPs get prickly about that. So a compan…

LPs themselves also have basically zero information to go on when evaluating a potential venture fund, other than exits they invested in with their previous fund. And the competition is pretty brutal among venture funds today. So a VC is going to have a very hard time raising money for their next fund if they can't show exits or at least follow-on rounds of funding at substantially higher valuations for some of their previous portfolio companies.
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