How to Be an Angel Investor

#1

Post by sama » Sat, Mar 07, 2009, 6:58 PM UTC

How to Be an Angel Investor
paulgraham.com

Re: How to Be an Angel Investor

#2

Post by pg » Sat, Mar 07, 2009, 7:19 PM UTC

I recommend founders read this too. It would be useful to them to imagine how things look from the investors' side. I'm surprised more didn't take advantage of the Justin.tv stream to spy on the investors at AngelConf. They were pretty candid about how they think.

Re: How to Be an Angel Investor

#3

Post by cperciva » Sat, Mar 07, 2009, 7:21 PM UTC

How much does an angel invest? ... The upper bound is obviously the total amount the founders want to raise.

Obviously this is an upper bound; but it isn't necessarily the upper bound. I'm sure there are instances where the limiting factor is how deep the angel's pockets are.

Re: How to Be an Angel Investor

#4

Post by jedc » Sat, Mar 07, 2009, 7:30 PM UTC

pg wrote: post #2

I recommend founders read this too. It would be useful to them to imagine how things look from the investors' side. I'm surprised more didn't take advantage of the Justin.tv stream to spy on the investors at AngelConf. They were pretty candid about how they think.

I had heard a bunch of this before in random threads, but it was very interesting to read it all bundled together. It definitely deserves a few readings...

Thank you!

Re: How to Be an Angel Investor

#5

Post by sam_in_nyc » Sat, Mar 07, 2009, 7:35 PM UTC

pg wrote: post #2

I recommend founders read this too. It would be useful to them to imagine how things look from the investors' side. I'm surprised more didn't take advantage of the Justin.tv stream to spy on the investors at AngelConf. They were pretty candid about how they think.

I was looking through the legal documents just to get a sense of what technically happens when a corporation issues a new type of stock. Thanks for sharing these documents.

Not sure if this is relevant, but http://ycombinator.com/seriesaa/aa-boardconsent.doc has a typo... there is no section 1.iii .. it skips to 1.iiii and then 1.iv.

Re: How to Be an Angel Investor

#6

Post by sachinag » Sat, Mar 07, 2009, 8:04 PM UTC

The best part about this - Paul calls out the lawyers you should use. Thank you, thank you, thank you a thousand times for this. (We got standard corporate attorneys - I've spent almost $60,000 on legal expenses between incorporation, option plan, and IP protection. Probably could have done it all for under $20K with the right attorney from the get-go.)

I would love to see a sample convertible debt document in addition to the Series AA documents.

Re: How to Be an Angel Investor

#7

Post by gcheong » Sat, Mar 07, 2009, 8:22 PM UTC

(you probably shouldn't try angel investing unless you think of yourself as rich)

I think there is some legal definition of "rich" below which companies can't raise capital from individuals without issuing registered stock. Something like an individual must have at least $1m in assets or income of at least $200k/year I think.

Re: How to Be an Angel Investor

#8

Post by gcheong » Sat, Mar 07, 2009, 8:32 PM UTC

Thanks for this, it really cleared up a lot of questions I had after watching the livecast of the conference.

Re: How to Be an Angel Investor

#9

Post by tptacek » Sat, Mar 07, 2009, 8:41 PM UTC

gcheong wrote: post #7

(you probably shouldn't try angel investing unless you think of yourself as rich) I think there is some legal definition of "rich" below which companies can't raise capital from individuals without issuing registered stock. Something like an individual must have at least $1m in assets or income of at least $200k/year I think.

You're thinking of the SEC "accredited investor" rule:

http://www.law.uc.edu/CCL/33ActRls/rule501.html

I'm not an investor and have only moderate experience with funding, but I've brought this up in lots of HN threads about investing and haven't seen it shot down; I was also involved in a negotiation debacle that doubled the value of some options I held in a company that sold to another private company (I had left, had non-expiring options, and would thus have been a non-qualified outside investor had I exercised them, or some-such).

The rule is basically: $1MM net, or $200k ($300k with your spouse) income for the last 2 years.

Even corporations need to be accredited to buy, so you can't just start a consultancy and invest your profits into angel syndicates, unless the principals are themselves accredited or the business has a such a huge amount of net assets that the principals would certainly be accredited anyways.

Again, I feel weird every time I bring this up, because what do I know? But this appears to be the rule.

Re: How to Be an Angel Investor

#10

Post by tptacek » Sat, Mar 07, 2009, 8:43 PM UTC

sachinag wrote: post #6

The best part about this - Paul calls out the lawyers you should use. Thank you, thank you, thank you a thousand times for this. (We got standard corporate attorneys - I've spent almost $60,000 on legal expenses between incorporation, option plan, and IP protection. Probably could have done it all for under $20K with the right attorney from the get-go.) I would love to see a sample convertible debt document in additi…

$60k on incorporation, option plan, and IP?

You know more about this stuff than I do, but that sounds crazy high. Is the breakdown like, 10%/80%/10%? The one of these that I can see spending money on is the option plan.