Entrepreneurial Activism

I found out about this Angel Investing conference, http://angelconf.org/, the day after the event ended. It was put on by Ycombinator and the conference was about:

Learn about Angel Investing from the Experts

Have you thought about investing in startups, but didn’t know how? You’re not alone. Investing in startups seems mysterious and difficult. How much are you supposed to invest? What legal agreements do you need? Where do you find startups to invest in? How do you pick winners?

AngelConf was designed to answer these questions. Silicon Valley’s most prominent angels have generously agreed to spend an afternoon explaining the secrets of angel investing, from mundane matters like deal terms to questions we all still wonder about, like how to tell which startups will succeed.

The event is free. Please join us!
[Source: angelconf.org]

I was really bummed I just missed the event. With so much entrepreneurial activity going on in San Luis Obispo right now and tentative talks about an informal Angel Group here in town going on, this would have been a perfect event.

But luckily the good people at Justin.tv posted the video of the whole conference online for the world to see for free! Here is part one of the video

The video features Ron Conway, Dave McClure, Paul Buchheit, Andrea Zurek, Paul Graham, and Naval Ravikant.

This video is PERFECT for all cashed out entrepreneurs, especially in San Luis Obispo, thinking about Angel investing but don’t know where to begin and entrepreneurs trying to understand Angel investing and what they are looking for. Below are some selected quotes from each of the speakers sections

Ron Conway

“Why do I like [Angel Investing]? Why have I made 500 angel investments? I don’t like it because its fun. It’s to much work to be fun but I love it because it’s interesting. That is why I angel invest”

“It is hugely interesting to talk to entrepreneurs who are literally telling you the future. Entrepreneurs have crystal balls in there brain that I love reaching in and having them predict the future.”

“The other satisfaction is I get out of it is to watch great companies grow from a seed to a large company, and there is a huge amount of satisfaction out of that. And you learn from the failures as well.”

Attributes that he thinks make a successful angel investor. One who is willing to spend time on it, one who is going to have specific value to add to startups which in turn get you into great deals, be patient, invest in as many [startups] as much as you can, develop a portfolio of companies and be patient, 1/3 of them will go out of business, failure is part of angel investing it is part of the learning process, its as interesting as watching the winners, in your portfolio 1/3 of the startups will loose, 1/3 money back, 1/3 wins..

“Great deal flow + Great due diligence = A great portfolio. Out of that portfolio one of those companies will be a hit.”

“You need to build a referral network of entrepreneurs you invested in and added value to. Don’t kid yourself if you screw one entrepreneur you’re probably screwed for life, because entrepreneurs all talk to each other. Your reputation as an angel is very important.”

“If you are leading a syndicate you need to find other angels to invest in that syndicate the entrepreneur will be very thankful for that. You got to remember that when the company gets traction you the lead angel have got to take that company up to sand hill road and make the introductions to VC’s to get them funded.”

Dave McClure

“Do it [angel invest] for selfish reasons, I hope you are giving back to the entrepreneur but, I would hope that you are desperately interested in that field (industry) and you have something to give back”

“How can you make sure your adding value to the company and how can you make sure to get a good return on your investment, part of your strategy for returns is to identify your area of expertise and promoting that and making sure that’s the thing your giving back”

“It’s important to have a horizontal or vertical category to focus in”

One thing that is important is startup metric and for more information check out his presentation on this topic http://www.slideshare.net/dmc500hats/numbers-not-napkins-simple-startup-metrics-presentation

“In response to diligence and terms Invest in deals where there are other Angels who have done this before and learn from them to get started”

“Your job [as an angel] between the moment you invest before they get to break even or the next funding stage is to make sure they get to that next milestone. Understanding what their [the entrepreneurs] objectives are and whether you think they can get to break-even or weather they need downstream investors to reach break-even making sure you get to the next millstone is what you need to do as an Angel investor. “

Paul Buchheit

He was self described as “The lazy angel” because he is the current CEO of FriendFeed and has limited time.

“Have to keep everything really simple, can’t obsess over every detail and contact”

“You should avoid founders who are going to get caught up on every little detail also. As a startup there are big existential threats, you can’t spend time worrying about details like .5%”

“Asking to sign an NDA is an indicator that the founders have no idea what they are doing”

“Paul has standard docs that he prefers to use in an angel deal but if a more experienced investor has his own terms Paul just accepts whatever their terms are.”

“There are a few basic protections and deal will have like 1x liquidation preference, you get paid back before entrepreneur gets their money”

“As an angel you don’t have a huge amount of leverage, so you rely on the founders to take care of you”

“Why do you want to invest in startups? Obvious answer is you want to make money, but don’t count on making money. You have to used to the idea that all the money you invest will disappear, its good to have low expectations”

“The other reason [to angel invest] is because of the learning experience. If you rephrase everything as a learning experience then it kind of becomes a no loose situation because even if you loose all your money and everything becomes a huge disaster it was a great learning experience. You can learn a lot from startups, and their variety of situations.”

“[Angel investing] is high volatility [endeavor] so you want to invest in a lot of startups; you just need to get started. Instead of [waiting for] the perfect [startup] you just need to get the ball rolling.

Page Mailliard and Carolynn Levy

“The most import thing to ask yourself is why am I excited about this business? What is the real reason I am investing in this? Understand what your are walking into even if you do still want to invest.”

“You want to know. Who are the customers? Do they have contacts with them? If they do have a contract what are the provisions in it?”

“Have the founders been successful before? Do they have a non-compete agreements with there last companies?”

“Is there a missing founder? A lot of times it doesn’t work out between the original founding team and someone decides to leave. And that’s fine but you want know that because what you don’t want to happen is that founder comes back saying he owns a piece of that company. Want to make sure that missing founder signed a release.

Important to let the legal team know of any gut feeling issues because if a person is dishonest it will show up again and you can track that.”

“How do I invest and how do I protect myself? Open source documents, fair to company and protect the Angels.”

http://ycombinator.com/seriesaa.html here is the link to these documents which include a

1x liquidation preference

Preferred stock includes a class vote in the case of a change of control or merger

Angel investor’s right to participate in future rounds of financing

“[The documents are] less complicated than VC agreements, designed to cut down on time and legal fees”
Paul Graham posted his speech on his website http://www.paulgraham.com/angelinvesting.html

Naval Ravikant posted his speech on Venture Hacks

http://venturehacks.com/articles/angel