

Ask HN: What's the best way to do due diligence on an Angel Investor? - matthewer

What is the best way to check out your angel investors (before you take the money?)  Assume we have already googled/linked in them.  Reference checks?  Follow them?  Talk to their wife?
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cperciva
Make it clear that you're not committing to anything until it's in writing and
you've had a lawyer look at it. That way even if the "angel" is less than
angelic, he can't cause too much damage.

Deals fall through; that's a fact of life. Deals with inexperienced angels
fall through in particularly screwy ways. Shortly after I started working on
tarsnap, I talked to a wannabe angel; it sounded like we had hammered out the
framework for a deal, but "I'll get this put into writing and send it over for
you to review in a few days" stretched into two months, and the draft he sent
over was unlike what we had discussed on nearly every important point -- and
then when I objected he accused me of backing out of a deal and threatened to
sue me for the cost of drafting it (he never went so far as to tell me how
much those fees were, though, so I guess he came to his senses).

Seriously -- unless you're dealing with an angel who has a track record, trust
them as much as you'd trust a second hand car dealer.

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shafqat
I agree with this comment. When we raised our seed round last year, we had a
number of first time angel investors back out at the last minute (or we had to
kick them out) because the transaction costs were too high. For example, one
newbie angel wanted all sorts of protectionist clauses in the agreement
because he was paranoid. I would seriously try and stay away from these guys.

BTW, nice site!

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rms
Talk to the entrepreneurs they have invested in.

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matthewer
What if you would be their first...

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rms
Well, it depends. You should be careful, but then what's the worst that can
happen? I had a rather bizarre experience with a first time angel investor,
who invested the money and then decided he didn't want to spend the time being
an angel investor and basically wrote us off as a loss and didn't want to talk
about our business. But the money was real and I wouldn't expect my scenario
to ever happen to anyone else.

Is the investor bringing anything to the table besides money? You'll want to
ensure your investor is mature enough to understand basic things like he is
making a loan/investment to your company and that you aren't personally liable
for it. Make sure he is an accredited investor. Tell him to go to Angelconf!
<http://www.angelconf.org/> Hell, maybe you could go with him.

In this economy, if you aren't in the Valley you may be waiting a very long
time for smart money. So is it normally looked down on here to take non-smart
money? Yes. But if you're not a company coming out of YC that is juggling
angel investors to find the one that is the best fit, sometimes you have to
take what you can get.

Are you planning applying to YC or any of the incubators? That would be
another reason to wait.

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matthewer
At this point we feel we are too far along, and need to much money to go to YC
(but, this may simply be us being closed minded.) We are planing a massive
relaunch as a push to finalize some sort of series A.

~~~
rms
One way of looking at YC is that you give up 6% (perhaps less for you) in
order to be able to raise your subsequent rounds under much better terms
because of the superior connections provided.

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ekhjehcjkerch
sleep with their wife.

sorry ;)

