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.
You aren't doing your job unless you understand (to some extent) the goal and thought processes of the people and organizations you work and partner with.
> Angels are the limiting reagent in startup formation.
I'd like to claim that I would have started startups even if YC didn't accept Xobni for the summer of 2006 class. I had already failed at a half-startup. I was doing consulting for another startup called Siteadvisor. Etc.
Yet YC was the catalyst for dropping out of grad school.
Paul certainly gets a unique view into startup creation. I just wonder what the second and third order terms are of this equation.
If there are only a couple hundred serious angels in the Valley, then by deciding to become one you could single-handedly make the pipeline for startups in Silicon Valley significantly wider. That is kind of mind-blowing.
Wow. Mind blowing, but a great insight. I'm really amazed at how few Angels there are, and what a huge disproportionate influence they have on the world economy.
Personally, I think that angel investing would be an absolute blast. Just got to get that, "rich" bit figured out so I can start doing angel investing. :)
I would love to see a sample convertible debt document in addition to the Series AA documents.
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.
I refuse to believe you could get half as good as Yokum for twice the price.
Having said that, I guess I was weaseling my way around to the point that a boilerplate IP agreement would cost next to nothing, and would probably be all you'd ever need. People obsess too much about IP, and not enough about their own execution risk.
It is what it is at this point - so much money sunk into it that I want to finish it off.
Best of luck with the project.
Just to try & help clarify
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.
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.
The origins of the rule were partially in reaction to various scams that were not uncommon pre-great-depression: people would go around selling shares ("music-man" style) in companies that didn't exist, or were otherwise fraudulent, etc., to unsuspecting dupes (of which there were plenty, as is always the case).
Thus the effect of the rule is mostly on the issuer of securities: the point was mostly to deter scammers, but not really to punish their victims. Currently, there are many categories of investment that either are 100% closed off to non-accredited investors or that "theoretically" are not closed off but are "practically" closed off (eg b/c the additional regulatory overhead and legal uncertainty and "bad juju" induced by having non-accredited investors as shareholders means no one sensible would willingly allow non-accredited investors to invest).
Hence your experience: it's not "illegal" for you to be a non-accredited investor in a private company, but unless all the i's are dotted and t's crossed the private company might be in a bad way wrt regulation on account of having you as an investor (inadequate documentation of your informed consent, or failure to keep enough bookkeeping, etc.). Moreover, even if they were doing everything 100% correct wrt you the presence of your investment might scare off other parties (eg during due diligence for a round of funding).
As a regulatory rule it's accomplished it's ostensible purpose -- the # of outright-fraudulent investment schemes is nothing like it was in the 20s, and the direct impact of the remaining schemes is mainly felt by those that mostly can afford the loss and ought to have known better (eg: Madoff's or Stanford's clients).
One thing I'd like to see is some kind of relaxation in the accredited-investor regulations that'd make it easier for the smaller investor to make direct investments in private companies. This needn't be difficult to implement, as all it might take is eg a standardized waiver process that records: the terms of the investment, the investor's consent to the agreement, and lots of identifying information on the issuer (firm and specific individual making the offering); if necessary, restrict the sophistication of the allowed instruments (eg: direct equity purchase, simple options, and so on are ok; anything more complicated not ok for the "standard waiver").
Sadly I've not seen much mention of "proposals" like the above, but something like that would (I think) really open a lot of productive opportunities for a lot of people.
Edit: this section is interesting reading:
It's an informal discussion of various ways to sell securities in a private company. The interesting parts are:
(1) the motivations behind the exemptions (eg: the intrastate rule; given the point was (originally) to keep traveling hucksters from defrauding suckers, the impetus for an exemption for a "local" business makes sense)
(2) even in this informal summary note just how easy it is to fall out of grace wrt these "exemptions" (ie: if someone is supposed to buy "not for resale" then resells, you personally might have a breach of contract with that person but you might also now start worrying about being in breach of regulations)
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.
as a "professional" angel investor now for a VC fund, i typically invest $50-$250K at valuations between $1-3M pre-money (however i'm new on the professional side; only done 4 deals since December). too early to say on either wins or returns, but i'm happy with the deals i've done so far.
i think most private angel investors (in Silicon Valley) who dabble do deals at between $10K-25K. most professional angel investors in Silicon Valley who do it as their primary profession invest between $25K-250K per deal.
your mileage may vary.
some angels may do deals as high as $500K - $2M, however those are select cases. most times there are multiple angels syndicating.
Also, did you write this one either Etherpad? I took a lot from watching you write your last piece in Etherpad, so if that's available that'd be very cool. Cheers.
There are some others I wrote on Etherpad though, which we'll be able to see animated versions of once they release playback.
Having read this from a founder point of view its clear to me that neither one side or the other of the transaction has all of the answers. Kind of back to the difference in meaning of "being offered terms", "being given terms" or (my favorite) "coming to terms"
I'll echo the request for a convertable debt document template
Thank you so much for writing this.
Founder & CEO, Ted's Tinctures Inc.
I'm curious about your product though. I find it hard to believe that your formula is more effective than 1-3mg of melatonin when the time comes to sleep.
Is it the particular combination of ingredients that is so effective? It doesn't seem like any of the individual ingredients would have much of an impact. It doesn't mean you don't have a business model though, you have very nice packaging and there is currently no package on the shelves that treat jetlag.
It would complicate dosing instructions, but would not bundling your product with 1mg of melatonin to take when it comes to sleep dramatically improve effectiveness?
Edit: After reading the testimonials on your site, it seems that you are not trying to (supplement) sleep cycle issues, but are dealing with the fatigue and haziness one feels after flying for 18 hours. I would believe your product helps with that.
Also, do angel investors ever go looking for deals, or is this a sign of a bad angel investor?
It all gets archived:
Such an important point, and one with few resources for learning about.
Founder and CEO
Angel Capital Group