A real conversation in the first 45 seconds of a meeting with a notable VC referred to me by a friend as a 'real down-to-earth guy':
VC: "Sorry I'm late, let me invite my recorder bot"
ME: "Recorder bot?"
VC: "Yeah, Everyone should just get over it if they have a problem being recorded."
Me: "....."
VC: "Why are you offering a SAFE on No Discount and No Cap? Are you trying to F*** Me?"
Me: "No I was going to allow the first price round to set the terms for my SAFE investments"
Note: He sent me the recording after. I now have proof that this idiot is a total asshole.
Summary
I've shared details on how I built out my organizational process around my friends and family round, and I had begun researching and planning for engaging angel groups as well. I think there is a lot of great reading out there on helping you figure out what stage of funding matches the stage of your startup.
You should consider this if:
You have no product that someone is willing to pay you for yet
You are pre-revenue
You are a first-time founder (in the eyes of institutional investors)
You already did your friends and family round
Beware the Time Wasters:
VCs will always schedule time with you. They will make demands and think they know the business you have been working in way better than you. There is also a chance that they do, and there is a chance they are terrible human beings. I met both types. They definitely see more deals than you. These people are going to give you feedback, and it may directly conflict with the feedback you got from your last meeting. Chances are there is something to learn here, but this definitely generates busy work. Be cautious of busy work and be vigilant about its wastefulness.
Pre Product / Pre Revenue
I'm sure there are conflicting viewpoints on this, but this is what my experience is telling me in terms of when I'll select angels as my target next time. If I have a proven market hypothesis through Product Market Research and Secondary Market Research I'll consider this the right place to fundraise.
I'll want to be super sure that I have a way to articulate what I know and prove it. VCs are skeptical of unprovable claims (and they should be). Especially in bear markets like the one we are in now Q4 2022 - Q1 2023. If you are some future person or time traveler reading this, maybe it's less important to be able to prove your claims. There is no possible scenario where this is ever a bad thing though.
First-Time Founder Smell
Some folks who have built successful multi-million dollar businesses and bootstrapped them think they are second-time founders. In the eyes of investors with institutional money and rigor, you are not. Just accept it. The sooner you do the sooner you can humble yourself to the reality of your position. They do not care about your ~$1M exit on bootstrapped lifestyle business.
Also if you are asking for money but claim to have had an exit, there is a possibility that the VC is thinking "Then what do you need my money for?"
Friends and Family round is done!
If you had the conviction to ask for money from the wealthy crew in your friends and family, and you can show what you learned, you are ready to move to the next step. Showing an investor that you took money from your network is a positive signal. Use an SPV as stated in my earlier article.
Terms
Ok, so that asshole in the quote above. He wasn't wrong, but his delivery was ridiculous.
I suggest:
SAFE from Carta - just use their settings
Discount 20%
Cap $3M (or adjust to market, lower is better for investors, higher is better for founders)
If you want to say head to TechStars after this round here is their deal term:
Conversion at Qualified Financing
The Note will automatically convert upon a Qualified Financing into the same shares sold in the Qualified Financing at a price equal to the lesser of (i) a 20% discount to the price paid by the other investors in the Qualified Financing, or (ii) the price obtained by dividing the valuation cap of $3,000,000 USD by the number of outstanding shares of the Company immediately prior to the Qualified Financing calculated on a Fully Diluted basis.
Anyone investing in you now should get at least better or equal terms to the lower-risk investor in the future right?
Finding Angel Investors
There are some databases and helpful spreadsheets floating around all the time. I found a ton of helpful folks on Twitter who had organized spreadsheets of who is funding deals right now. Some of those links are below.
Formal Database of ACA (Angel Capital Association)
Every major angel group is registered here. I began my search here and considered any geographic region I am associated with and can make an argument that I am associated with. I also considered university affiliations from my past which yielded a few results as well. If you meet any underrepresented demographic you should look for angels in that area:
Gaingels (LGBTQ+ Founders)
Women
People of Color
Veterens
Any under-represented group
Also, consider that there may be angels that focus on your industry. This database is worth spending some time with to build your list and brainstorm your targets.
Active Investors by Trace Cohen
Shai Goldman's VC Funds at $200M or smaller
110 Funds that Lead Seed Rounds
AngelList is worth considering, I didn't do it, but probably worth a try.
So I used the above list to research and build my top of the funnel. I then began researching my network and looking for intros. I also read the thesis of many of these investors to see if I was a match, or if my business was mature enough for them. I noticed a lot of the regional investors are looking for more maturity than you may expect from angels. They are willing to write checks from $500k-1.5M and they have a rigorous process for their investments.
You can review my process here if you want ideas on how to organize.
Hopefully, this is helpful to get your journey started with Angel Investors.