Sami Kaji from First Republic, who often tweets the early stage LP perspective, expects 2,000+ seed funds by the end of 2020. Now (good) founders can be more selective of angel investors. So what makes an angel investor valuable (other than respect, decision speed, and attractive deal terms)?
1 . Talent networks - hire better people
2. Capital networks - remove financial risk
3. “Advice” - work smarter
Talent Networks
Hiring is among the most critical tasks for a founder, especially at the very early stages. A good angel investor has a broad and active talent network with which to provide personal referrals to the company, particularly at the senior level. The reason this is listed first is because of the non-linearity of the benefit: an exceptional hire brings her own talent network, and is a very strong signal to the undecided candidate pool. One exceptional hire becomes three, becomes ten, becomes fifty.
Capital Networks
You need money to hire (generally). Fundraising is consistently one of the most draining things a founder does. Mostly because they feel like they’re not working on core company development, which can be particularly frustrating. Personal referrals to Partners at target funds (who trust and value the referral) short circuits this process.
“Advice”
Before you read the following please be aware I’ve never owned a Patagonia vest. Angel investor’s, and more pointedly VC’s “advice” is sometimes a simple truism or at worst an overfit generalization from a single sample. This is partly a result of the statistic mentioned at the top combined with the universal megaphone of Twitter. Harvard Law School professor Yochai Benkler has coined a phrase for this: the Babel objection, having “too much information” devolves into a “cacophony of noise”.
So, what do I think is helpful [1]: getting clarity on how to align your limited resources towards a future goal. Why is this valuable: 1) you have to clearly define your future goal (harder than you think), and 2) you create a strategy for achieving your goal. (Also you’ll notice that the first two categories of value: talent networks and capital networks are helpful in increasing these “limited resources".) I did not come up with the above phrasing myself, it’s taken from Pulitzer prize winning author John Lewis Gaddis’ book On Grand Strategy.
Notes
[1] Bonus points for identifying the irony of the author referencing the “cacophony of noise” from too many people offering advice, and then proceeding to offer his advice.