Ask HN: What's the best way to do due diligence on an Angel Investor?
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?
9 comments
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.
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.
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!
BTW, nice site!
sleep with their wife.
sorry ;)
sorry ;)
Talk to the entrepreneurs they have invested in.
What if you would be their first...
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.
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.
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.
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.