Angel Funding Advice

cashAngelThis is part of my ongoing series Pitching a VC.

Last night I attended a DealMaker Media (whom I love because they always host such great discussions) panel on raising angel money moderated by Dan Gould and with panelists Rob Hayes (First Round Capital, more seed or A round than angel), Scot Sangster (with OrganicStartup and the best spokesperson for Tech Coast Angels that I have met to date), Tom McInerney (TGM) and Jarl Mohn (who invests on his own “account” and whose track record is truly humbling).

I recently wrote a post on angel financing covering the topic of convertible notes but I realized I was thinking about the issue more from investor perspective and a very narrow topic of how to price the round.

This post is for those who want to raise angel money.  My goal is to describe how, with whom, how to find them, how much to raise and at what value. Definitionally not a short post (sorry for letting you down, Ari ;-).  So if you’re casually reading and don’t really care about angel financing – abort now! I’ll make my next posting shorter.

If you really want to know about the topic I hope this will be worth your time.


1. Good idea & plan: You must start with a good idea and a PowerPoint deck (my outline is here, scroll down mid way).  Jarl Mohn says he hates seeing PowerPoint.  I get that.  But some people will want to see it.  So you need to do one and have it in your back pocket ready to whip out your presentation or your laptop at any moment and go through it in case you’re asked or in case you’re not building the rapport you hope to just verbally.  It is also the best thing to send in advance see here.

2. Team: You need a team.  Very few people fund individuals.  I won’t say never but having a team validates that you can attract people to the cause.  Better if they’re full time rather than moonlighting but take what you can get.

3. Product:  You should build a product or a prototype.  I’m a software guy so I’m sure there are cases where building isn’t feasible.  But for most businesses it is.  In most cases if you can’t get a prototype done you’re probably not an entrepreneur.  That’s OK.  99.8% of people aren’t.  But there really are very few excuses in this day and age for not having a prototype.

I know you’re not a tech guy and haven’t done anything other than an HTML course you once took, but if you’re inspirational and a leader you’ll find somebody to moonlight for free to get your prototype built.  If you can’t do wireframes, learn how.  If you don’t know what wireframes are you should.  Go research it.  You cannot be just a biz dev type, salesperson, marketing genius or whatever and divorce yourself from product.  Great companies are built by having great products.  And a great product starts with the founder.

4. Market validation – This one is optional but important.  At an angel round you can get away with no market validation.  But if you CAN find a way to even get your 0.1 release out the door and get some customers using it, or friendly people piloting it then at least there is some validation to the product and some people to speak to about their experiences.

If you can’t get product released and validated then do user studies.  Poll people on the problem you’re solving and get their feedback on why they’d want your product and their willingness to pay for it.  One great company, AppFolio, filmed all of this user interaction and made the DVD available to me.  Granted, it was for an A round (not angel) but anyone could easily do that for angel rounds.  Stand out from the crowd.  Differentiate.  Do more than you are asked to do.  And you’ll actually learn more more from the process than you’d imagine.

With Whom?

dentistThis is a much debated topic.  For some reason in last night’s discussion it descended into a discussion of “hairy” dentists and pig farmers (details below).

Here’s a breakdown.  If you can raise your money from higher on the list, the better.  But in the end money is money and better that you raise some and get going than wait too long and lost momentum.  Quick caveats: having fewer investors (3-5) is better than many investors (10-15) and PLEASE make sure you hire a great lawyer who has experience in doing start-ups to avoid pitfalls that will make VC harder down the line.  Also, make sure that your investors are accredited.

1. Professional angels / former entrepreneurs / seed funds – In Silicon Valley there are people like Ron Conway, Jeff Clavier, Mike Maples and many more.  In SoCal we have Crosscut Ventures, Matt Coffin, Mike Jones, Klaus Schauser, etc.  They exist in every town.  They are people who built and sold companies and have a bit of money.  They have advice to share.  They know that the money they invest may be lost.  Their time is too valuable to call you every day wondering if you spent their $20-$100k wisely.  They know all the VCs for intros.  Their name alone is enough to get meetings set up.  They are calling cards.  They are full of wisdom.  Find out how to meet them in the next section.  They are your best bet.  They might be as hard as raising VC.  They are not for everybody.  Don’t be despondent if you can’t get their money.  But if you can, you should.

2. Existing tech or industry executives – Do you have strong relationships in your industry?  Do you work in the comedy industry and know all the venue owners or comedians?  Do you work as a civil engineer on water projects and have great access to wealthy project developers?  The key to getting money is that the people writing the check trust you.  Trust is best earned close to home where people already know your work.  Make sure these people understand the nature of early-stage angel investing.

I still prefer angel route 1 (above) but this is the next best option in my mind.  Don’t worry if they can’t help in your daily business.  There are other ways you can get help.  Surround yourself with great advisors or other entrepreneurs.  Join local organizations like OCTANe, TechStars or Launchpad LA.  If you’re really an entrepreneur you’ll find a way to network with the right people.

3. Professional angel associations – This one is the source of much controversy.  Some angel groups have a reputation for slow decision making processes and not enough value add.  I’ve been to panels where people feel that some angel groups ask for onerous terms that make the VC round more difficult – this came up at last night’s panel.

I can’t really speak generically to this because the Tech Coast Angels / Pasadena in SoCal have produced Green Dot, MyShape and many other successes.  And each town has their own group.  I can say that you should do your homework to find out the reputation.  And just like with VC’s – it is as much the partner your working wit as the group more broadly.

So I don’t think you can say a group like Tech Coast Angels is good or bad.  They have great people and probably some duffers.   Scott Sangster has made a good case for himself at the two events I’ve seen him speak at recently and I know that people love Bryce Benjamin and say he’s hands on / helpful.

pig-farmer-400ds06224. Hairy dentists / Pig farmers – I told the story last night how when I set up my first company the seed investor was a pig farmer from Ireland.  That is a true story.  It helps that my first company was actually founded in Ireland! but the point is the same.  He was a very nice guy but zero value add.  And whenever I needed to round up signatures for future fund raisings it was difficult to track him down / get him to care.  The pure delays due to admin if I would have had 3-4 pig farmers would have killed me.

I don’t know where the term “hairy dentist” came from last night, but it was a funny euphemism.  I think it stands for those people who have money but not the sophistication to understand the world of early-stage tech funding.  When I write an angel round check I always tell me wife, “let’s assume that money is lost.”  So goes angel investing.  I don’t think that hairy dentists really expect that.  They have an expectation that the IPO will be in 3 years and they were in at the ground floor.  If all goes well from day 1 they’ll love you.  If, like many businesses, you go through some rough patches, hairy dentists can make life more difficult.  But none more difficult and … option 5.

5. Friends, family & fools – I know everybody likes to start by thinking of the 3 F’s, but I dont recommend the first 2 F’s – unless it is your last option.  Keep your friends you friends and your family your family.  If either are sophisticated then I put them in buckets 1-3 but usually they are not. F&F makes it hard to call it quits when you should.  It makes it hard to do downrounds to survive when necessary.  It is even harder to ask them to re-up if you need more cash quickly.  And it makes weddings and bar mitzvah’s a whole lot less fun.

How to find them

The biggest question that I get asked is how to find the angels I outlined in steps 1-3 above.  It is really easier and should be a test of your entrepreneurial chops to figure this out but I’ll give you a cheat sheet.

1. Find local deals – Look at which deals have been done in town.  All deals – especially (but not only) those that got venture funded.  Lists are available everywhere.  In LA we have but in every market there’s some sort of database.  There’s obviously things like and Venture Source, Venture Wire and many others.

2. Find out who funded them – Contact the management teams.  Take them for a coffee.  Ask them for advice.  Not just funding but learn their story.  Take no more than 30 minutes to respect their time.  Approach companies that aren’t yet extremely well know.  Example companies to avoid would be people like Twitter,, Boxee, BillShrink.  All are great companies – probably too busy for a lot of random approaches.  Make sure some of the questions you ask are, “Did you raise angel money?  From whom?  Who did you talk to that didn’t fund? What were they looking for? How much do they like to invest? Have they added value?  Anyone angels you know that you didn’t fund?”  Most important question – “do you know any other early-stage start ups that you recommend I talk with?”

3. Social Networks / Search / Blogs – Obvious, huh? I’m surprised at the number of people who aren’t good at tracking down relationships in social networks.  LinkedIn is the obvious starting point not only because it maps out so many relationships but also because you can tell a lot about work history, references, etc.  Obviously Facebook has much info.  Looking at whom I follow in Twitter can give you some indication of my likely network (although Twitter is more difficult because some people follow too many people and some people follow people they’re interesting in rather than people they know).

But the more powerful and seldom used research in Twitter is that you can go to a person’s’ entire Twitter history and see what they’ve Tweeted.  Based on the text this is a good indicator of who they really know.  Sound creepy?  Maybe a little, actually.  But this is all public information that has been Tweeted by people who KNOW this is public information.  I think it is a legitimate research tool; however, I would never considering bringing up something you read in a person’s Tweet stream with them when you see them.  It creeps people out.

There are more sales oriented tools like JigSaw that tech savvy people hate but sales savvy people love.  Basic search engine research can give many clues and if people do keep a blog and you want to meet the person then many clues are obviously there.

My Summary on getting access will be to tell you what most people don’t want to hear.  Most people are lazy.  When you want to find out information about who knows whom it is really not difficult.  The information is publicly available.  You need to make it an effort by researching on the web and going and doing 50 coffee meetings with people.  Most people are not action oriented.  Most people are not obsessive.  Most people don’t love networking.  Most people are not entrepreneurs.

How much to raise?

money stackImpossible to define an actual number.  My experience tells me that most individual angels like to write $25-50k checks for companies they really don’t know well.  More professional angels seem to like to do $75-100k.  Somewhat the amount you raise will depend on your needs, how much you’ve raised in the past and how much you think you can raise quickly enough.  If it’s your first ever raise, many people try to go for $100-$250k because there are less people to ask for money.  You can use this to get more product out the door, pay some staff and get your customer traction.  Most larger angel rounds are in the $500-$750k range.  Obviously harder because you either need a large anchor ($250k) or you’re talking about 10 x $50k people / 5 x $100k.  If you’re less experienced I’d probably set a max of $250k on your first raise – but I want to emphasize that every situation is unique.  I just wanted to provide some guidelines.

At what value?

Again, every situation is different.  If you’re three s***-hot kids from Stanford, Caltech or MIT you might be able to push valuation higher.  If you’re like most people and you’re a hard-working individual but not with the 0.1% credentials you may need to be more humble.  The hyper connected people in Silicon Valley or big cities might push for convertible debt (see my post here if you haven’t).

I am always an advocate of setting a price.  Why?  Because I believe that getting the best possible angels around the table is far more important than ultimate valuation.  The majority of really good angels want to see the round priced and it also make a decision easier to know what your money buys rather than some vague notion of a discount to a VC round.  The post I mentioned covers all of this.

Most Venture Capital “A” rounds (as of 2009) seem to start around $3 million pre-money and may go as high as $5-6 million pre-money if you’ve made a lot more progress or for some other reason the deal is “hot”.  But A rounds also get done at $2 million pre-money.   Not everybody will want to raise VC money (in fact, see here that I think most should not).  This makes your angel pricing slightly less relevant but my guidelines still largely hold.

If you do plan to raise VC you want to be sure of 2 things in your angel round:

1. Your angels are happy when you do the VC round because it is a “step up” in valuation if possible

2. You don’t make it harder to raise a VC round because  your angel round was priced too high.

You might feel proud that you talked angels into a $9 million pre-money, raised $1 million and therefore only gave away 10% of your company.  But … if you then can’t raise your VC round then how clever was it?  When VC’s see over priced angel rounds they often don’t even want to spend the time with the company.  They see it as a hassle because nobody wants to have to go back to your cousins, brothers or your hairy dentist and tell them that the mean VC is pricing your company lower since they over paid.

Angel rounds tend to get done in the $750k – $1.5 million range in my experience.  If you raise $500k at $1.5 million pre-money then you’ve given away 25% of your company, which is about the norm.  If you raise $250k at a $750k valuation the same goes.

If you finished, bravo.  I probably wouldn’t have.  You probably really do want to raise angel money.  Sorry it was so long.  I wish you good luck in your fund raising endeavors.


29 Responses to Angel Funding Advice

  1. rahul says:

    Great article. Thanks for the useful advice.

  2. John Morris says:

    Enjoyed your post, terrific advice especially the At What Value section. This article will be helpful to angels as well. Thanks

  3. A pig farmer? Bejesus!
    Great article, great advice. Keep ’em coming…

  4. […] @ Both Sides of the Table) Posted Under : Strategy Tags startups entrepreneurship vc funding venture capital pitching […]

  5. Ben Kuo says:

    Great rundown. In particular (particularly in the Internet age) the advice about having a product/prototype is spot on. I’m surprised on the number of PowerPoint startups I (still) see who have a “concept” for a company and are asking for $ to build something any decent software developer could create in a week or two (with their eyes blindfolded).

  6. […] Mark Suster, a venture capitalist at GRP, has been (very) busy providing useful information and advice to entrepreneurs in his blog, Both Sides of the Table recently, and comments today on how to best gain the interest of an angel. […]

  7. Marc Vermut says:

    Once again, a terrific contribution to the VC record. Thanks for taking the time to share your experiences and knowledge. Another asset for the LA tech community.

    Are you planning on touching on convertible notes in this series, or more generally, other types of financing that startups can use as they grow?

    • marksuster says:

      Thanks, Marc. I did one post with some info on convertible notes here but not an actual post just on what convertible notes are, when they’re used and how they’re priced. If you have something else about convertible notes that I haven’t yet covered that you think would be useful let me know and I’ll gladly write up.

  8. fish says:

    Excellent advice in here. I would also add that

    1. raising angel money is a very difficult experience and takes an enormous amount of time/energy (especially if you’ve got more than just a few angels).

    2. it’s the easiest money you’ll ever raise.

  9. A Greater Town says:

    Thanks for the advice, Mark.
    (why does this have to be so hard…?)

    • marksuster says:

      Unfortunately all parts of building a business are hard. That’s why I always tell people, “make sure you really want to be an entrepreneur.” It’s not for everybody, it’s full on all the time and it is a tough lifestyle. For those that are obsessed – there’s no bigger rush.

  10. A Greater Town says:

    I knew it would be hard, I had read all the stories, but this is over the top. Almost four years I’ve been working on building this day and night and still everyone’s afraid to reach into their wallet, even though they say they’re interested – instead they just drag on and on, with no sense of urgency. I just don’t understand. They’re willing to lose half their 401K in an anonymous stock market, but to fund someone who’s a real person with heart, dedicated to an original idea, with a quest and a vision, they’re blase’ and indifferent… the word “hard” really doesn’t adequately describe it.

  11. A Greater Town says:

    Thank you Mark, I really appreciate it!

  12. Don says:

    Another solid contribution, Mark. Throwing real-world numbers into the mix makes it really valuable for those who haven’t raised angel yet.

    I see that a lot of the discussion of convertible debt is technical, but the decision also really affects how the interests of the investor and entrepreneur line up. The best angels want to price, as you mentioned, and aiming everyone in the same direction is a big part of that.

    A note holder clearly wants a lower priced round when they convert. Alternatively, a shareholder has an interest in creating value. It definitely depends on the investor, but I agree that pricing rounds is best in any event, unless you’re bridging to the next priced round right around the corner.

    • marksuster says:

      thanks for the comments, Don. You’re right that there are times where convertible debt is necessary and expected. It is usually between venture capital rounds (e.g. between your A round of VC and your B round. But that is a different topic than angel money. I’ll make sure to cover it in a future post.

  13. Babette says:

    Great post – I am really bummed I missed this event. Love, love, love Dan Gould.

    @drew – don’t be so down. Use that energy of looking for investors and apply it to figuring out how to build your product without money. If you already have a product, focus on your customers… The rest will come.

  14. A Greater Town says:

    Thank you, Babette, I’m actually close to landing a big account, which would obviate the need for funding – but you know how those things go…

    In the meantime, without a cushion, it has been very difficult to focus on bringing in small customers. Instead, have been putting my energy into looking for a day job and just scrambling to survive… but thank you for the advice, I really appreciate!


  15. Evonne says:

    One of the best advice blogs I’ve seen on this topic, thanks for making it relevant and real for the rest of us. Would love to meet up in LA and talk more over tea!

  16. Mark, very good post. These are issues I deal with every day, running a professional angel group in Boston, CommonAngels, as well as investing from two small funds. Most entrepreneurs we work with have developed “something”, done some market validation, have a small passionate team, and have raised a small amount of money. Yet by many definitions they are still in the seed/early stage of their business building. I blogged on some case studies here: .


  17. The funding process with professional angel associations definitely needs to be improved. I’ve found that the slow decision making process is incredibly draining on tech startup entrepreneurs who rely on speed and momentum. There are exceptions, however. I worked with a company called Masher Media and they just received notice of a 300k investment after making a presentation to the Tech Coast Angels a month before it.

  18. Shane says:


    Yet another excellent post. I have a couple of things to add/questions. First, you mentioned market validation. For a consumer Internet start-up, what would you consider market validation? Is there a particular number of uniques we should shoot for, or do we just need to demonstrate a growth curve? Second, due to our dorm room operation, we are seeking 150K. Should we concern ourselves with not providing an investor a large enough upside if we raise at an 850K pre?


    • marksuster says:

      Hey, Shane. Make sure to read the following post on my views of what traction I’m looking for. But angel investors in a consumer Internet site will want to see live product and some amount of users so that they have enough data to look at user behavior. It is possible to raise angel money without this but far better to have real users because then you can draw some conclusions and discuss them with your investors. There is no magic number, though. It is case specific. The longer your site is live with small user numbers the harder it will be for you to explain this away.

  19. […] point you to a great piece I found by fellow SoCal VC Mark Suster about Angel funding called “Angel Funding Advice“.  I agree with what Mark has written and implore you to read it if you’re an […]

  20. SId Viswanathan says:

    Hey Mark, thanks again for a great post! Write a book soon. Real world number were extremely helpful, was really hard to find avg pre-money angel pricing info anywhere else before this post.

    What’s the difference between an Angel round and a seed round? For example, YComb I believe is considered a seed round despite it’s small size…so I’m guessing it has something to do with the source of the money, not size or amount?


  21. […] with different folks recently about funding/money issues and it reminded me of this great blog post I read from Mark Suster in which he gives a ton of useful advice about the angel investment […]

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