I remember one time I had this guy call me up, wanted to pitch me, right? Wanted to sell me stock. So I let him. I got every fuckin’ rebuttal outta this guy, kept him on the phone for an hour and a half. Towards the end I started askin’ him buying questions, like what’s the firm minimum? That’s a buying question, right there. That guy’s gotta take me down. It’s not like I asked him, what’s your 800 number? That’s a fuckoff question. I was givin’ him a run and he blew it. Okay? To a question like what is the firm minimum, the answer is zero. You don’t like the idea, don’t pick up a single share. But this putz is tellin’ me you know, uhh, 100 shares? Wrong answer! No! You have to be closing all the time.
We’re not in the boiler room anymore, but angel has changed a lot in the last decade.
Recently one of my portfolio founders was talking to me about fundraising and said a VC frowned on his $1k minimum check size in the round, said that he needed to up that to $25k or $50k (or more!)
There’s a few historical reasons for this suggestion, and they’re all wrong today.
Small checks don’t muck up the cap table
First one was the biggest: Section 12(g) of the Securities Exchange Act of 1934 (roughly) meant you had to go public once you hit 500 shareholders. This dinged a lot of companies like Facebook, since, you know, it wasn’t 1934 anymore and the financing economics behind venture capital had changed dramatically.
When you hear “clean up the cap table”, a lot of it comes from this historical point of view, that it becomes problematic having so many shareholders of a company. That’s gone for a couple reasons.
The JOBS Act (Thanks Obama!): 2012’s JOBS Act expanded the amount to 2,000 “holders of record”, or 500 who weren’t accredited investors.
RUVs, SPVs, Rollups, oh my!: The biggest change lately is that of roll up vehicles. AngelList kicked off a new approach that let 250 individual investors get rolled up into a single entity on your cap table, so even if you add 250 small checks in your round, you’re still only effectively adding a single “shareholder”.
There are a few drawbacks of using a roll up vehicle for the investor themselves: the main one is that you’re entering through an intermediary, usually one controlled by the founder themselves, so theoretically you won’t have direct influence on your equity or voting power. In practice I’ve found this to be never relevant for angels: by definition of being a small check, your equity power isn’t going to hold much weight in the first place, so who cares. You looking for the return exposure, not legal power over the company.
Small checks don’t water down your attention
Another thing that I’ve heard come up is that you’re suddenly going to have more people who care about your company to respond to and talk to, and I guess that’s a pain and a real drag on your time and company. If that’s the case: why the fuck did you take their check in the first place??
Seriously. Someone being excited to give you feedback on your investor updates is a good thing. And from a technical level, they’re just another BCC on the monthly email. (You are sending regular investor updates, right?)
I’ll give you another tip: things can change, and it’s super fine if they do. For example: the investors that help you out from your pre-seed days aren’t necessarily the same ones that will help you out around your Series D. A number of my later stage companies switched from “let’s chat frequently” to “we’ll chat every now and then”, and… that’s great! I know I’m a better fit early on, and I want them to keep focusing on the wild fuckin’ returns they’re bringing to my shares. So no, I don’t see an issue with ruining your attention.
You don’t need to turn the screws on someone for a few grand
I’ve increased my check size a few times over the years because a founder has requested it. Every single time I’ve regretted it. I don’t think this has explanatory powers, but I wanted to point this out because I’m still angry about each of those, lol.
If you’re doing a purely pre-seed angel party round, sure, I could see the desire to try to move someone from a $1k to a $10k check, but if you have any institutional checks in the round they’re going to dwarf the angels anyway… so who cares?
You don’t need an actual check size at all
I was going to do the standard “hey, $1k is a fine minimum check size”, which is kind of the standard “we’ll take anyone!” amount founders mention these days, but I don’t think that’s right. The correct answer — to borrow from Boiler Room — is zero.
By that I mean this: think hard about the person you’re talking to and if they can have a real impact on your business. When you start talking about check sizes, you realize $1k is a pretty fucking easy barrier to clear in terms of billable hours: do you think you can get $1k in value from this person as an advisor, as a networker? That same question can go for zero: even if they don’t pay you anything, would you give up a few grand’s worth of a SAFE now in order to meaningfully benefit from this person’s experience and network?
It’s a classic “grow the fucking pie” problem: smaller slice of a way bigger pie is the whole ball game when it comes to startups. You want more good people on your boat, and if you’re worried about a couple thousand bucks when you’re also raising a couple million from a traditional fund or whatever: what are you even thinking?
Party rounds are back in, baby
The more the merrier. Startups are already a very lonely road: there’s no reason not to bring some new friends to join the experience with you.