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Best Practices for Angel |
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Best Practices for Angel Investors and Entrepreneurs
This site is devoted to the development of best practices for angel investors and entrepreneurs. Its goal is to facilitate profitable, fair and enjoyable interactions between angels and entrepreneurs.
After being an active angel investor for about fifteen years, I realized that many of the discussions I was involved in were virtually identical to ones I'd had many times before. A good example was during the negotiation of a term sheet. These usually involve a handful of angel investors, and a few entrepreneurs, who all want to build the very best term sheet for their exciting nascent enterprise.
Unfortunately, the previous experiences, and depth of knowledge, of the individuals are almost always very different. To finalize a term sheet, the individuals must to come to an agreement on some fundamental principles which will have a profound effect on the future of the company. Just a few of these terms include vesting, corporate structure, governance principles, financing strategy, valuation and exit strategy.
Each one of these terms includes aspects of fairness, ethics, law, business, entrepreneurship, psychology and investing. Very often, the initial opinions of the people around the table are radically different. In most cases, these are well-meaning, intelligent people who all sincerely want to find the best solution.
These negotiations are so difficult because best practices for angel investing and entrepreneurship are still being developed. When I first started angel investing, this surprised to me. I spent hours on Google expecting to find whole websites and blogs devoted to best practices for angel investing and entrepreneurship. An almost total lack of success led me to discussions with dozens of veteran angels. After a while, I realized that it's simply because this entire field is still so new that consensus on best practices have yet to emerge.
Angel investing today is similar to where venture capital investing was in the mid 1980s. Back then, there was no consensus on best practices in that industry either. As an example, twenty five years ago, most VCs used common share deal structures. It was not until the later 1980s that the preferred share structure became popular. During those times, VCs had lots of conferences where thought leaders gathered to discuss term sheets, deal structures and fund strategies. As a result, there is tight agreement today on the form of VC term sheets and definitive agreements. Angel investing will get to the same state of development even faster because we can now exchange and develop ideas on the internet.
The founding principles embedded in AngelBlog are based on a passion for entrepreneurship and a belief that alignment, governance and fairness are critically important ingredients for angel investor and entrepreneurial success.
I hope this site will accelerate the development of best practices that will help everyone from young entrepreneurs to experienced angel investors do business together more successfully and with more fun.
A good example of where I hope we get to is the ‘One Page Term Sheet.' This is not a theory, it's actually being used today by angels and angel funds to invest in west coast companies. This precedent was developed by many angels and entrepreneurs through dozens of companies and hundreds of transactions.
Other areas where this site tries to capture, and refine, best practices include: corporate structures, investment mechanics, boards, director compensation, shareholder communications, CEO Updates, share registers and share and option vesting.
In earlier times, some of the information on this site might have been considered proprietary. Many times I have seen professionals charge very high fees for this type of knowledge. I believe that in our 21st century, internet driven world, most information wants to be free.
I hope you will contribute your opinions and questions on these best practices, sample documents and guidelines. Please join me in further developing the ideas and methods to facilitate the creation and growth of many more outstanding young companies.
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