Angel Knowledge Series
Best Practices inAngel Panel: Managing VC Partners & Understanding Conflicts.
Panelists.
• Ben Franklin Fund, Karen Griffith-Gryga.
• Hawaii Angels, Chenoa Farnsworth.
• Jefferson Corner Group, Andrea Alms.
• Pittsburgh Equity Partners, Ed Engler.
• Southeast Investment Group, Martin Tilson.
• Moderator: Michael Price, CEO Ventures
Agenda.
1. Trajectory Conflicts due to Sources of Cash.
- Angels' own cash leads to moderate expansion and cash preservation.
- VCs' mostly other's cash incents them to hypergrow "fund makers".
2. Investment Amount Conflicts due to Compensation.
- Angels compensated by involvement in success and returns from as little cash as possible.
- VCs compensated by Fees then Carry if lucky, so strongly prefer significant cash in.
3. Valuation Conflicts in the Angel Round.
- VCs willing to lose $ on overvalued Angel Round to get into next round (often causes valuation blowups).
- Angels want low valuations in hopes they get bought out early for a good multiple.
4. Ownership Percentage Conflict.
- VCs want 30%+ of the A-Round in just a few companies so their exit on good ones meaningful.
- Angels want more diversification in numbers since earlier selection odds of a good one far lower.
5. Time Horizon Conflict due to VCs needing solid Multiple of Fund return.
- VC backed company that gets acquired for 30 million is a failure (low impact on fund's overall multiple).
- Angel same company with 10x exit in one year: great win and higher IRR than taking 6 years to go public.
6. Exit Timing Conflicts due to Wallet Size.
- VCs want exits toward the middle to back end of the hockey stick for max priced fund makers.
- Angels often prefer earlier for a great IRR without dilution risk since later round antes unaffordable.
7. Corporate Development Conflicts.
- VCs push $20-50M cos into $100+M Public Cos by acquisitions if their natural potential turns out limited.
- Angels perfectly happy with $20-50M companies as they cannot afford rounds for acquisitions.
8. Board Seats and Control Issues.
- VCs push for control in the A Round (2 of 4 seats plus a neutral and veto rights on selling etc).
- Angels often happy with 1 seat an significantly lower percentage or convertible in the Angel Round.
9. Different Time Allocation Priorities.
- VCs focus far more time on winners since only 1 in 10-20 will make the fund and rest not that material.
- Angels often give the most time to the squeekiest wheel (right or wrongly).
10. How Much Each Values the Other.
- VCs often aggressively cut angels out of deals they invest in.
- Angels often encourage more moderate growth to avoid VCs unless short window seen.
11. Exiting a Deal Gone VC.
- Ways to get out early.
- Ways to stay in the game.
12. Conflicts in Style of Relationship with Founder.
- Analogy: Parent vs Football Coach.
13. Selecting companies that will avoid some or all of these situations.
14: Not all angels have the same goals and may also conflict with each other: Types:
- Operational Expertise Angel.
- Guardian Angel.
- Financial Return Angel.
- Professional Entrepreneur Angel.
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