1/ Like Pokémon, angel investors have a natural evolutionary path. Founders who understand the evolution of angels can construct a better team around the company. A quick thread on my observations and how founders should stack their team 👇
2/ Level 1 Angels -- hands on functional help, e.g. a founder who can give great product advice or engineering VP who advises on people management. Founders lean on these people for tactical advice. Level 1s are very high ROI because they often invest $5k-$25k.
3/ Level 2 Angels -- help at inflection points, e.g. advice on series A deck + intros to VCs + negotiation advice = series A valuation went up 25%. Huge ROI for a $100k check. Level 2s have lots of demands on their time but are tremendously helpful in bursts and key moments.
4/ Level 3 Angels -- massive network + branding (if they invest, everyone does), e.g. @eladgil or @naval can get you to any founder/executive, and the founder is glad to help b/c they have created so much value for the founder in the past. An intro from a Level 3 is priceless.
5/ Because the best companies are oversubscribed, angels earn allocation by being a value-add expert (Level 1). By seeing a number of companies become successful, they evolve to Level 2 where they can help with critical, high value points in a startup's life.
6/ Very few get to Level 3 because it requires expertise, experience, a track record, and exceptional ability. @bhorowitz breaks this down with @RonConway being the canonical example: a16z.com/2010/04/06/ron…
7/ Far too many angel investors think they are Level 3 when they are actually Level 1.
Funnily enough, and not coincidentally, Level 3 angels tend to be tremendously humble. Most would brush off being classified in the same tier as other Level 3s.
8/ Founders often have too many Level 2 and Level 3 angels because it feels good to have well known people involved.
But do the math: For the capital of one Level 2, you can get four Level 1 executives you'd want as advisors anyway. Instead THEY PAY(via investment) to help you!
9/ For a founder, Level 1 angels (other founders 1-2 years ahead of you, execs at successful companies, domain experts) tend to be the most helpful. Because they do not have a portfolio of 100 companies, they love to help -- you teach them and they teach you.
10/ Also you don't have to search far and wide to find MANY domain/functional experts (Level 1 angels) who happen to be female, URM, and outside the usual geographic pockets. Level 1s are a great way to address the Gap Table as @HashtagAngels calls it. medium.com/angels-news/th…
11/ Stacking your round with high caliber Level 1 angels is like having extra employees with 0 burn. If you pick well, some Level 1s at your seed round may evolve to Level 3 by your series C. Because you will both evolve together, you may even end up with a new best friend.
12/ Thus if you are a successful company, you will have stacked your cap table with extremely valuable Level 2 and Level 3 investors but for 1/10th the dilution!
Founders: focus on identifying great Level 1 angels and get more bang for your dilution buck.
13/ Hope the above is helpful to angel investors just starting out and to founders thinking about raising! ✌️
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