After two years of a dedicated experiment, we’ve decided to stop making new investments via our FG Angels Syndicate. We’ve learned a lot, achieved some of our goals, but ultimately have decided that the effort required to maintain our investment pace on AngelList is too great for us, at least for now. More on that in a bit, but let’s start with some history.
The Monday after AngelList announced their Syndicate product in September 2013 we decided to to jump in with both feet and start FG Angels. As a result, we were one of the very first syndicates and the first VC firm to create a syndicate.
We had several high level goals:
It took a few months for AngelList to gear up Syndicates so that they actually worked. As a result our first investment wasn’t made until early January when we invested in OnTheGo Platforms, which was just acquired by Atheer.
Our plan was to make 50 investments, directly committing $2.5m from our funds ($50k from us for each investment) through 2014. When we did a retrospective on our first year of FG Angels, we had invested in 42 companies. Seth did a nice job of summarizing what the deals and the syndicate activity for the first year looked like.
Our plan was not to generate investment deal flow for us to follow on with our main funds. Instead, we took a one time seed investor approach patterned after an angel strategy that I’ve used for almost 20 years that has now generated a realized return over 10x invested capital and still has about half the money at play.
We’ve ended up investing in three companies through our main funds that we had invested in first with FG Angels (Mattermark, Revolar, and Havenly). However, both Revolar and Havenly went through accelerator programs that we are involved with (Techstars and MergeLane, respectively), which allowed us even more perspective into working with them.
We decided to continue making FG Angels investments through 2015 at about the same pace. By the end of 2015, we had made a total of 65 FG Angels investments. We have 49 funded Backers, a 236 unfunded Backers, a total syndicate backing of $976,653, and an estimated 30 day raise of $171,058.
At the end of 2015, we revisited the goals I mentioned at the beginning of this post. Let’s see how we did and what we learned.
Goal 1: Understand how AngelList and Syndicates worked by actively participating: In addition to understanding in depth how AngelList and Syndicates worked, I’d like to think we helped Naval and his awesome team at AngelList on figuring out the legal, workflow, and UX dynamics around AngelList. We’re fans of both AngelList and Syndicates and it was important to us to give back to the platform and help them work through the dynamics involved in creating and rolling out their Syndicates product.
Goal 2: Be able to experiment with seed investments outside our themes: While we did a lot of investments outside our themes, we generated very little incremental learning on our part. While we could be very helpful in a generic early investor way, the time to value ratio was way off in both directions. While we regularly did short, quick hit help via email, whenever someone wanted to spend an hour or more with one of us, we eventually realized that our investment and ownership in the company was dramatically underweighted. And, this took time away (we each have a finite number of hours each week) from companies we had much larger investments in. We also realized that we were getting the experimentation value and learning at a greater rate from our deep engagement in Techstars.
Goal 3: Extend our network of entrepreneurs and angel investors: As we expected, our network of entrepreneurs was expanded (by about 150 people across the 65 companies.) These founders are active members of our portfolio and our goal is to be helpful to them any way we can, given time constraints. However, we have been disappointed in how we have – or haven’t – been effective at building a broader network of angel investors. We’ve made some new friends and built strong connections with a few angels in the syndicate, but we’ve struggled to build any kind of extended community. The tools for this on AngelList just aren’t there yet and we haven’t committed the resources to do this separately. And, ultimately, some face to face time is likely needed which we haven’t been willing to do.
Goal 4: Generate additional economic returns for our funds: We’ve invested about $3.2 million in FG Angels and are excited about the portfolio. However, it’s a very early stage portfolio that will take a very long time to mature. Even when you include the carry we are getting on FG Angels (15%), this total amount represents less than one fund investment on our part (our typical investment size is $5m to $15m, with this growing to as much as $40m when you include our late stage fund.) Even if we generate a huge multiple on our overall FG Angels investment (say 10x), the impact on our fund return is limited given the size of the investments we were making.
Ultimately, we’ve decided that the effort that we are putting into FG Angels is too great for us to continue on in the way that we’ve have been for the past two years. However, by running the experiment, we’ve better understood the leverage points at the angel / seed level that AngelList and Syndicates create, which for some investors, and many entrepreneurs, is very powerful. Finally, we’d like to believe that we’ve contributed to the evolution and dynamic of angel / seed investing through this effort.
While we are no longer going to be actively making FG Angels investments, every now and then we might do something out of FG Angels. We continue to believe that AngelList Syndicates is an effective platform for companies and investors. We simply felt that we needed to better balance the time and effort we were spending on FG Angels relative to the weight it has in our overall portfolio.
It’s important to all of us at Foundry Group to experiment around the edges of our industry and to push the boundaries of the venture model to find new and innovative ways to create value for our investors while supporting as broad a set of entrepreneurs as possible. We’ll continue to look for ways to do that.
I got the following question from a friend yesterday.
“I’ve had a few conversations recently about how individual seed investors are getting kind of tapped out – for a variety of reasons, but in general it’s not that easy to find people who are still actively investing. I don’t recall your having blogged about this – are you seeing it too? Lots of talk about Series A crunch but maybe there is a seed crunch too?”
I blasted out a response by email, which follows. If you are an active angel, I’d love to hear what you think.
I’m not seeing much evidence of this – yet …
I have seen some of the more prolific angels start to slow down because capital is not recycling as fast as they are putting it out. That’s a pretty common phenomenon. But generally the pool of angel investors is increasing and the prolific ones who have a strategy (such as the angel strategy I advocate) seem to be keeping a steady pace.
There is also a huge amount of seed capital available from seed funds. Some angels are no longer competitive as they are overly price focused (e.g. if the valuation goes above $3m pre it’s too late for me). And the convertible note phenomenon hasn’t helped as many seed deals just keep raising small amounts of convertible debt.
The supply / demand imbalance is way off. While there is an increasing amount of seed capital / seed investors, the number of companies seeking seed investment has grown much faster in the last 24 months.
Also, I think some angels are just tired of the deal velocity. You have to work at it now more to stay in the flow because there’s just so much more of it, and that makes angels, especially semi-retired ones, tired.
If there is a big public market correction and angels feels (a) less wealthy and (b) less liquid (or not liquid), you’ll see a major pullback.
I feel like we are in a sloppy part of the cycle. Everyone is suddenly nervous. There are lots of uncomfortable macro signs, but it’s hard to get a feel for where things are really heading. And, at the same time, the cycle of innovation is intense – there is a huge amount of interesting stuff being created at all levels. And there is a massive amount of capital available that is seeking real returns, vs. low single digits.
I’ll be speaking at an Impact Angel Group event on February 12th. With a few other angel investors, I’ll be talking to other angel investors, along with prospective angel investors, about the role of impact investing the community, as well as in our own portfolios.
Among other things, we’ll discuss our angel investment strategies and openly share things like the percentage of our wealth that we allocate to angel and impact investing. We’ll also talk about how we balance our impact, risk, and financial goals. Finally, I’ll also discuss our experience with FG Angels and AngelList, along with the angel investment strategy I’ve used over the past 20 years.
I deeply believe that one of the best ways to accelerate a startup community is through more seed investing in new startups from local angel investors. We’ve seen a great increase in the number of angel investors in the Boulder and Denver area over the past seven years. Hopefully that trend will continue, as more people who have some wealth allocate a portion of it to making early stage investments in new, high risk, high potential startups.
While First Western Trust Bank (a local Boulder/Denver bank Amy and I work closely with and admire) is one of the sponsors, there is an additional cost to the event. If this was aimed at entrepreneurs, this wouldn’t be ok with me, but since it’s aimed at angel investors, I’m fine with it. In addition, the cost is really the cost of a normal lunch after the $30 discount to Feld Thoughts readers. None of the money goes to me – it’s just to cover the cost of the event.
The details are below.
When: February 12, 2014 from 11:30am to 1:30pm
Where: The St. Julien in Downtown Boulder
Cost: $75 – Sign up by 1/27 and use the promo code “FELDTHOUGHTS” for a $30 discount. (Ticket sales go toward covering the cost of the event.)
Registration: Sign up
If you are an angel investor, or a potential angel investor and this interests you, I’ll see you there.
We had a fascinating week trying to get everything figured out on our FG Angels initiative with AngelList. Our syndicate, which we are going to max out at $450,000, is currently right at $300,000 after one week. We are humbled by all the support and interest.
Geir Freysson, founder of Five Hundred Plus, did a super cool visualization of some of the top syndicates and how the participants in the syndicate relate to each other.
We’ve chosen our first deal to do. But we aren’t ready to pull the trigger yet – probably early next week. We’ve spent the last few days wrestling with some legal / compliance issues. The AngelList gang has been AWESOME to work with. We aren’t surprised that we are having to figure this stuff out – we knew the new JOBS Act rules, 506 compliance, and the ambiguity around a bunch of stuff would be problematic. Yeah – the problems are obscure ones generated by our government, and there are moments where it seems like the SEC simply doesn’t want any of this to actually work. But that’s part of the fun of it.
I continue to be mildly amused and amazed by the prognostications from the sidelines from a variety of folks (angels, angel groups, VCs, and entrepreneurs). Some of the strong opinions are based on virtually no data, or misinformation, or a complete lack of perspective. And others are based on a lack of understanding of dynamic systems. Either way, when asked, I continue to tell people our mantra – the best way to learn about stuff like this is to participate.
So – if you want to participate with us and learn a bunch in the process, join our syndicate.
This morning my partners at Foundry Group and I announced that we are going to make 50 seed investments of $50,000 each on AngelList between now and the end of 2014. We’ll be doing this via AngelList’s new Syndicate approach through an entity called FG Angel where we will create a syndicate of up to $500,000, allowing others to invest $450,000 alongside anything we do. For now, we are using my AngelList account (bfeld) which I’ve renamed Brad Feld (FG Angel). We are working with Naval and team at AngelList to get this set up correctly so that a firm (e.g. Foundry Group) can create the syndicate in the future, at which point we’ll move the activity over to there.
For years, we have had people ask if they can invest alongside us at Foundry Group at the seed level. We’ve never had an entrepreneurs fund, or a side fund, so we’ve encouraged people to invest in Techstars and other seed funds that we are investors in. As of today, we have a new way for people to invest alongside of us – via AngelList’s syndicate. The minimum investment is $1,000 per deal, so if you make a $1,000 commitment to our syndicate, you are committing to investing $50,000 alongside of us between now and the end of 2014 in the best seed investments we can find on AngelList. Simply go to Brad Feld (FG Angels) and click the big blue “Back” button. Special bonus hugs to anyone who backs FG Angels today (as I write this, the first backer has come in – from Paul Sethi – thanks Paul – awesome to be investing with you.)
This is an experiment. If you know us, we love to experiment with stuff, rather than theorize about things. We are huge believes in seed and early stage investing and through a variety of vehicles, including Techstars and our personal investments in other early stage VC funds, have well over 1,000 seed investments that are active. This has created an incredible network that adds to our Foundry Group portfolio. With FG Angel, we are taking this to another level as we begin a set of activities to amplify this network dramatically.
So there is no ambiguity, the investments come from our Foundry Group fund. All economics, including the syndicate carry, go to our fund. We are calling this FG Angel because we are approaching this the same way we do with any angel investment. I’ve written extensively about my own angel investing strategy in the past – you’ll see this reflected in what we are doing here. Over the years my angel strategy has been very successful financially and our goal with FG Angel mirrors that.
We expect we’ll learn a lot about this between now and the end of the year. When we learn, we’ll share what we learn. We believe deeply that the best way to learn about new stuff is to participate. So – off we go. We hope you join us – both in the syndicate and the ensuing network.
I’m a big fan of Jason Calacanis’ show This Week In Startups. I usually run naked (no headphones) but when I listen to something it’s usually an interview or a book.
Amy and I had dinner last night with Paul Berberian and his wife Renee and Paul mentioned Jason had interviewed him at Techstars FounderCon in Chicago a few weeks ago. So – I grabbed my iPhone, downloaded the interview, and listened to it. Dynamite stuff.
Earlier in the morning I read Jason’s post on LinkedIn titled The Great Venture Capital Rotation. I think it was originally titled “The End of Venture Capital Sort Of” (based on the URL). In addition to being provocative, it lined up nicely along a few others posts on this topic from Fred Wilson (Leading vs Following), Hunter Walk (AngelList Syndicates Will Also Pit Angel Against Angel) and Howard Lindzon (So You Want to Angel Invest…Be Prepared to Lead and Follow.) Naval, Nivi, and the gang at AngelList have really busted some stuff open and it’s interesting to watch it play out.
But – if you know me, you know I’m not satisfied with just watching. So I dove in and joined a few syndicates on AngelList, including Jason’s, Dave Morin, and Naval’s.
And – if you’ve read this far, the new Sphero 2.0 is out and is amazing. Get yours today.
Last night Amy and I had an awesome dinner at Perla with Fred Wilson, Joanne Wilson, Matt Blumberg, and Mariquita Blumberg. Fred and I have been involved in Return Path for a dozen years and this has become an annual tradition for us when Amy and I are in NYC. At 12 years of service, Return Path gives a six week sabbatical and a pair of red Addidas sneakers as a “get ready for your sabbatical” gift. Fred and I got the sneakers, but not the six week sabbatical.
I sat across from Joanne and since the restaurant was noisy our table ended up having two separate conversations going. Joanne is awesome – if you don’t read her blog, you should start right now, especially if you are interested in NY entrepreneurship, women entrepreneurs, food, and the thoughts of an amazing woman. I still remember meeting her for the first time around 1995 and thinking how dynamite she was.
Oh – and if you are a seed stage company in NYC looking to raise money, you are an idiot if you don’t immediately reach out to Joanne and try to get her involved. She is one of the most thoughtful angel investors I’ve ever met.
We talked a lot about seed stage investing during our part of the conversation. Joanne has done about 25 investments in the past few years and has a very clear strategy for what she invests in. She works incredibly hard for the companies she invests in, is deeply passionate about the products and the entrepreneurs, and clearly loves what she does.
During the conversation we had a moment where we were talking about feedback. I told her about my approach of saying no in less than 60 seconds. She told me a story about giving entrepreneurs blunt feedback in the first meeting, which I always try to do also. And then she said something that stuck with me.
Joanne will often start a meeting by saying something like I give you permission to hate my feedback. You can decide that you want to tell me ‘fuck you’ after the meeting. But I’m going to tell you what my direct and honest reaction is.
Now Joanne is a New Yorker through and through. Aggressive, direct, and clear. But never hostile. Ever. And a deeply loyal supporter. So this feedback, while direct, is incredibly powerful. It’s often extremely hard for someone to hear, especially if they are in “I’m trying to convince you to fund my company mode.”
I play the same way. At Foundry Group, one of our deeply held beliefs is that we always be intellectually honest, no matter how difficult it may be. At TechStars we pride ourselves on providing direct feedback, but always saying “this is only data”, letting the entrepreneur make their own decision about what to do.
These are versions of Joanne’s permission to “hate her feedback.” It’s a powerful way to frame any discussion. And I know I’ll be using the phrase “I give you permission to hate my feedback” many times in the future.
I think AngelList is awesome and I’m a huge fan of what they’ve done. Nivi wrote a great post celebrating their 1.5 year anniversary today: 1.5 Years Of AngelList: 8000 Intros, 400 Investments And That’s Just The Data We Can Tell You About.
One of the powerful constructs of AngelList is social proof. It’s become an important part of the seed / early stage venture process as very early stage investors pile into companies that their friends, or people they respect, are investing in. AngelList does a nice job of exposing and promoting social proof during the fundraising process in a way that is both legal and non-offensive.
However, as one would expect, entrepreneurs focus on taking advantage of every opportunity they have. As a result, I’ve been getting a request on a daily basis to either “follow” or be listed as an “endorser” for various companies. These requests fall into two categories: (a) people I know and am trying to be helpful to and (b) random people.
I’ve decided to say no to both categories unless I’m investing in the company. And I encourage everyone involved in AngelList to do the same. I think the concept of social proof is super important for something like AngelList to have sustainable long term value. I don’t ever want to be on the end of a conversation with someone who invested in a company on AngelList, runs into me, and says “things are sucking at company X – why did you ever endorse them” and for me to say “I have no idea who you are talking about.”
As with many things in life, the key lesson is to do your research. It’ll be interesting to see how AngelList copes with things like this over time – I expect Nivi and Naval will stay one step ahead of the problem. However, if you are an investor or entrepreneur – help by having some discipline on your end – it makes things better for everyone.
I received an email from an entrepreneur today asking me about something that made my stomach turn. It’s a first time entrepreneur who is raising a modest (< $750k) seed round). There are two founders and they’ve been talking to a VC they met several months ago. Recently, the VC told them he was leaving his firm and wanted to help them out. This was obviously appealing until he dropped the bomb that prompted their question to me.
This soon to be ex-VC said something to the effect of “I can easily raise you money with a couple of phone calls, but I want to be a co-founder of the company and have an equal share of the business.”
In my email exchange with the entrepreneur, I asked two questions. The first was “is he going to be full time with the company” and the other was “do you want him as a third full time partner.” The answer was no and no. More specifically, the VC was positioning himself as “the founder that would help raise the money.”
I dug a little deeper to find out who the person was in case it was just a random dude looking for gig flow. David Cohen, the CEO of TechStars, has written extensively about this in our book Do More Faster – for example, see the chapter Beware of Angel Investors Who Aren’t. I was shocked when I saw the name of the person and the firm he has been with (and is leaving) – it’s someone who has been in the VC business for a while and should know better.
I find this kind of behavior disgusting. If the person was offering to put in $25k – $100k in the round and then asking for an additional 1% or 2% as an “active advisor” (beyond whatever the investment bought) to help out with the company, I’d still be skeptical of the equity ask at this stage and encourage the founders to (a) vest it over time and (b) make sure there was a tangible commitment associated with it that was different from other investors. Instead, given the facts I was given, my feedback was to run far away, fast.
Entrepreneurs – beware. This is the kind of behavior that gives investors a bad name. Unfortunately, my impression of this particular person is that he’s not a constructive early stage investor but rather someone who is trying to prey on naive entrepreneurs. Whenever the markets heat up, this kind of thing starts happening. Just be careful out there.