The first time you get exclusive access to invest in a buzzy startup you’re filled with excitement. Will my $5,000 investment turn into millions? Probably!
The fifteenth time you’re stressing over how you’re going to clear it with your significant other, worried about letting down a founder you respect, and starting to realize it’ll be years before you see a dime from your first fourteen investments.
The fact is we’re not all made of money. We have bills to pay, families to feed, and need to be thoughtful about our personal asset allocations. Many of us are already overexposed to early stage tech through our jobs—having 75% of your net worth tied up in illiquid early stage startup equity is…probably unwise.
But the onslaught of hot deals is unrelenting. Startups are forming faster than ever, party rounds are back en vogue, and new apps are making the process easy (addictive?).
High quality angels are starting to experience a case of startup anxiety. Secretly fretting the next founder friend or emerging manager who invites them to participate in their next round or new fund.
We’ve got the incentives confused.
Here’s an idea: skip the cash part.
Founders: in your next round, instead of carving out allocation from strategic angels, commit a portion of your post-money option pool to an advisor program.
Reach out to all the strategic angels you were going to ask to invest and say this instead:
Hey Susie,We’re about to close our seed round co-led by Craft and 776. As part of the round, I’m committing a portion of our company’s equity to people I admire and who can help us achieve our mission.I’m reaching out because you’re one of those people. I’d be honored to make you a small owner in our company.You can think of this as an angel investment without the money. The amount of equity is the same as if you invested $5k in this round.There are no strings attached. No formal time commitment or obligations. I send out monthly updates which include company updates, a few questions, and a few optional ways to help.If this sounds good to you, I'll send over an invitation to join our program.
This trade makes a lot more sense. It also opens up a giant new pool of potential participants.
Angels: have access to companies raising a round and looking for contributions? See if they’d be interested in a new way to share equity that doesn’t rely on cash, and instead creates an army of contributors invested in their success.
Hey Aaron,I love what you’re working on, and would love to be a part of helping you achieve your mission. Instead of a typical angel investment, would you be open to learning about how to trade equity for contributions?There’s a company that’s making it easy for founders to connect with their investors and advisors and turn them from passive check-writers to active contributors.If that sounds like something you’re interested in, I’ll send over a referral link for a demo with their team.
You don’t need to be rich to be an angel. With this approach, founders can include anyone. Give some rising-stars an opportunity to start building a portfolio. Share equity with customers, partners, vendors, and power users who aren’t living in the tech echo chamber and aren’t comfortable with startup investing.
Don't make people pay to contribute. Pay equity for their contributions.