Fred Wilson just wrote a great post on startup crowdfunding in which he talks about the critical differences between being a lead investor and a follower when funding startups. Like the Chris Dixon piece, it is very worth your time, so I am republishing it here (original, with comments can be found here). If you don’t follow Fred, you should.
By Fred Wilson
Hunter Walk has a good post up on the coming competition among angels with syndicates to get into deals. Hunter observes:
My guess is there are also some angels who were popular when they represented a $25k check but won’t be as sought after if they try to push $300k into a round.
What Hunter is getting at is the difference between leading and following. A lead investor sets the price and terms of the investment, takes a large part of the round, and usually agrees to represent the entire round on the board. Then everyone else gets to pile in behind them and piggyback on all of that work. And the entrepreneur and lead investor allow the followers to do that because either they are likely to help the company in some way or because the company needs more capital than the lead is prepared to invest at this time.
USV is a lead investor. Benchmark is a lead investor. Gotham Gal is a lead investor. I suspect Hunter’s Homebrew is a lead investor.
Angel List Syndicates are turning angels who have traditionally been followers into leads. That’s a good thing in many ways. The more folks who can lead a round, the better, at least for the entrepreneurs. But, as Hunter points out, it will mean that less of these angels will get into rounds than before because they will all be showing up with a lot more money than before.
It also means that they will have to learn to lead and lead well. They will have to step up before anyone else does. They will have to negotiate price and terms. They will have to sit on boards. They will have to help get the next round done. Essentially they will have to work. That’s why they are getting carry from the syndicate, after all.
And over time we will get to see who is actually good at this and who is not. And I can tell you this. Not everyone is good at this. In fact, very few are. It’s hard to be a great lead investor and a completely different thing than being a well sought after angel investor who can get into someone else’s deals. Some will turn out to be great at this. Many won’t. And only time will tell who is and who isn’t.
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If you enjoyed this post, you might enjoy: Chris Dixon: Some thoughts on startup crowdfunding, Funding Startups (Video), Swimming Against the Tide (Angel Investing), Nailing The One Minute Pitch, Start-Up Marketing Series, Customer Crowdfunding: Not So Fast Entrepreneurs (Again!), Constructing a Pitch, Pick Your Angel Investors Wisely (David Hornik), Why Angels Chase Electrons, Boards vs. Advisory Boards, Interview: State of the VC & Angel Market and How to Raise Money, Delusional Economics, That Vision Thing, The Power of An Advisory Board, Loch Ness, Unicorns & The First-Mover Advantage, Does This Slide Deck Make Me Look Fat?, The Long Road to Instant Success, Top Angel Investors in New England, Launchpad Overview – Angel Video Interview Series, Customer Crowdfunding: Not So Fast, Entrepreneurs, Angel Video Interview Series, Thoughts on Crowdfunding, The Crowdfunding Interview (Frank Peters Show), Getting Off The Ground; Early Formation Economics, Pitch Clinic at MassChallenge (Video), Top 20 Dos & Don’ts with Angel Groups & Early Stage Financing, What I Look For In An Entrepreneur, The Overture, Open Forum with Angel, Seed and VC Investors (Video), 20 Bootstrapping Ideas.
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