Angel Etiquette

Below is a brief set of rules to follow that will help you be a great angel.  Let me know if I missed any on Twitter!

1. Always put the startup first.
This seems like a "no duh" statement but there will be times when your interests as an angel diverge from the startups interests.  If a conflict of interest arises (between yourself and the startup and other thirds parties - e.g. VCs, other startups, potential acquirers etc.) always err on the side of doing the right thing for the startup.

Examples include:

• Decreasing your own investment in a startup's round to make room for another investor who will help the company.

• Helping a startup get acquired if it is the founders' wishes even if it does not serve your economic interest.

• Supporting the company's interests against the VCs interests [0].

Intriguingly, it turns out that in the long run what is best for the startup is also best for you.  As your reputation grows, so to do the set of entrepreneurs who want to work with you.  

2. Be up front about conflicts of interest.
If you have a conflict of interest (e.g. are an investor in something the entrepreneur deems could be competitive) be up front about it as soon as you can with the entrepreneur.  Sometimes it is hard to tell before meeting live as an introductory email will not cover future paths or other details.

Sometimes conflicts of interest emerge over time and are impossible to avoid - e.g. one company may pivot into another company's market.  Other times, two companies are truly directly competitive.  But most times, entrepreneurs may be overly sensitive to potential future conflicts of interest [1].  Be up front about the potential conflict and talk it through or clear it with companies you are already involved with.

If you get a pitch deck out of the blue with detailed proprietary information, and the company asking you to meet is competitive with one of your portfolio companies - do *not* forward it on to the company you are involved with.  The entrepreneur reached out to you in good faith and using this against them is in poor taste.

3. Don't demand updates - ask how you can help.  
As an entrepreneur you should find a handful of investors to update regularly.  If you have raised a series A, your board member(s) will serve this function.  But pre-series A the forcing function of regular updates to a select group helps keep you on a cadence and clear path as a company.  It also means there is a set of people who are familiar with your business and more able to be helpful.

As an angel, leave it up to the entrepreneur how they want to update their investors.  Do not demand detailed updates from entrepreneurs simply for the sake of wanting to know what is going on.  Instead, ask how you can help and an update usually naturally follows.  Else you are just wasting the founders time - time that is better spent iterating on product, writing code, or closing sales.

Many founders get stuck in a "work cocoon" and forget to reach out to their investors for help.  Sometimes this help can save the founders a lot of time or make them change direction.  By proactively asking how you can help, you may save the entrepreneurs a lot of grief without wasting their time asking for a detailed snapshot of their metrics.

If a startup asks for help, follow up quickly and make what they request happen.  This may include closing a candidate, chasing down a sales lead, or providing feedback on a term sheet.  Whatever it may be, do it fast.

4. Sign documents (and generally follow up) quickly.
Turn any deal documents (investments, M&A, etc.) within 24 hours.  This will reduce stress for entrepreneurs.  (I have been guilty of violating this one lately as my own startup takes up crazy amount of time.)

5. Don't nickel and dime the startup.  Be gracious during acquisitions.
Some of the worst angel behavior [2] (and founder behavior[3]) I have seen has cropped up during small acquisitions.  During an acquihire, the entrepreneur and team are committing the next 4 years of their lives to the company buying them.  The angel will at best make their money back or 2X their money.  I have seen brand name professional angels push and browbeat entrepreneurs to go to a worse company to get slightly more money for themselves.  While this incremental return does not really impact their portfolio's returns, it means the entrepreneur gets stuck working somewhere crappy for multiple years.

Acquisitions are times of high stress for founders.  This is the worst possible time for an angel to be a jerk, but some angels push for more upside for themselves at this moment.  This does not mean angels should allow themselves to get screwed during an acquisition (this can happen too).  It just means you should keep clear headed and focused on what is fair and then communicate what you think to the stressed out entrepreneur.

6. If needed, be a psychiatrist.
Startups are hard.  Sometimes founders just need to vent.  Or co-founders need someone to help mediate.  Some of the best investors can help founders during this time of trouble.  Michael Dearing is a great example of an amazing startup whisperer.

7. Be honest.
Entrepreneurs sometimes need blunt and up front advice.  For example, as a first time manager entrepreneurs may make a mistake in how they are dealing with an employee issue.  Or, maybe the VC who is courting them is not trustworthy and the entrepreneur should know about it.   Blunt and honest opinions can go a long way in these moments.

When giving feedback or advice, remind the entrepreneur you are just sharing your opinion based on experience - it is up to her to take the information you provide and decide for herself.  Generic startup advice is often wrong.  Don't be intellectually lazy and just pattern match - instead, try to understand the nuances of the founders' business and give advice based on context.  Be sure to explain the assumptions underlying your advice in case your assumptions are off.

8. Celebrate the founders.
Successes are hard to come by.  If the entrepreneurs hit a big milestone, offer to bring by a bottle of champagne or case of beer.  Or, organize a party or drinks for your portfolio if you have a large enough one.  Starting a company is hard - celebrate key moments with the entrepreneurs and their teams when you can.

Thanks to Sam Altman, Avichal Garg, Harj Taggar, for comments and feedback on this post.

Notes:
[0] Angels (especially "professional" superangels) sometimes feel they owe VCs more then they owe entrepreneurs.  This is because they have a portfolio of startups the VC may invest in, or the VC may pull them into a hot series A, if the angel is properly supportive of the VC.  Angels should always chose to do what is right for the company over what is right for the VC, even though this may hurt their long term economic interests relative to the VC.

[1] Most "someday in the future" conflicts of interest never materialize.   Founders are often very ambitious and paranoid about where their business may wander.  99% of these paths do not materialize and perceived general conflicts tend not to play a big role in your business.

[2] I have one ex-investor who still complains to me that I sold my company to Twitter.  He was not a believer in Twitter and sold his shares in the company as soon as he could, and missed out on the more then 10X the stock has seen since then.  Not sure how this is my fault?

[3] One company I know of sold to another private company for $18M.  The entrepreneur negotiated ~$15M for himself in retention, a few million for the rest of a 15 person team (so they effectively got hiring packages at best) and gave a pittance back to the investors relative to the money invested.   Entrepreneurs should do what's right for themselves, but they also should do right by their team as well as investors who pitched in.  I would be surprised if the team members stick around given their low compensation.

[Side Note] No one is perfect, and all angels will make mistakes at one point or another (I know I have made a number of mistakes as both an entrepreneur and an angel).  So, the above is meant more as what I look for (as an entrepreneur) in my investors, as well as behavior I have respected in investors I admire.

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