The Wall Street Journal recently published a story on crowdfunding using Angel List. Many of HPA’s angels are members of Angel List and you can contact them for their individual impressions. Crowdfunding is a newer trend in startup funding. HPA doesn’t have an official position on crowdfunding, but we’d like to take this moment to tell startups and investors some basic principles that HPA follows.
Crowdfunding And Angel Groups
We advise that startups in their beginning phases never accept dead money into a deal. Make sure the first round money that invests in your company also comes with a network, or some expertise that can mentor you, help create customers for your company or advantage your company in some other way. It’s a highly competitive environment and you will need to tap a lot of resources to be successful. Investors should be a prime resource.
Dead equity on balance sheets can be killer. Equity is one of the most precious assets a startup has to sell. Once you part with it, it’s gone and hard to claw back. Make sure that when you part with equity, you are getting more than just cash at an early stage.
When you take investors on, it’s a partnership that will usually last a minimum of 5-7 years. Be comfortable with your partners. Know that you can work with them and that you can manage them. At this stage, it’s not clear how crowdfunded investors will be managed by startups.
One quote from the article that ought to resonate with investors, and with startup CEO’s is: “It’s no different than when you go hire someone to work for you,” says Ms. Mott, who hasn’t invested through AngelList. “You just don’t blindly reach into a bag and pull out a résumé and say this is the one I’m going to hire.”
Before HPA invests, we like to take some time to get to know the management team. Great management teams can take good ideas and create something revolutionary. When you look at the companies HPA has invested in, we like the opportunity, but we love the management teams. HPA companies are managed by great people and we like working with them. At the end of the day, our investment creates long term relationships.
People hear various things when chatting idly. We encourage any startup to talk to the management teams of the companies we have invested in to find out how working with HPA post investment has been.
As a startup founder, make sure you can trust and work with your investor partners. They can really help smooth your path.