Forbes recently ran its “100 Most Powerful Venture Capitalists,” with a special feature profiling its #1 choice, Jim Breyer. The piece notes that when Breyer invested $1 million of his own money into Facebook back in 2005, some thought he “crossed a line” as a VC. Given Breyer’s clout and influence, it’s no surprise that all of the VCs who raised this issue did so off-the-record. But the reality seems to be, the lines between when it’s OK to use one’s own money – and when it’s not – seems to be a moving target. As Joanna previously noted, we recently attended EntreTech’s “Raising Money I: Angels or VCs: Who’s Driving the Regional Start-up Capital Market” panel. Even the panelists here disagreed on the when and how of investing personal money.
Everyone agreed that angel investors use their own funds, but there was some wrangling about the parameters of a super angel. Kent Bennett, VP at Bessemer Venture Partners, defined a super angel as someone who invests other people’s money, albeit in small check sizes. This type of investor operates like an angel, only with someone else’s purse.
Considering that seasoned industry insiders don’t agree on where the boundary between VC and super angel is drawn, it’s no surprise that Breyer’s personal investment in 2005 still raises some eyebrows. But even if there were an agreed upon definition, there are too many other subjective factors to consider. Jim Sanger, general partner at ABS Ventures, suggested that angels are like mentors with cash, while VCs inject more rigor into a business. (That’s code for more pressure to make money). But, there’s no law that requires an angel to serve an advisory role. It’s all personal preference. As Lord pointed out, “some angels write a check and disappear and others will take an active part on your board.” So what’s ideal? According to Lord:
- · An angel who puts even MORE time into a startup after the check is written
- · Typically this means 20 – 40 hours of due diligence, but 50+ hours per week on the company’s board after the check is written.
The takeaway for startups? Funding isn’t just about financial capital, it’s about human capital. Ultimately, select the investor who will help your business from the most perspectives.