Generally, founders of early-stage startup companies are asked to talk about their cap tables and hire a startup lawyer. It can be clear that they are truly passionate about their business, mainly from the fact that they put together top-notch teams to help them live out their visions. However, their overall grit and determination that helped them to overcome all of their initial challenges can actually begin to falter as they start to consider their response to that kind of request.
Regardless of the answer that is provided, it’s important to compare and contrast that particular situation with another that has become all too familiar due to how frequent it has become in venture capital-backed companies, which involves an angel investor introducing you to the founders of a company that they have decided to back, which results in you leading them to the next round.
This situation can lead you to the best possible solution, which involves an extremely passionate angel investor who is supported by an equally passionate and well-connected institutional investor. The closer these parties are to one another, the better they will be able to put together all of the terms of their deals in order to get all of the funds that they need.
Here are a couple of the most popular trends in angel investing that have been found to be perhaps the most interesting.
Equity Settling to Around 20%
Approximately six years ago, angel rounds diluted business founders by an average of 25%. However, 20% should always be used as a benchmark number to help keep your cap table as clean as possible. No angel investor should ever own a majority amount of your company unless there are plans for them to take on an extremely dedicated role of some kind. Angel investors should also be worth more than just money – they should also have measurable value as well.
Angel Investors are Taking Part in Larger Rounds
There are two general reasons for this. The first is that angel investors are becoming more comfortable investing alongside institutional investors, as well as the other way around. The other is that these kinds of groups are constantly coming together to meet the funding needs of entrepreneurs in geographies that are capital-starved. This means that business owners and founders should always maintain strong relationships with angel investors.