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How Many Angels is the Right Number
All things being equal and all things being perfect, is it better to have more or less 'angels' in the mix? I can come up with reasons for both more and less. Also, it seems to me that more and less are very relative - but, in this case, Ohio has a limit of 25 investors before exemptions no longer apply (we're still investigating that one), so that is the absolute upper limit. I'm thinking "more" is in the range of 4 - 10 and "less" is in the range of 3 or fewer -- allowing more growth later, if needed.
My quick answer is three or nine, since three is my favorite number (and multiples of three are good, especially 3 * 3.) Before I started doing venture capital, I participated in about 21 angel financings (and led about 9 of them.) As a VC, I've had angel investors either prior to our investment or as part of our investment (when we invest in the Series A or first round) in about 51% of the investments I've done. It turns out that either a small number (three) or a moderate number (nine) is best (or - to be simple, 3 <= angels <= 9.)
Angel rounds need a lead investor, just like venture rounds. Most lead angels drag along a couple of their friends. I like to look for this lead group to take between 40% and 100% of the deal. So - if you can get a small angel group to take the entire deal, you can probably get away with three-ish angels. If you are at the 40% level, you are probably at nine-ish angels.
Remember that angels can (and should) bring a lot more than money to a deal, so the actual number is less important than the value you are getting. You won't get 100% participation (at best - you'll get 50% - more likely less than 33%) - most angels talk a good game but few deliver because they've got other priorities and interests. This is another argument for a larger number (nine-ish.)
So - while there is no right answer, a multiple of three feels pretty good to me.
Read this article in Brad's Blog.
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By Brad Feld
About the Author: Brad Feld
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Brad Feld is currently a Managing Director at Mobius Venture Capital and has been with the firm since 1996. Prior to Mobius, Brad founded Feld Technologies, which was sold to AmeriData Technologies in 1993, where he became Chief Technology Officer. Brad currently serves on the boards of a number of private companies, including Atreus, Comergent, ePartners, FeedBurner, Gold Systems, Judy's Book, Klocwork, NewsGator, Quova, Rally Software, and StillSecure. In addition, he is on the board of The National Center for Women & Information Technology, The Community Foundation Serving Boulder County, and The Colorado Conservation Trust. Brad has previously been a member of the board of directors of the Young Entrepreneurs Organization and founded the Boston and Colorado chapters. He holds Bachelor of Science and Master of Science degrees in Management Science from the Massachusetts Institute of Technology.
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