You can't have too many angels

Conventional wisdom is: Don’t raise money from a ton of angel investors because it’ll clutter the cap table and be a big administrative pain in the butt.

I strongly disagree. For a certain type of angel, I advocate for the opposite approach: go big and collect as many checks as you can¹.

To understand why, first we need to walk through the various archetypes of angel investors:

Malicious

Though rare, the malicious angel investor is one who will enrich themselves at your expense. They might leak your investor updates to the competition, sell your shares to people you’d rather not hold them, slow down corporate governance matters, or threaten to sue you.

More common, and less nefarious, are the ones who are just slow—slow to sign or wire, which can hold up financings or other transactions—or who take up a ton of your time by demanding regular investor update phone calls.

Fortunately, it’s usually easy to avoid these folks: you’ll often hear about this behavior if you talk to founders who have taken money from them in the past. (And sometimes you just need to trust your gut—if you get a bad vibe, steer clear.)

Neutral

95% of your angel investors will likely fall into this category. They’ll sign the paperwork, wire the money, and you’ll never hear from them again. This is not a bad thing. You’re funding the business, they’re low-hassle, they don’t take up your time, and if you ask them for a favor once a year, you have a 50% chance of it happening. All things considered, that’s really good.

Transformational

The truly great angel investors are extremely rare, but they will be transformational in the way you run your company. They will be trusted thought partners who help you navigate sticky situations, they’ll serve as sounding boards for tricky decisions, and they’ll be advocates who intro you to top-tier investors. In short, you would be willing to pay them many times what they invested in your company as a thank you for the help they provide. They’re worth their weight in preferred shares.

My experience has been that this transformational angel is usually a former operator themselves (and specifically, probably a former founder).

The insight

Here’s the problem: It’s impossible to tell who is going to be transformational a priori. To make things more complicated, this isn’t actually a property of the angel themselves, it’s related to the intersection of the angel’s expertise and your specific company—so even if they were transformational for someone else, there’s no guarantee that they will be for you.

So, what should you do? Well, if you’re reasonably confident you can filter out the malicious investors, the only way to increase your probability of landing the transformational ones is to simply let more people on to the cap table. And if most of them are neutral, that’s not a bad thing.

By contrast, if you’re extremely restrictive and selective with who you allow on the cap table, probability dictates that you’re virtually guaranteed to miss out on the transformational ones.

A personal story

I used to believe the conventional wisdom that less is more, and nearly made this mistake in our second startup, Zulip. We’d just finished raising an angel round with participation from lots of really world-class entrepreneurs, including one of the founders of Meraki, Sanjit Biswas. As the round was nearly complete, Sanjit emailed us and said “Hey, my old cofounder Hans would be a great addition to your cap table, can you let him in?”

My view at the time was basically: “idk, we’re kinda done with this round, we already have a Meraki founder, I don’t know this guy, we should probably pass,” but we decided to take the call, largely to be polite.

The call went well enough for me to be sure he wasn’t going to be malicious, but I was still feeling ambivalent afterwards. Largely as a favor to Sanjit, we decided to bring him on board—and it was one of the best business decisions I’ve ever made. Hans has been 1,000 times more helpful than anyone else, both at Zulip and at Pilot. In fact, he’s now on Pilot’s board, he’s an incredible source of advice, and I consult with him regularly.

It's wild to think we almost didn’t let Hans in because we were optimizing for keeping the number of people on the cap table small. It would have been a huge loss for the business.

Incidentally, we walked the walk with Pilot’s seed round as well: 44 individual angels joined the round. Yes, it was a pain to collect signatures, but it’s definitely worth it.

Postscript: It’s now even easier

Recently, providers like AngelList have introduced the concept of the roll-up vehicle²—an entity that all of your angels invest in, which in turn invests in the company. I’m a fan. It eliminates the administrative burden of having to collect tons of signatures on a subsequent financing, which means it’s one less hurdle for you and one more reason that the conventional wisdom no longer applies. As long as you’re confident that you’re excluding the malicious angels, go big!

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1. The assumption here is that all of these folks are accredited investors.

2. Since a few folks have asked: I don’t have any affiliation with AngelList, though I’ve invested in a few startups via their RUVs. Another provider that offers this capability (though I’ve never used it myself) is assure.co.