If you read this blog regularly, then you know I’m a member of an angel investor group (Willamette Angel Conference) and a fan of angelsoft.net, which our group, and hundreds of others, uses to manage the process.
Still, I was quite concerned the other day to read the fox-in-henhouse problem posted in a very well-written and thoughtful post called 11 Lessons I Learned Raising Venture Capital:
“Be wary of angel networks. We presented to two angel networks in Seattle. Both were a waste of time and in fact caused us more anxiety than anything. At one presentation, the ‘CFO for hire’ of one of our competitors was sitting in the front row as we went through our detailed plans and exposed our secret sauce. He was madly taking notes. At the other presentation, the lead attorney for our biggest competitor was in the room. In my humble opinion, this is complete bullshit. Angel networks should do a much better job of ensuring that the sensitive details that they force startups to share don’t get in the hands of direct competitors. Know that when you apply to these networks, not only will you stand a chance of presenting to your competition, the docs you submit to the angel network or upload to AngelSoft can be accessed by hundreds of people that you can’t screen.”
Our group made its investment just a few days ago, May 13, as I posted here on this blog. I don’t think we had this problem; as I look back on the 37 companies who started the process, and especially the six finalists, they were all in different industries and I don’t think any one of our investors was linked to any of their competitors. I hope. Still, I do know one company chose not to put its full information onto the website, choosing instead to email its business plan as a PDF to investor members who asked for it. I can see how it could be a problem.
I just sent an email to all the members of our group, suggesting that we put up some provisions, for next year, to deal with this possibility.
Ironically, that 11 Lessons post also recommends “cast a broad net” when looking for investors, which would seem to contradict the caution about angel groups. I liked the rest of the post, but I disagree about casting a broad net. I think you need to carefully research investors before approaching them, and then approach only well-suited investors and approach them correctly and carefully.