I recently spoke to the CEO of an early stage Bay Area-based startup who is raising his first round from angel investors using debt (convertible notes).
I asked him what his terms were and he said they’re raising $800k with an $8mm cap. I shuddered because the terms, barring some superstar team, revenue, mass adoption, or killer tech, seemed insane to me. Here is my advice to early stage entrepreneurs raising an angel round:
Set your cap low. Your future success hinges on this round so make it as easy to close as possible.
Get early commitments. Leverage investor commitments to raise close your round faster and build up demand.
Say you’re raising less. Create scarcity by announcing a small target and then oversubscribe the round.
In the Spring of 2012, I used these tactics to close Social Tables’ angel round. The round closed in just a few weeks and included some of DC’s most prominent angel investors.
A startup’s angel round is what gets it out of the gate and is therefore its most important round. Do what you can to maximize its success.