Sean Ellis taught me that startups need to be as creative and thoughtful about their marketing as they are about their products. But we’ve never applied that thinking to Venture Hacks. We focused on writing stuff that doesn’t suck, didn’t engage in marketing histrionics, and figured the customers would come. More important, we simply weren’t excited about marketing.

But! Since we started AngelList, we’ve suddenly gotten excited about marketing — who knows why. And so, on to the histrionics…

Interview: How to close an angel round

Naval and I have recorded one of our best interviews yet: how to close an angel round. But there’s only one way to get it: apply to AngelList. And if you don’t want to apply AngelList, apply anyway, tell us why you don’t want any intros, and we’ll still send you the interview.

Here’s a 10-minute teaser of the full 40-minute interview:

SlideShare: How to close an angel round – Teaser
Video: Interview with chapters (for iPod, iPhone, iTunes)
Audio: Interview without chapters (MP3, works anywhere)
Transcript: Below

¡Get the full interview by applying to AngelList!


Here’s the outline of the full 40-minute interview (not just the teaser).

  1. You can close an angel round with ‘mass syndication’
  2. Start with terms and valuation below market
  3. What you want in your term sheet
  4. What you don’t want in your term sheet
  5. Should you have a board seat for seed investors?
  6. This isn’t comprehensive term sheet advice
  7. Memorize the term sheet before your first meeting
  8. How do you set your valuation? Price it to move
  9. How do you bring up the terms in a meeting?
  10. Describe how the terms are investor-friendly
  11. A preferred round is a good way to set up good initial terms
  12. Does a small seed round need protective provisions? Pros and cons.
  13. Get feedback on the terms in the first meeting
  14. Drop names to build social proof
  15. Social proof works differently in a Series A round with VCs
  16. See if the “interest” includes a dollar amount, intros, and name-dropping (a.k.a. soft circled)
  17. When do you need a lead?
  18. Approach the financing as if you won’t find a lead
  19. What’s a lead investor?
  20. If they say “find a lead,” ask why
  21. How to create a deadline
  22. Raise the money when you don’t need it
  23. Send two emails to the angels
  24. Do a rolling close: the cash comes in just- in-time
  25. Mass syndication can fail if a very high social proof investor drops out
  26. Use AngelList and StartupList to get intros to angels
  27. What do angels look for?
  28. Advisors are good for getting your foot in the door, not in a pitch
  29. Get advisors by going to events or talking to entrepreneurs
  30. Before you raise a seed round, you need a product in the marketplace
  31. Use customer development and lean startup techniques to get to market with less
  32. Pitching hacks free chapter: Advice on getting investor intros
  33. If you need money to get something in the marketplace, pitch idea investors
  34. Pitch incubators or do your startup on the side
  35. What are the different types of seed stage investors?
  36. If you’re talking to a VC, make sure they really do seed stage rounds
  37. Potential concerns with pitching multi-stage and seed-stage firms
  38. Get intros to seed investors with AngelList/StartupList


Here’s a transcript of the first 10 minutes of the 40 minute interview.

(Music: Squarepusher)

Nivi: Hi there, this is Nivi from Venture Hacks.

Naval: And Naval from Venture Hacks.

Nivi: And we’re going to talk about how to close an angel round, how to put together an angel round, or in other words, how to herd a motley crew of angel investors and turn those meetings that you’re getting into money in the bank.

I think we’re going to start off by talking about mass syndication, which is an approach that I think more entrepreneurs should be taking to close their angel rounds.

You can close an angel round with ‘mass syndication’

Nivi: I think entrepreneurs make two typical mistakes when they’re doing an angel round, and they come from what they’ve read online about how to close a VC round. So, there are two things.

One: they don’t name drop enough. They don’t mention who else is interested.

Two: and I guess more importantly, they’re looking for a lead, which you don’t necessarily need in an angel round.

When you put those two together and combine them with a term sheet that you essentially write yourself, you’ve got a new way to close an angel round which we call mass syndication, which I’ve done personally. And Naval, maybe you can talk about how often you see that happening, or if you don’t see that happening, or whatever.

Naval: It happens fairly often these days. Especially the Y Combinator companies, which are well trained by Paul Graham and crew, will exercise mass syndication a lot. So, they take the standard term sheet that they’ve been given and they go out and do a rolling close of various convertible notes. And it generally works pretty well.

The keys are that you have to set the terms and the valuation very, very reasonably. In fact, you have to probably price slightly below market, because otherwise the angels don’t trust you, then they want a lead who’s done the due diligence. You have to work with people that you have warm intros with, you have to name drop like crazy, and you have to create forcing functions to get the round to close. You can’t give people all the time in the world.

Start with terms and valuation below market

Nivi: Right. So let’s dig into all that stuff. First off, I think you want to start with a term sheet that you’ve generated yourself.

Naval: I think it’s even better to have a term sheet that comes with someone else’s authority attached. So, it could be one that Wilson Sonsini has put up. It could be one that Y Combinators put up or Founder Institute has put up or Founders Fund has put up, but it’s just better to start with a widely accepted circulated term sheet where you can point to it and say dozens of other startups have used this term sheet, it’s not new.

Nivi: Yeah. And then there are the new Series C documents from Andreessen Horowitz and Ted Wang and other investors, which we haven’t reviewed, by the way. At least, I haven’t.

Naval: Yeah, we’re not endorsing any particular set.

Nivi: Yeah, so I would look at the term sheet first, and I find that a lot of entrepreneurs that I talk to have not really studied the terms that they’re signing onto enough, and they end up using the authority of: it’s a Y Combinator series AA doc, so we’re going to use it because everybody else has used it.

What you want in your term sheet

Nivi: I think there’s some wisdom in that, but at the same time I really want to understand what I’m signing. The things that I look for, personally, in a seed-stage term sheet are: If you’re going to do convertible debt there’s going to be a cap on the conversion price. In the event of an early acquisition you’re probably going to use that same cap to give the investors a non-participating liquidation preference.

Naval: Yep.

Nivi: If the debt matures before the company is acquired or does another round, you want the debt to convert into common or preferred stock, and that’s at the company’s behest.

And I like to have a majority or supermajority of the investors able to amend the documents.

Naval: They have to approve any amendment of the documents.

Nivi: Yeah, they can approve an amendment of the document, so you don’t need everybody’s approval to make some change – to extend the maturity date, or whatever, or to increase the amount of debt you can raise. Off the top of my head, that’s kind of….

What you don’t want in your term sheet

Naval: Yeah, what’s equally interesting and what’s usually not in a seed or angels syndication round is that you don’t have a minimum raise requirement. You don’t have, usually, a board seat or board structure. You often have vesting, but because the company is still controlled by the founders, the vesting is more of a pre-nup agreement between the founders than it is anything to do with the investors. But generally you want to keep it very simple.

Nivi: No option pool, really.

Naval: There can be. Actually, I would say that there usually should be, because you don’t want the situation where an investor starts reading the documents, finds out there’s no option pool, and therefore doesn’t feel like your valuation is properly represented, because these days in the market, people are used to seeing an option pool.

Should you have a board seat for seed investors?

Nivi: OK. And yeah, with the board seat thing, I think too many seed stage companies probably have board seats, especially if there is a VC involved in the round. If you want some normative leverage on that you can go to Marc Andreessen’s blog where they write, essentially, that they don’t think most seed-stage companies should have investors on their board of directors. Right?

Naval: Yeah, and it absolutely depends on the stage the company’s at and how much money you’re raising. If you’re raising a million bucks from institutional investors, you’re actually really doing more of a mini-VC round than a seed round, so you are going to have a board seat at least, although you probably won’t give it board control.

On the other hand, if you’re raising $250,000 spread across 10 investors, then you don’t need to have a board seat, although you may want to have an external board member just to help resolve any founder issues that come up, and to get some good advice.

This isn’t comprehensive term sheet advice

Nivi: This isn’t intended to be a comprehensive discussion of term sheets for seed-stage companies, but it’s a good start.

Memorize the term sheet before your first meeting

Nivi: So I think that’s our best advice on the first step, which is generating a term sheet. And you should be able, when you go into a meeting with any of the prospective seed investors you have, to essentially rattle off the major terms in that term sheet.

How do you set your valuation? Price it to move

Nivi: I guess the only thing I would add to what Naval said earlier when he described it as maybe the price is “below market,” I sometimes describe it as “priced to move.” So you want a price where there should be no discussion around the price that you’re putting forward.

We’ve got an article, actually, that you should look up. It’s called How do we set the valuation for a seed round? Let me look it up right now.

Naval: The valuation is a very difficult topic, especially when the entrepreneur is trying to do it themselves. They invariably get it wrong, and usually it’s too high. You just want to talk to somebody who has a lot of data points in the market and can give you those data points.

Nivi: Right. So you need the market data, and then check out this article we have. It’s called How do we set the valuation for a seed round?

How do you bring up the terms in a meeting?

Nivi: OK, so at this point you’ve generated the term sheet, we’re going to assume that you’ve got some meetings lined up, and we’ll get back to this topic of how to get some meetings, but let’s assume that you’ve got some meetings lined up. You do the meeting. How do I bring up a discussion of the terms?

Naval: I think if the investor’s interested, as a final step they’re going to ask you. They’re going to ask what the terms are or who’s in the round, or they’ll ask you to give them some details about the financing. And that’s when you basically say: So-and-so is committed to invest. We have a couple of people looking at it. We’re hoping to close by such-and-such a date, or we are going to close by such-and-such a date. There are x dollars available, and it’s a convertible note and it’s capped at a valuation of x and a discount of y. So, you can just throw the terms out. You can be pretty straightforward with most angels.

If you want to be a little more subtle you can say we’re raising x, and we’re selling no more than y% of the company; but I feel that with most angels you can just be direct and say the cap is whatever it is, and just give the number.

Nivi: Yeah, if they don’t bring it up you should just have a slide that says “Financing” at the end of the presentation, [laughing] and you tell them exactly what Naval said. You drop the names, and we’ll get back into the specifics of exactly how you drop the names.

Describe how the terms are investor-friendly

Nivi: And you discuss the terms, and you discuss them in a way that shows how investor friendly they are and how sane they are, and frankly, there really should be no room for discussion on them. Not that there’s no room, just that there’s no need because the valuation is priced to move and there are a lot of good investor protections – which the only ones they really care about are …

Trent: Oh the suspense! Please don’t shoot the messenger, but that is the end of 10-slide preview of Nivi and Naval’s conversation on how to close an angel round. Of course, there’s all sorts of invaluable advice packed into the remaining 30 minutes or so that you haven’t heard yet. Nivi and Naval are going to touch on a wide range of angel related topics, about 30 more topics I believe. Everything from using advisors to getting your foot in the door, how to find advisors, what angels look for in an investment, what they don’t want to see, what they do want to see, getting introductions to angel investors, finding angels for idea investments, pitching incubators and a whole lot more to help you seal the deal on your angel funding round.

So, if you’re eager to get that started and listen to the entire interview, all you have to do is head on over to, get yourself registered there.

And dont forget… Over on venturehacks, there’s all kinds of interesting articles and great advice for your startup… So, browse around!

For, I’m Trent… Thanks for listening.

Topics AngelList · Interview

7 comments · Show

  • scott edward walker

    This is great stuff for entrepreneurs — you guys are outstanding! One quick point –– which I have made in a number of blog posts and other writings (see, e.g., Unless the startup is raising at least approximately $750K, it generally is not in the founders’ interest to issue shares of preferred stock. Indeed, preferred stock financings are complicated, time-consuming, and expensive (despite the “Series Seed” documents and other forms). Moreover, the company would need to be valued (as you discuss), which is obviously difficult at such an early stage and could be extremely dilutive to the founders. Accordingly, entrepreneurs are better served by issuing convertible notes to angel investors, which would automatically convert into equity in the Series A round; this approach will keep the financing relatively simple and inexpensive and will defer the company’s valuation (i.e., the pricing) until the Series A round.

    Keep up the great work.

  • Jim Wilson

    Good stuff. How would one access the full video if one had already registered on the startup list in the past?

  • Adam R.

    Is there any chance you guys can make at least the full transcript available? I got started pulling together my angel round before AngelList took off and am (knock on wood) a few weeks out from closing my round. Nevertheless, looking through your outline, there’s some stuff in here that would be tremendously helpful to read. I realize you guys are trying to “fill the pipeline” here, but applying to AngelList doesn’t serve much of a point for me right now, and as much as I trust you guys, I still prefer not to disclose my progress, product, etc. more than necessary. I’m sure I’m not the only entrepreneur in this boat. I’ve always admired Venture Hacks for making vital advice like this easily and readily accessible to entrepreneurs, and as a result am constantly referring fellow entrepreneurs to you. I fear that, in trying to promote the AngelList, you might be working against the broader and original cause here.

  • Lee Weinberg

    Have any of you heard of securities laws? What is being proposed (and I guess practiced) is mass contacting of prospects. I am not saying it can’t work, but I am saying it can really be messed up, and very easily, and then the SEC will be on you. Doing this sort of thing without a lawyer guiding you would be a mistake. I am sure you can find a good one.

    So, which lawyers are on board with this, and how is this actually working out with respect to state and federal securities laws?