What My Experiences as an Angel Investor Have Taught Me About the Venture Capital Industry

“Lazy hands make for poverty, but diligent hands bring wealth.”
---Proverbs 10:3
 
 
In 2008, I completed the last of my active-duty missions for the GCHQ and my combat license was decommissioned. Afterward, I entered the world of investment capital as an angel investor and served as a pawn for the British Crown and the American governments in a game of chess. Though my business ventures have met with limited success, I lhave earned enough to know that partnering with venture capital firms is a sure road to hell for any capable entrepreneur.
 
Brokerage houses back venture capital firms. The firms they back are nothing more than gambling houses. Firms like Accel and Sequoia Capital produce nothing of value for serious entrepreneurs with dreams of autonomy. Instead, they bank on their ability to work you out of your ideas and assume your assets and intellectual capital as their own.
 
So, too, are the brokerage houses that back these firms. If you follow the money trail long enough, you’ll learn that about eighty-seven percent of the world’s investment banks are controlled by eight families of kingmakers. The rest are irrelevant entities begun by corrupt individuals looking to corporatize their asset holdings.
 
While a handful of independent brokerage houses are allowed to play in the financial markets, they are small fish compared to the eight family networks that control the world’s capital markets. They are grooming houses for the larger firms, and oftentimes serve as shell corporations for criminal organizations. Analysts and partners within these firms that skill themselves in graft and piracy move on to the eight family-run banking empires, and the rest are swallowed up whole.
 
Skilled entrepreneurs that enter contracts with venture capital firms are forced to give up their autonomy. Their equity share are often diluted over time by their venture capital backers, and the interests of the brokerage houses their venture capitalists serve typically drives the direction of their companies. The principals within these firms are margin-focused and stop at nothing to drive up profits once they’ve set revenue objectives for your business. In the end, this compromises the quality of the products and services of the businesses they back.
 
If your business plan falls short of your venture capital firm’s revenue targets, you become a disposable asset for the brokerage firm that backs your venture capital partner. They begin to sell your concepts to competing firms and competing businesses with the purpose of liquidating your holdings. Oftentimes they do so without your knowledge or consent.
 
It is important to know that except of patents and design materials that fit within their brokerage firm’s strategic objectives, your business, your ideas, and your objectives are meaningless to your venture capital partners. The same holds true for the members of your management team. It’s a numbers game for them and your business assets are disposable.
 
It is also important to note that venture capitalists and angel investors are not the same. While some seed funds tout themselves and angel investments, true angel investors take a secondary lead role in seeing your ideas through to fruition. The deals are structured differently, with angels generally seeking a quick exit when their investments are repaid.
 
Depending on the assets you bring to the table and the risks associated with your business, some angel investors will ask for long-term non-voting equity shares in your company. Anywhere from 0.5% to 3.0% is customary in these circumstances. Venture capital firms on the other hand generally require equity arrangements and voting rights that affect an entrepreneur’s autonomy from day one.
 
The sweat equity true angel investors bring to the table cannot be measured. Most have run or managed business enterprises themselves and will mentor you on your deficiencies. They may serve as your Head of Finance, Chief of Operations, Executive Recruiter, Marketing Expert, or any combination thereof. However, their objectives are the same: to take your company safely to market and recoup their investment with a healthy dividend.
 
Angel investors will also leverage their business connections to help cut your costs.
They will direct you to suppliers within their portfolio or their network, and structure the deals to get you off the ground. While venture capital firms claim to offer the same, the strategic objectives of the brokerage houses they serve drive decision making. They typically structure long-term deals with suppliers and distributors within their brokerage firm’s portfolio, and they structure these deals to maximize the brokerage firm’s revenues.
 
Human capital management is perhaps the greatest area of discrepancy between venture capital firms and true angel investors. While venture capitalists view open positions as red lines on a balance sheet, true angels understand that a strong corporate culture is fundamental to your long-term success. Consequently, worthwhile angels gravitate toward entrepreneurs that embrace values and principles that match their own.
 
Once you wade past seed funds, it is important to remember that all angel investors are not the same. There are plenty of unscrupulous individual investors that that milk intellectual capital during negotiations with the express purpose of pirating your ideas. There are others that will attempt to rope you into deals with the intent of driving you into bankruptcy and claiming your assets and intellectual property as their own.
 
The term angel investor traces its roots to 16th Century Spain and the fishing industry. True angel investors were men of faith who relied upon prayer, meditation, and scriptural teachings to guide them in placing their investments. When dealing with angel investors a good rule of thumb is to ask them about their faith. In short, listen to their testimony and get to know them as you would your closest business partners.
 
 
TAKE AWAYS
Venture capital firms are an anathema for entrepreneurs with aspirations of remaining autonomous. If the entry barriers for your business plan are so great that you require billions of dollars to get your idea off the ground, chances are you are chasing an illusion.
 
For entrepreneurs with innovative ideas who aren’t just interested in making a buck, co-partnerships outside the venture capital industry can be structured with reasonable payback terms. A capable angel investor with a strong network can help you structure deals with suppliers and distributors that are advantageous to your goals and objectives. In the long run, this will help you retain your autonomy and avoid the pitfalls of dealing with venture capitalists and the brokerages they serve.

“To the person who pleases Him, Christ gives wisdom, knowledge, and happiness, but to the sinner he gives the task of gathering and storing up wealth to hand it over to the one who pleases false christs. This too is meaningless, a chasing after the wind.”
---Ecclesiastes 2:26
 
 
CHRIST TRANSLATES FROM BEAST TO YEAST.

Author: Erik Gagnon - Managing Partner, Chi Rho Consulting