Funding your Startup with AngelList Syndicates
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Both CEO’s used AngelList Syndicates as a significant funding source for their startups.
GRANT: What is Butterfleye?
BEN: Butterfleye is a software company that’s building connected cameras that retrieve data and meaningful information from the videos that are captured in people’s homes. We make the camera, we make all the software associated with it, and we give it to directly to consumers. Our use cases include home security, baby monitoring, elderly care and pet monitoring. It’s an extra pair of eyes for whatever you want.
GRANT: How did you get started?
BEN: In 2015, I had a series of break-ins in my garage and patio at my home in San Francisco. I researched simple security cameras and was very frustrated by the shortcomings of all the DIY security-type cameras that were out there. My day job was working as a business manager for a company that made the main electronics inside cameras, so I had a pretty good idea of what technology could do. I decided it was no longer enough for cameras to capture video and audio but that the camera understands the information and does something with it.
GRANT: As a first-time entrepreneur and technical founder, what was your experience with AngelList?
BEN: I have had a great experience with AngelList. To this day the company has raised $1.3 million in funding from AngelList. I highly recommend it especially in the early days. I think traditional venture capitalists are increasingly pulling back to the later stages to fund companies that have more progress. But since you need money to make progress, AngelList is a way to kick start your company.
GRANT: $1.3 million on AngelList is huge. What percentage of that is your total raise?
BEN: ~50%. The company has raised $2.7M exactly.
GRANT: Let’s hit some mechanics because I don’t think this is very well understood area of AngelList. How many entries on your cap table is that?
BEN: Only two. The way AngelList works is that it creates syndicates of up to 99 members. A syndicate leader picks the companies and invests some of their capital, smaller investors invest between 1–200K in the syndicate. AngelList then forms an LLC for the syndicate. That one LLC, comprised of many investors, becomes one line in your cap table. The syndicate leader is the other. Butterfleye did this twice, so we have four lines for AngelList.
GRANT: From our experience AngelList takes an 8K fee to do the legal work and set up that Delaware LLC. Was that your experience as well?
BEN: That’s right.
GRANT: How did you find your syndicate lead? That seems to be the most common bottleneck on AngelList. You’ve located two, so clearly you’re onto something.
BEN: Some syndicate leads are more popular and effective than others. Obviously, you want the top guys. To find them, you can go to AngelList.co/syndicates/browse and sort. Using this method, we were able to gain the support of Jason Calacanis. He’s been fantastic- he has supported us greatly and is an advocate of the product. He’s very entrepreneur friendly.
GRANT: What about the second round of AngelList funding?
BEN: Butterfleye had made tons of progress and we were bringing in new outside investors to the table. I continuously updated our first round of syndicate investors every 4–6 weeks, good or bad. They were expressing that they wanted to add to their investment, so with support of Jason Calacanis we reposted on AngelList. While our second round was lead by outside investors, AngelList contributed another $250,000.
GRANT: What advice do you have for the investor pitch?
BEN: First, we had huge support from Jason himself to kickoff our raise. We did an exclusive video of Jason interviewing me and explaining his investment and excitement. We posted on YouTube unlisted and only shared the link with investors via AngelList investor-only pages and email updates. Second, I contacted AngelList directly and requested to be their featured company that gets special placement on their web page and email inclusion. While it is up to AngelList editorially, it helped to ask. Make sure your AngelList profile is awesome before asking.
GRANT: For more sophisticated investors, what has been your experience with SEC rules as a result of your raise with AngelList?
BEN: We’ve had no issues. We’ve only raised from accredited investors. On AngelList the raise is private. Syndicates only work with accredited investors using privately accessible web pages requiring an invite. This kept us under safe harbor with the SEC. AngelList managed this really well for entrepreneurs.
Grant: That was our experience as well. We looked at this and for wonky reader clarification (there’s a lot of misunderstanding on this subject) because the AngelList investment pages are private, we’re under 506 (b). This gives the company safe harbor with the SEC. Safe harbor means the burden of proof that an investor is accredited is on the investor not the company. Companies that raise publicly through kickstarter or a public AngelList raise fall under 506 © and then the burden of proof is on the company to prove that the investor meets accreditation standards — this means checking investor bank statements and things that are highly intrusive for the standard investor and usually a deal breaker.
GRANT: How would you compare working with angel groups to AngelList and do you see an evolution coming?
BEN: Working with AngelList was awesome. Being in Silicon Valley and a hardware seller, I’ve been introduced to a lot of different angel groups. Although I went pretty far with some of them, I didn’t end up closing any. In fact, to this day, I have only met one or two founders that has closed money with angel groups. It’s near impossible to convince 50 or even 20 people, especially while they’re sitting there poking holes in your business plan. There is always a devil’s advocate. With AngelList, you don’t have to convince everyone- just the lead.
GRANT: That is super valuable information for others- I hope it helps future entrepreneurs.
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See other interviews in the series here:
From Kosovo to Sand Hill Road: A discussion with Skyward CEO Jonathan Evans
The Democratization of Flight by Drones
Drones and Simplifying the Future
Why Drones are Taking Off in Unexpected Industries
How to Build Trust in Drones
The Evolution of Drones as a Service (DaaS)
Mentoring startups, fostering talent and using technology for good
The Era of Internet Drones
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