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patio11's profile
Patrick McKenzie
Patrick McKenzie
Patrick McKenzie
@patio11

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Patrick McKenzie

@patio11

I work for the Internet, at @stripe, mostly on accelerating startups. Opinions here are my own.

東京都 Tokyo
kalzumeus.com
Joined February 2009

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    1. Patrick McKenzie‏ @patio11 Feb 19
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      A fun innovation in financial engineering I saw recently and thought was worth sharing: I am an extremely tiny angel investor, which means I periodically send small checks to startups in return for an equity investment. This has historically been very toilsome for all parties.

      34 replies 158 retweets 1,245 likes
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    2. Patrick McKenzie‏ @patio11 Feb 19
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      Typically, a startup will be collecting checks from many people like me along with, possibly, a few firms distinctly unlike me (in that they're professionalized and running someone else's money). Theoretically speaking, every conversation is independent of each other.

      2 replies 1 retweet 73 likes
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    3. Patrick McKenzie‏ @patio11 Feb 19
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      Practically speaking angels do not particularly desire to have entirely independent conversations about contractual terms, because they/we rationally believe almost all of the value created happens outside the contract, but even with standardized terms (SAFEs, etc) it toilsome.

      1 reply 0 retweets 54 likes
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    4. Patrick McKenzie‏ @patio11 Feb 19
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      Meanwhile, lawyers have to review *everything*, because professionals are professionals and it would be extremely bad news if they missed "Oh whoops 6 years ago we actually promised an angel the moon and stars on a silver chain" in the runup to an IPO.

      1 reply 0 retweets 51 likes
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      Patrick McKenzie‏ @patio11 Feb 19
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      The cost of legal review and overall annoyance factor (having conversations, chasing down checks, etc) has historically made the minimum viable angel investment +/- $25k.

      6:55 AM - 19 Feb 2020
      • 2 Retweets
      • 85 Likes
      • Rio The Everythinger Shriya Nevatia life is a costume party! James Bailey Alec Dibble Xoel Ramin Ator Lachlan Priest Mike Abundo
      2 replies 2 retweets 85 likes
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        2. Patrick McKenzie‏ @patio11 Feb 19
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          So here's the cool innovation: A startup I had promised a check to said "OK, we're doing our friends-and-family checks via an AngelList Special Purpose Vehicle." It's, effectively, an extremely specialized one-use one-time computer program which pretends to be a company.

          6 replies 19 retweets 198 likes
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        3. Patrick McKenzie‏ @patio11 Feb 19
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          AngelList spins up a company. (In this case, the company receiving investment covers the costs here, which are non-trivial but much less than having 40+ parallel bespoke conversations with lawyers.) Angels invest in that company. That company invests in the target company.

          2 replies 11 retweets 139 likes
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        4. Patrick McKenzie‏ @patio11 Feb 19
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          This means that the people who actually care about the terms angels get only have to review one set of terms, which is the terms being granted to the SPV by the company receiving investment. The SPV takes one line in the cap table (not 40+); decreases toil over life of company.

          4 replies 2 retweets 98 likes
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        5. Patrick McKenzie‏ @patio11 Feb 19
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          And instead of the founders having to do their least favorite chore of "Hey Patrick, thanks for your commitment. We're closing soon so if you could please actually hit the wire button that would be great", ~100% of that is handled by cronjobs at AngelList.

          3 replies 2 retweets 109 likes
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        6. Patrick McKenzie‏ @patio11 Feb 19
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          There are probably also some benefits on the backend, too. A startup I invested in back in 2012 exited. Yay! And I got several hundred pages of documents to review as a result of it. Absence of yay. The ideal UX here is "I trust you. There's a number. Pay me; I tell accountant"

          2 replies 2 retweets 141 likes
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        7. Patrick McKenzie‏ @patio11 Feb 19
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          AngelList gets to have the operational teams and software which figure that out for the SPV, which centralizes thousands of otherwise pairwise conversations happening with lawyers and accountants, and then a piece of software spits out a) money and b) tax forms.

          12 replies 2 retweets 164 likes
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        8. End of conversation
        1. New conversation
        2. Jean‏ @JeanCHoffman Feb 20
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          Replying to @patio11

          Hey @patio11 thank you very much for sharing these insights, very valuable. What (from your experience) is the low end / average check size that is allowed/makes sense for most Angels when using an SPV on Angellist as a startup (a startup owns the syndicate without carry)? Thanks

          1 reply 0 retweets 1 like
        3. Patrick McKenzie‏ @patio11 Feb 20
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          Replying to @JeanCHoffman

          I think that sort of depends on what your value add is, what the startup's disposition is vis you, how much they're raising, etc etc, but suffice it to say that I've often felt bad for startups with check size that buys a nice Macbook and feel like plausibly I don't have to now.

          1 reply 0 retweets 1 like
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