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.
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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.
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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.
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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.
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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.
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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"
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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.
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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 -
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.
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