Take a look at this article from the August 20th Milwaukee Journal Sentinel. It seems to me this may be a sign of the economic times. Or, of course, it's possible that Jason Weaver (who I know - and I think Sway is a neat company) is a bit frustrated about the "rules" dictated by the current investment environment.
Now, in some ways, I'm in agreement with Jason. If the comment about "do enough things to us" is a reflection on potential investors who he thinks don't understand his business or can't help him, he should never do business with them.
Who the entrepreneur takes money from (see this post) is always more important than the terms. So to the extent that he sees that the quality of the investor and his/her connections and abilities is really what the early stage company is buying, the more Jason and I would agree.
If a company is seeking "angel capital" it almost always wants people who can and will be helpful beyond writing a check. This, in our group, has included providing industry knowledgeable directors, or connections to other groups, or other types of expertise the company wants.
But what about his comment about "ridiculous terms?" The biggest single failure of terms set by angels is the opposite, historically, of what Jason calls "ridiculous." The problem has been that too-high valuations and too generous terms have spawned painful down rounds that squash the entrepreneur and his early investors.
New money, usually VC money, comes in and crams down those early investors and takes substantial shares from the entrepreneur. This happens more often as the "second round" exceeds the amount early investors can raise, is often a somewhat unexpected round, and usually is associated with missed milestones. At the same time the company is running low on cash. This is a confluence of bad events.
Ask any of us who've experienced significant down rounds based on some or all of these things, and one begins to understand the cautionary nature of deal structures. So in today's environment, caution is the watchword. No one wants to begin a relationship with a company that is contentious, especially when the investor has no requirement to invest.
In the case of Sway, it sounds like they are doing ok without investment right now. And that's an important point. If the entrepreneur can bootstrap the business, it will always be worth more to the entrepreneur as well as future investors, if any. It provides more freedom for the entrepreneur. And more choices. (People I know are tired of hearing this, but we did bootstrap RTMS, Inc. up to $10MM in revenue. It gave me a lot more freedom. Some would argue it also didn't force me to make hard choices that caught up to us later, but that's a story for another time.) So, I'm a big proponent of bootstrapping and the benefit it provides to entrepreneurs.
So, one of my questions for Jason is really if investors terms are "ridiculous," or even if they're not, shouldn't bootstrapping provide a much superior outcome for the company than equity investment?
Another thing for the Halos to think about is the inherent difference between VCs and Angels. VCs have an absolute need to find companies to invest in, and to do it on a schedule. This is fundamental to their business model. And it is unarguably what has driven valuation bubbles in the past. Because they only get to raise a new fund if their latest results are good, they are pretty gun shy on terms right now. And who can blame someone for trying to keep his job?
Angels, on the other hand, largely do this for the enjoyment of working with entrepreneurs, socializing with each other, and generally being engaged in the community. They play for their own money, not the money of investors, so they don't have time pressures or minimum investing requirements. Many I know will actively seek deals to work on that are run by fun, engaging people who are eager to grow the business and know what they're doing. The best seem to have a propensity to ask for help. Here's an example: Flex BioMedical, run by Sal Braico. Here's a guy (sorry Sal, don't mean to sign you up for more work!) who could give the talk about how to lead an angel negotiation with style and grace. And a good outcome.
On valuations, if an angel-backed company can get to the goal line without future rounds of funding, the question of current value is much more manageable. When there is the prospect of future rounds, sometimes evidenced by misses in the past, deal structures become more caution-driven.
So, I don't quite see how Jason's thought about "If they turn enough of us down or do enough things to us, eventually they're going to run out of people to do the work," fits. If these are funded companies in his group, are they unhappy with the terms they took? Or is it really the "turn down" part that's the issue?
Just by sheer volume, every would be investor passes on 95% of what comes by. Our group sees 250+ opportunities a year, many quite good. We pass on a lot of stuff that we like. We just don't have the capacity to do more. We try to provide fast feedback to everyone we talk to, and we try and talk to most everyone who contacts us (at our website).
So, perhaps a positive use of these group meetings would be to discuss how people did get funded (ask Sal to speak for one!) and what the current requirements seem to be.
Real angels, as I've mentioned, don't
have to invest in anything, and all of us see lots of opportunities
from people we know and trust. Most won't struggle much with difficult
situations pre-investment.