Thanks for an wonderful assessment of the trust factor in an angel-entrepreneur relationship. Being a first-time entrepreneur (in-making :), I would like to highlight on some items that germinate the concern about IP and the mad-rush to get the NDA signed in the first place. As a newbie in the startup segment, I often find Internet tech ideas (my area) to be extremely multi faceted. In other words, if I have a concept and that theme embraces several other business concepts across different functionality, my concern originates from the speculation that someone might just like one piece of the offering and go ahead and make it a part of an existing practice/business somewhere else. A complete violation of my assumed IP uniqueness that I have held so dear to my heart. Now, interesting is, there is no guarantee that such an incident will not happen despite the NDA being signed, honored, and printed on the back of my T-shirt!

What I feel would add great value to the entrepreneur is, if there is a more informal mentoring from the key angels/VCs in educating the fledgling startup founder about the true nature of intellectual property and how uniqueness is maintained not by the software itself but how that application devices a unique business methodology and captures value in a different manner.

That would be a great opportunity not only for the entrepreneur, but also for the angels who want to learn more about the founder and not just the idea.

Re local investing: Regardless of those few angels who are looking at nation-wide or world-wide deals, most of us still invest locally. At a minimum, we are looking for deals led by local angels who can kick the tires and provide mentoring for portfolio companies. But, angel groups are easy to find these days and are located in every state in the Union. A Directory is available at http://www.angelcapitaleducation.org.

Bill Payne

I speak at universities, 5 times this spring at UC Irvine, and each time I have a slide on “Trust”. It’s essential the entrepreneur approach his future investors with trust. Entrepreneurs, work through your concerns before making a serious pitch for funding. Or listen to my podcasts, for example, Randy Lunn formerly of Palomar Ventures in Newport Beach; to hear him state in his own voice that the firm’s ethics are to “never take advantage of an entrepreneur”. He means it. And so do I as an angel investor.

What impresses me is the scenario where at the future B-round we’ll be sitting on the same side of the table, negotiating with a venture firm. If we haven’t treated the entrepreneur well on the A-round, he’ll have multiple opportunities to even the score!

I even ask entrepreneurs to remove their confidentiality notices, those legal sounding paragraphs that make it onto a cover page of an executive summary or the first slide of a Powerpoint. You don’t need that wording! We’ve already pledged to treat entrepreneurs fairly and with reasonable confidentiality. So when you come in with such prominent confidentiality language, you look like a rookie; you certainly don’t know your audience.

So it’s really a “walk a mile in my shoes” issue. If entrepreneurs knew more about the funding process they’d understand that some of the concerns they have about valuation, terms and board seats, aren’t issues we’ve crafted to unfairly take advantage of their company; it’s our best practices at work to assure the best outcome for all of us.

I would definitely take advice from Brad and Fred at USV ( http://www.unionsquareventures.com/ ), NDA’s have a time and place, and that’s not at the beginning of the conversation. Bringing up an NDA first will prevent you from even getting into a high level discussion, which is where you will start getting value from the other person’s feedback.

As for “geographic constraints” in the Angel world, it tends to be the same trend as with VCs. Traditionally the groups have focused on investing in “my backyard” or “within an hour drive.”

We see that trend changing, and its driven by niche investmeng groups and “super angels”. Niche investment groups (ones looking a space deals, life science, cleantech, etc) tend to be more open to long distance deals, because of the difficulties in getting enough deal flow in a particular sector.

Super Angels (check out this link http://www.informationarbitrage.com/2008/04/super-angel-net.html ) on the other hand tend to be focused just on getting good deals done, so they’ll travel more, work with various investment groups across the country, and when they have the opportunity they’ll syndicate just about anywhere!

Really the key here is having some local contact. If you can find someone to invest in you locally, then that person can help you reach out to other geographic areas. We’re excited about the change in this trend, and we’re doing everything we can to help good deals get funding, no matter how far they have to go!

I’ve chucked the idea of NDAs altogether and have found the yield Mr. Burnham and Mr. Wilson of USV has proposed. Openly discussing the concept DOES yield a confidence, DOES yield a more solid basis for the concept, DOES fortify the business plan through hard dialog.

As Angelsoft only just arrived on my radar, AND I’ve been pitching now for a few months… is there a post you could direct me to re how angels typically view startups who are geographically distant from the angel themself? So far, I’ve had the “good plan but your too far away from us” spiel. Wonder how, generally speaking, angels view geography as a challenge (or not).

Thanks,
Gerald