Tradeoffs for Angel Investors in Seed Deals vs Series A Deals

I know angel investors that only like to do seed deals and I know angel investors that only like to co-invest in Series A deals. Now, writing a $250k check as part of a $5 million Series A might not seem very angel-like, but it happens more often than people realize, especially when it’s from a family office with a generic name (e.g. XYZ Capital). I’m finding more angel investors want to see traction and a higher score on the Investor Readiness Level such that the requirements are approaching that of a Series A round.

Here are a few thoughts on the tradeoffs for angel investors between seed deals and Series A deals:

  • Seed deals come in at a lower valuation, so the same amount of money buys a larger percentage of the company
  • Seed deal terms are often simpler, so there aren’t as many protections for the investors as with Series A deals (e.g. participating preferred, cumulative dividends, board seats, etc)
  • Seed investments have a higher chance of becoming worthless (e.g. the startup goes out of business) compared to Series A rounds (even the startups that raise a Series A have a high chance of going out of business)
  • Series A deals make it easier to deploy a more substantial amount of capital (e.g. if you have $2 million allocated to angel investing, it’s easier to write a few $250k checks than it is a bunch of $50k checks)

Another hybrid option is angel groups syndicating with a number of investors in lieu of a venture firm leading the deal, but that doesn’t happen as often (we’ll see more of it with AngelList). Regardless, I believe we’ll see the trend of more angel investors investing alongside institutional firms as part of later rounds instead of that same capital deployed in seed deals (we’ll still see plenty of seed deals).

What else? What are your thoughts on the tradeoffs for angel investors between seed deals and Series A deals?

One thought on “Tradeoffs for Angel Investors in Seed Deals vs Series A Deals

  1. From my experience: both the seed and Series A rounds are very, very susceptible to dilution. Even if the company survives to a B round, the chance of dilution to the A’s is 50% or higher, at least in my experience.

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