Is There Such a Thing as Too Many Investors in a Startup Deal?

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For those not scoring at home, Mike Issac recently wrote an article in the New York Times suggesting that there is such a thing as too many investors in a deal.

It’s been interesting reading the arguments for and against, but really, every decision on how to fund your company is a form of hemlock or arsenic; pick a poison, live with the consequences.

I’m personally a big fan of more angels than less for three reasons:

1. Creates a “spare gas tank” if you dont get to your VC milestones.

2. While negotiating the next round you can pass the hat around the congregation and know that you have safety in numbers as opposed to doing a stinky deal with investors who control the financing strategy.

3. If you cant get VC traction, your Plan B is already established.

I dont know if this mentality comes from living outside the epicentre (Valley, Boston,etc), but I am a huge promoter of the multiple angel strategy. Sure, I can come up with 10 examples of how this has worked great, and Mike, Mark Suster and others can come up with 10 reasons it hasn’t. In fact (as I argue here against myself!) the largest concern you should have as you pull in multiple investors is the question: “Is my deal not hot enough that I can’t find four people to write me $100Kas opposed to 16 who write me $25K?”

There is a huge difference between choosing a finance strategy as opposed to taking whatever money you can find at whatever level. Being investment ready is very different than taking peoples money because you need it.

The biggest concern that Mike and others have stated as a reason not to have party rounds (lingo for big investor rounds) is that no one investor is in charge or truly responsible for the outcome. As the entrepreneur there is no excuse- even with lots of angels—not to have a lead investor. Put all the angels in a single Holding Company if need be, but always have a lead.

The other concern stated is that you will get too much advice. No shit! As an entrepreneur isn’t that already a problem, with or without the too many investors? Good entrepreneurs find a way to sift through the relevant, nod to the obvious and dismiss the dross—including this article.

Like any good party host, follow the rules. If you are going to have a party, throw a good one, manage your guests, and make sure you have a good strategy for cleaning up after. Sounds like good advice if you choose to work with lots of investors.

This article first appeared on LinkedIn.

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