Spotting the Halo: What You Need to Know About Angel Investors

The following is adapted from Viva the Entrepreneur.

So your startup is thriving. You have a really big, attractive market, a huge opportunity and you need to accelerate your growth to capture market share.

Now is the time and you need venture capital to make it happen. Angel investors and angel syndicates can play a critical role in the scaling of your business. 

Angel investors should either be deep operators or have access to stage financing or, in a perfect world, both. You will also need local angel investors in the country where you operate or plan to expand to who understand that specific geographic market.

There’s a lot of mystery to the VC world, and it can be hugely helpful if you can first understand the fundamentals of how angel investors work and what that can mean for your startup.

Angel Investors 101

Angel investors can play a critical role for first-time entrepreneurs. What I did when I first got angel investors at Viva Real is that—after the initial round of FFF capital (Friends, Family, and Fools)—I went out and raised money from Simon Baker and Greg Waldorf. They co-led the round and brought on a few other people to help fill it out. We raised $1.1 million.

There are generally two buckets of angel investors. One consists of people like Greg. He had a bit more of a network in Silicon Valley and access to future stage financing (Series A, B, C investors). He also had a lot of experience being part of startups and lent credibility that helped us with access to future investors.

The other bucket of angel investors are deep operators with specific-sector knowledge. This included Simon Baker as well as Shaun Di Gregorio. They were investors who could help and give insight into the operation piece, with their hands-on experience scaling companies in the same sector. Both Simon and Shaun played a key role in scaling a business similar to Viva Real in Australia, so they deeply understood the opportunities and challenges of our business.

For a first-time entrepreneur trying to raise funds—and really, I would recommend this structure to anyone raising capital for a venture-backed company—it’s good to have both types of angel investors. You get a combination of experience, credibility with other investors, and knowledge of how to build a team and recruit, as well as how to navigate the stage financing process downstream.

It's worth mentioning that there also exists a denomination called super angels—typically people who have had an exit before and have been part of that process. Super angels may also manage investment funds that include capital provided by third parties and therefore be able to invest more than other angels.

Caution for Founders

There are a few important protections you should be aware of when raising money in an angel round. First, you must realize that whatever terms you get early on from investors will set a precedent for future rounds. It’s helpful, therefore, to have by your side a few different people, again from both buckets, who can participate in the angel round and help you. 

Think carefully about the terms you receive when you take on an investment. It’s very likely that these will constitute a template for the future. Most angel rounds or seed rounds use a convertible note or convertible equity (e.g., a SAFE).

When you’re negotiating certain aspects of a term sheet and you give up a lot of those items early on, all of your future investors are going to want the same terms. That’s just how it is. But most angel investors are comfortable with a standard convertible note or the YC SAFE—and this is recommended for early-stage financing as it is quick and keeps your legal fees down.

The Beauty of SPVs

If there’s one thing I wish I had done differently in my own angel rounds, it’s that I should have used a Special Purpose Vehicle (SPV), usually structured as a Delaware LLC, to pool small investors. It was a big headache having to chase down all the signatures I needed. For my next company, I will definitely use an SPV. It makes the structure much more efficient. Honestly, I still don’t see these being used very often, but I anticipate they will become more commonplace in Latin America in the coming years. The times I have seen an SPV are in late-stage companies when the company wants to centralize all the angels into one vehicle. 

My friend Mauricio Feldman of Volanty recommends that founders set up an offshore structure from day one of their business. He says: “You can do it for pretty cheap and it just sends a message that you are here to go big.” I feel the same way. Nowadays, as an investor, if I see that a company is raising money through a local entity, I will almost always pass. There are a number of reasons for an offshore structure, including, primarily,  liability protection, tax optimization, clearer governance, investor familiarity, and more flexibility on an exit. 

Finding the Right Angels

Raising capital is never an easy feat. Finding the right angel investors can be even more challenging. My advice is to have patience and take the time to find the right people.

The right investors will add a wealth of startup experience, brand credibility and precise sector knowledge that will be indispensable to your company’s success—and its bank account.

For more advice on becoming an entrepreneur in Latin America you can find Viva the Entrepreneur on Amazon 

Brian Requarth is the co-founder and former CEO of Viva Real, a leading proptech business in Brazil. He merged the company with ZAP Imóveis (owned by Grupo Globo) and became the Chairman of Grupo ZAP. Brian raised $74 million in venture capital funding for Viva Real, which sold for $550 million dollars. He now invests in the most promising tech companies in Brazil and Latin America as an angel investor. He is dedicated to empowering the next era of entrepreneurs in the region. His new company, Latitud aims to democratize access to everything an entrepreneur needs to succeed. Our fellowship brings together the top entrepreneurial minds and most experienced tech operators across Latin America to learn from each other, and obtain hands on mentorship from top experts in the region and Silicon Valley.