Mo Koyfman, general partner at Spark Capital, says startups should have a clean start–choosing professional angel investors over friends and family, doing without an advisory board and setting clear rules for interacting with individual investors and advisers. His fellow panelists disagreed on some points, making for a lively discussion at New York Venture Summit on Tuesday.
“I’d prefer not to have my family invest in something that has a high likelihood of failing,” said Koyfman. “People went to friends and family back in the day because the reality was there was no one else who’d give you money. Now there’s a whole class of professional angels,” he said.
Further, Koyfman suggested that if a startup chooses to take money from numerous individual investors, it must create rules. “If you structure it correctly you can keep the angel investing group within the right box so that they don’t encumber the company.”
He also warned against too many advisers and investors that put a strain on the executive team’s attention. “I found in my experience most of the advisory boards have been useless. Too often it becomes a ceremonious thing that doesn’t really work,” said Koyfman, who has led investments in companies like FundersClub, Skillshare and Warby Parker. If you retain advisers, he said, be sure to “cut them” if they aren’t helpful.
When another panelist, Avner Schneur, chief executive of Kormeli, suggested that to keep advisers interested one could give them about 0.25% share in the startup, Koyfman disagreed. “That’s 25 basis points. I’d rather hire an engineer for 25 basis points than an adviser.” Schneur tried to stand his ground for a strong advisory board, saying advisers “can do magic.”
Scott Savitz, founder and managing partner of venture firm Data Point Capital and founder and former CEO of Shoebuy.com, said that it’s possible to manage a large group of investors and advisers.
“At ShoeBuy we had 52 angel investors. They didn’t cause any grief,” he said. Savitz says he likes companies that have convinced their close associates to invest in them, because these people have known the founders for longer than his firm. “It’s your job [as the entrepreneur] to exploit the advisers,” added Savitz.
Part of the founders’ job is to manage their relationships with both angel investors and advisers. It might be worthwhile to not set up a board of directors populated by investors who are only able to put in a little bit of capital from the outset. “Don’t put a formal board together when you’ve got your first 100K,” said Jeff White, managing partner at Trestle Ventures.
Once the board is set up, “it’s incumbent on the CEO to set the conduct of the board,” said Linda Fingerle, chief financial officer and principal at EDF Ventures.