📕 Startup term you should know

Ever heard of Common shares?

This is the type of company stock that founders and employees typically get when they start or join a startup.

My insider scoop: This is one of the “dirty secrets” of the startup ecosystem, and it’s part of the reason I started writing small checks into startups. Investors in startups get Preferred shares, while startup founders and employees get Common shares.

When there’s an acquisition, Common stock owners are the last to get paid out. It feels backwards, but that’s the way the ecosystem is structured.

📰 Today's topic: The great VC-to-Angel migration

There’s a major change that’s happening in startup investing.

While the institutional VC funds struggle to perform like they did years ago, angel investing is exploding.

More people are writing checks, experienced investors are pivoting away from funds, and the barriers to entry have never been lower.

If you've been curious about angel investing, here's why now might be your moment.

The VC model is breaking down

Over the last decade, running a VC fund seemed like the dream.

Raise capital. Back great founders. Collect management fees. Repeat.

But now, GPs are quietly shutting down their funds, and it's creating new opportunities for angel investors.

Why VCs are struggling (and angels aren't)

TLDR: LPs are pulling back, and even well-established funds are struggling to raise.

Every first-time GP I talk to tells me that the fundraising process is brutal (which has long been true, but I’m hearing that now more than ever).

Meanwhile, angel investors don't need to raise from LPs. You invest your own capital on your own terms.

A $10 million VC fund uses its 2% management fees just to keep the lights on. That's a lean operation with serious overhead.

But as an angel, you get to participate for fun without the overhead (and extra admin costs).

And since the IPO window continues to move at a crawl, LPs aren't seeing the returns they were hoping for when they initially invested in funds.

Angels, on the other hand, don’t face this same existential pressure and timeline.

Choosing the angel path

The exciting part is that GPs aren’t leaving their traditional funds to retire. Instead, many are becoming angels.

Some are returning to operating roles and angel investing on the side, while others are going full-time angel. Nevertheless - as an angel, you can write small checks, maintain your day job, and actually enjoy the process.

No 18-month fundraising cycles or LP drama. Just investing.

As traditional VC fundraising gets harder, founders are also turning to angels. They want faster decisions and investors who are actually value-additive, and they especially love people who've been operators themselves.

Great businesses will always get funded - and increasingly - angels are the ones funding them.

Why angel investing is exploding right now

Angel investing is more accessible now than it's ever been. Here's what's driving the surge:

1. You can start small

Angel investing lets you start small, especially through syndicates. Build a portfolio, learn what works, and scale at your own pace.

2. Increasing angel collaboration

Most experienced GPs leaving traditional funds are becoming angels, and angels are typically more collaborative than funds. This is because funds often have to compete over allocations, whereas angels have to worry about that to a much lesser extent.

3. Curiosity around the AI era

This is an incredibly exciting moment in the tech ecosystem. While we’ve definitely seen irrational exuberance, the implications of AI are massive and many folks want a front row seat (regardless of if they plan to invest capital right away).

Why this moment matters

I strongly believe that when there are more angels writing checks, the quality of support for founders goes way up.

Angels often possess huge networks to tap into to help with recruiting, operations, and distribution.

They’re “in the arena” in a way that VCs just…aren’t.

Plus, angels move faster when it comes to investing. They’re willing to take more bets on unproven founders, and write checks that VCs consider "too small."

The best part is: you don't need to quit your job or raise outside capital to participate.

You just need to start.

– Brian from Angel Squad

🪽 Angel Investors Come from Everywhere

Spoiler alert: You don't need to be in Silicon Valley or have a trust fund to be a great angel investor.

Chavez Procope | Atlanta, Georgia

Consumer Product Designer + Responsible AI Expert + First-time Founder

Consumer AI founder (previously Meta + Cash App designer) focused on creating quality, AI-enabled immersive experiences for creators. Passionate about applying Responsible AI practices to ensure products are transparent and ethical.

Why this matters: Chavez designed products used by millions of people daily at Cash App and Meta, so he knows what makes consumer actually work. His Responsible AI focus means he can spot which AI startups are building sustainable products vs. which ones are creating future liability nightmares.

Chavez is in our angel investing community, Angel Squad. Small Bets subscribers can grab a 30 day guest pass to join them.

Overheard in SF…probably

“Sleep is just legacy human behavior. Our founder hasn't slept since 2019 and runs entirely on nootropics and the validation of LinkedIn likes.”