How many angels is the right number for a startup to have?

If you haven’t got the chance to read the article by Mike Isaac of NYTimes, you can probably skip that and take a look at Mark Suster’s weigh in on this big question. (Yup, I’m biased – closet fan of Mark Suster and his humour) At a glance, here’s his logic, in his own words:

1. If all else fails, angel-load away!

If you can’t raise from a few strong angels, from seed funds or from a VC then raising from a ton (let’s say 20+) angels is a perfectly acceptable strategy. There. I said it. It’s not terrible, it’s just not ideal if you can avoid it.

2. Smaller crowds, larger dollars – you matter more to them.

It’s that simple. If you have a few number of investors (let’s say 10 or fewer) who have written larger checks or for whom you matter a lot more because you aren’t an index fund to them – you’re much more likely to get commitment in good times and bad.

3. Information leaks are a real problem.

Having too many investors can lead to information leaks. Dan Primack talks about the “other angel problem,” which is that too few angels get full information rights and are therefore investing in companies they have little information about. He argues that transparency is right morally (they took a risk) and to get better quality advice. I agree up to a point. If you have 8 well known, high quality angels with impeccable reputations then be as transparent as you like.

If you have 50 investors on your cap table – I’m sorry but you really don’t know what the fuck they’re telling people about your company or whom they’re tell it to. But let me tell you for free. I see emails from angel syndicates all the time for companies I hadn’t even given 2 seconds thought about investing and I get full info, pitch deck and info about the round size and timing. I can’t imagine all of these founders know I’m getting all their materials and I have to imagine that if I’m getting these unsolicited email blasts (I’m bcc’d along with everybody) it must be going to hundreds of people.

That’s a huge problem. Information leaks. One beautiful thing about being a private company is you get to test your pricing, your packaging, your product roadmap, your executive team and your fund raising strategy without public scrutiny or competitors gaining this knowledge.

4. The pottery barn rule can save you.

With strong leads (VCs, seed funds or large angels) there is an unwritten Pottery Barn Rule. If you invited me into a round in which you invested $2 million and I wrote a $50,000 angel check along with 5 others, my expectation is that if things aren’t working well you – the lead- own the responsibility for working most closely with the founders to help fix it.

Founder fighting, IP lawsuits, high-profile resignations, trouble fund raising, bad product release, 409a complications, community is rebelling against the CEO: You. Own. It.

Every great investor knows this. The problem with leaderless rounds is that when things get really tough nobody owns responsibility. There is no Pottery Barn Rule. Everybody knows a quick $50k write-off is easy, better, faster than the alternatives and better to focus your limited time on finding the next great team to back.

This is the problem that first-time entrepreneurs who have never been through a downturn (we haven’t had one since 2008) couldn’t have the muscle memory for and thus it seems “all good” right now. It won’t be. I’ve seen the movie on the other side of economic shifts. It’s every person for themselves.

So what you say? Let’s discuss!