Why Are Smart Founders Taking $1,000 Checks? 4/30

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📰 Today's Edition: Why Are Smart Founders Taking $1,000 Checks?

Here's a question that sparks debate in every founder group: Should you accept a $1,000 investment check?

Most founders immediately say no. "That's a waste of time," they insist. "I need to raise $1 million. Why would I bother with tiny checks?"

But right now, some of the smartest founders are actively seeking out these small checks. And the investors writing them are closing deals faster than anyone else in the market.

Who writes $1,000 checks anyway?

The typical small check investor isn't what you'd expect.

They're not beginners with limited funds sitting on the sidelines. Most have built companies, raised venture capital, and often have their startups valued high enough to make them accredited investors. But they may not have super liquidity. 

If you're a founder who raised at a $5 million cap and own 30% of your company, you're worth $1.5 million on paper. That makes you an accredited investor. But your actual liquid cash? Probably way less than your paper net worth.

This creates an interesting dynamic. You're wealthy enough to qualify as an investor, but you don't have hundreds of thousands sitting in your bank account to deploy. Your realistic check size is $1,000 to $5,000.

Why would a founder want your tiny check?

Because the check size isn't the point. The value you bring is.

Small check investors who are also founders understand the game differently than traditional angels. They've been in your shoes. They know which investor introductions actually matter. They understand how to navigate board dynamics. They can spot red flags in your metrics because they've lived through the same challenges. And they're super well connected with investors. 

When you're trying to raise $1 million, having a credible founder champion your company to their network can be worth 100x more than their $1,000 check.

Fundraising is a flywheel. One good investor leads to another. That $1,000 check from a respected founder opens doors to their friends who write $25,000 checks. Those investors introduce you to VCs who write $250,000 checks.

Elizabeth Yin wrote about this exact phenomenon when Hustle Fund raised our first fund. We took checks as small as a few thousand dollars on an $11.5 million fund because those small investors brought in their networks, which ultimately led to much larger commitments.

What about the "it takes the same time to close small checks" argument?

This is where conventional wisdom gets it backwards.

People always say closing a $5,000 check takes the same effort as closing a $50,000 check. In my experience as a magical hippocorn who watches hundreds of fundraises, that's not true at all.

Small checks from operator-angels close fast. These investors understand speed matters. They've been founders who needed capital yesterday. They don't drag out diligence for months. They can make a decision on the spot or after one meeting. In addition, small angel investors can often lead to introductions to investors who also move quickly.

Institutional checks often require committee approvals, extensive diligence, and may take 2 weeks to 6 months! The speed difference is massive when you're trying to build momentum in your fundraise.

How do you manage all these small investors?

Ten years ago, this was a legitimate concern. Managing 50 small investors on your cap table was genuinely painful.

Today, AngelList has rollup vehicles that make it simple. You can collect dozens of small checks, roll them into one entity, and have a single line on your cap table. 

Does this strategy limit your investor pool?

Actually, it expands it dramatically.

In a small market with only 10 angels who write $50,000 checks, if you strike out with all of them, you're done. Your fundraise is dead.

But if you're willing to take $1,000 to $5,000 checks, suddenly there are tens of thousands of potential investors.

Silicon Valley is filled with founders who can write these smaller checks. Many are still building their companies but want to start angel investing. The $1,000 to $5,000 range lets them participate without overextending.

For founders in smaller ecosystems, accessing this broader pool of microangels can be the difference between closing your round and running out of runway.

Until next time,

Dunky, the "small but mighty" hippocorn

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