http://angelatlanta.wordpress.com/2007/11/02/a-perception-of-philanthropy/#comments

A quick note: Our angel group does not have a fund. We all invest individually. An important distinction, but one that some entrepreneurs misunderstand.

This post was merely a story, not a parable. I do see that is has stirred up some strong convictions, tho!

To me, it just seems like it’s designed to guilt future entrepreneurs into feeling like they need to pay back angel investments if their company fails, or else they would be perceived as not having “character.”

This strikes me as a poorly thought out concept, and I hope that’s not what is being suggested (though even if it’s not intentionally being suggested, I think it will the same effect on those entrepreneurs who read it after they have taken money from this fund).

I did find it quite interesting that you called my talking about the concept of risk/reward “whining” in light of this post by you:

“3.) Future Growth-A early investor should be rewarded for putting personal capital at risk. Using an angel’s personal capital in the form of a convertible note to grow a company over time primarily for the founder(s) gain is a misalignment of the risk/reward ratio in this type of investing.”

I assume you talk about risk and reward a lot to justify your % ownership in a company as compared to VC investments and founder ownership. It’s not “whining,” it’s the way business works.

I guess discussing risk and reward is only important when it comes to protecting your money but not losing money? Head I win, tails you lose?

I’ve made angel investments. I’ve lost money. I would never accept an entrepreneur “paying me back” for my lost money in an angel investment. Especially, if they’ve just taken a huge risk using their life savings, family sacrafice and hard work, and I have more money than they do. I guess that shows character too.

I never suggested that the entrepreneur “should” pay back the money. He made the decision on his own–without any pressure or suggestions from me (and it was an equity investment).

He didn’t make an excuse or whine about risk and reward or “fat cats” usurping his mighty intellect.
He did it quietly and with character. And, you know what? I’ll back him again any day whether he pays me back or not.

It seems that this attitude values your passive money over an entrepreneur’s blood and sweat.

Is anyone going to pay back an entrepreneur for losing his life savings by taking the risk? [If you argue that your investment wasn't passive, then it's even worse--since you should share the blame in helping him lose money].

Seems to me that you’re making an investment on arm’s length terms. You assume the risk/reward and so does the entrepreneur.

I don’t think many investors have asked Meg Whitman to pay them back when they lost money on eBay stock during the bubble burst and I don’t think it shows a lack of character if she didn’t forego her salary to pay back those who lost money on their investments. It’s just the name of the game.

It just can’t be the case that some fat cat expects to make money off the back of the work of others, and then expects to be paid back if it doesn’t work. Can it?

That is, unless of course your “angel investment” was an “angel loan.”