F|R: 5 Reasons to Go All Angel à la Lookery

This week, Lookery, the ad network launched last July to serve über-cheap ads into Facebook applications, has announced a new $2.25 million round of funding. It’s a nice sum for the 14-month-old startup, which now sends Facebook some 3 billion ads a month, according to Lookery’s CEO, Scott Rafer.

But here’s what’s really interesting: Rafer and his cofounder, David Cancel, elected to raise the money almost entirely from angels, forgoing the traditional venture capital most companies would pursue at this stage. This is Lookery’s second funding event. In January, it raised a $1 million note, which converts to equity given in this deal.

The participant list is heady, including founder Marc Benioff; Reed Hundt; Tickle founders James Currier and Stan Chudnovsky; and’s Scott Kurnit. There are some notable VCs in the deal, too, but they’re participating individually, not with their firms: Ted Dintersmith, late of Charles River Ventures; Ravi Mhatre of Lightspeed; and Allen Morgan, of the Mayfield Fund, who is also a Lookery director.

Serial founders with good track records, Rafer (MyBlogLog) and Cancel ( could have gone after marquee venture firms if they’d want to, but the pair has specific reasons for favoring angels. After the jump, Rafer explains why other founders ought to consider doing the same.

Lookery’s 5 Reasons to Go All Angel

1) Focus. Angels can concentrate on the individual strategy of your company, rather than the larger portfolio management strategy a VC must bear in mind (e.g. How deep are my fund reserves? How fast must I spend them?), most of which don’t apply to your company. “Founders want their startups managed as sovereign entities, not as portfolio segments, “ Rafer says.

2) Fewer confusing ownership terms.
Angels don’t get the level of liquidation preferences VCs demand. Angels like convertible notes and often get what Rafer calls “thin preferreds,” but you’re unlikely to suffer the dreaded participating preferreds. Without a multi-tiered equity structure, every investor, including founders, gets paid in proportion to what they put in.

3) You will control negotiations on future funding rounds.
You’re less likely to have a “dissonant chorus of voices between the common shareholders and preferred shareholders, each at the table and wrestling in a different direction” over the terms of the new round, Rafer says.

4) Transaction control.
If a good purchase offer comes your way, you’ll get to decide when to sell. You won’t have to seek permission from investors who aren’t on your board or worry about what a VC needs to have happen vis á vis managing his limited partners. Chances are you’re not an LP, so why should you care? Angels have no LPs, so their agendas tend to be far more transparent.

5) Angels aren’t compensated in ratios.
Angels get 100 percent of the profit they generate with their investment in your company. A VC only gets a fraction of the “carry” generated on your deal. This is one reason a VC might be motivated to urge you to sell bigger; they need the numerator in the exit math ratio to be bigger, or the denominator to be smaller, to maximize their piece of your deal. With an IRR compensation method, VCs get paid even more if you sell faster. But the thing to remember is that a VC is negotiating for the interests of others, not just himself. With angels, “it’s a merit-based discussion, or at least much more so, because the angel is actually getting the entire return,” Rafer says.