Members meet SEC criteria for net worth and/or annual income. Prior angel investment experience is not required; we provide onboarding and education. Members make a minimum contribution of $10,000 to the fund and pay a membership fee.
We meet once a month, via Zoom, to hear pitches. Members receive due diligence packets before the meeting. Each pitch is followed by a Q&A with the founder and a private, candid discussion among members. Meetings usually last about 90 minutes.
Each member votes yes or no on the pitch. When the majority votes yes, the group as a whole invests. Proxies and absentee voting are not allowed. Each member receives a prorated number of votes based on their investment commitment to the fund.
HOW IT WORKS
Flywheel is a low-barrier annual fund. Members pool their investment dollars at the beginning of each round, and we meet monthly to hear pitches and vote on investments. When all funds have been dispersed—typically in a year—a new round begins. Members may choose to renew or not.
For example, our first round had 11 members. Ten contributed $10,000 to the fund, and one person contributed $20,000, for a total fund of $120,000. Over the following months, members heard pitches and invested that money in five companies. When the funds were gone, we formed a second round of 49 members with a total investment pool of $640,000. Our third round had 63 members and $1,085,000 to invest.
In our model, while each member votes yes or no on whether to invest, majority rules. When the group votes yes, the investment is made on behalf of all members. We encourage investors to attend every meeting as absentee voting is not allowed, and also because the pitches are exciting!
All members are invested in all portfolio companies of their round; each initial capital contribution is spread across those companies. A third of each round is reserved for follow-on investment in portfolio companies from previous rounds.
To keep things simple for founders, each round of investors forms a single-purpose entity. That entity makes the official investment. Individual members receive a K-1 for tax purposes.
Most of our investments use SAFEs or convertible notes, since those are administratively easier on startups, but it’s determined by the pitch. When angels leave the fund, they keep their stakes.
Membership fees cover the administrative, legal, and accounting expenses of investments. Angels only pay fees on their own portfolio of investments.
Members “exit” an investment when the startup is acquired by another company or when other investors buy them out.
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