Critical Decisions for Successful Angel Investing
I was sitting at the pool in our subdivision. It was a warm Friday fall evening in Atlanta with clear blue skies. I had my six-month-old boy, Nick, in my arms when I received a call from Brenda.
She said, “I am starting a business on Monday at 9 am at my house. I would like you to fund it and be the CEO. What do you think?”
[Tweet “I learned, like it or not, we are our last gig.”]
In the previous year, I was fired from my corporate SVP job. I quit my next job as COO of an early stage turnaround. And to top it off, I was rejected for a COO job with an early stage tech company because I wasn’t a good fit. Now I was unemployed.
I said, “I don’t know if I want to do it.”
Brenda said, “What are you doing anyway? You are doing nothing. If you are my house at 9 am, then we are partners. If not, I’m starting the company without you.”
I showed up at 9 am on Monday. Little did I know this was the first step in becoming an angel investor.
Move from Operator to Investor
I invested in the new business. Brenda was the VP of Sales, and I was its cofounder and CEO. I soon realized again I didn’t want to be running companies anymore. My vision for the first 20 years of my life was to run bigger and bigger technology companies, but the last few years were no longer fulfilling.
The business was doing poorly because I was doing poorly. I was down $125k when Brenda walked into my office and said, “I quit. I hate working for you. I’m not happy. Goodbye.”
I sat stunned in my windowless sublet office. Speechless. Now what?
Within minutes, I received a call from John, a close friend. I had helped him in his last VP of Sales position with an early stage startup.
John said, “I am looking for a new sales job. You know a lot of people so I was wondering if we can have lunch and talk about it.”
Over lunch John told me the kind of company he was looking to join. He was sick and tired of the way people were treating people in the companies he worked for. He went on and on.
I said, “Why take a job and replay the same scenarios you’ve been experiencing for the last 15 years? Start your own business. You know who you are and the kind of company culture you want to create. You can do this.”
“What business would I start?” he asked.
I said, “I just happen to have one.”
John took my seat as the new CEO in the windowless sublet office. That was the moment I became an angel investor and John became an entrepreneur. He eventually built that business into $8 million in revenue.
Invest in What You Know
In my last corporate job, I was COO of a national, multi-office information technology professional services firm. We provided contract programmers to Fortune 500 companies. I tried to like the services business, but I thought I was really a software guy.
I learned, like it or not, we are our last gig. In other words, whatever job you held last, that is where the market will judge your value and expertise. I was a professional services executive now.
After John took over and began building his company, other professional services managers who wanted to start companies began to find me. I became the professional services investor in Atlanta. It was a great niche which was driven by some terrific market fundamentals at the time.
Define Your Investment Criteria
I was new to this investor career. I was so new, I didn’t know what I didn’t know. So I talked to my CPA friend Kent Bridges of Bridges and Dunn-Rankin as well as my attorney.
We talked about how to put a tax-advantaged structure in place. Our aim was to limit liability and to save taxes while accomplishing my goals and the goals of the entrepreneurs I was investing in.
This process was invaluable because it forced me to address the questions which led to my investment criteria. Here are the questions they asked me:
Are you doing this for community service or wealth creation?
How much of your net worth will you set aside to invest?
How much time will you devote to the businesses you invest in?
With these questions answered, my investment criteria were in place.
- Wealth creation through large investments for large equity stakes.
- Investment treated as loans so I get my money back faster.
- Close personal involvement in the business with advisory fees.
That’s how I moved from operator to investor. And that’s how I became the investor who helps experienced managers in the IT services sector achieve their dream of starting and owning their own business.
