Angel Investing Lessons from a Mentor

I like to learn, especially when it can be done cheaply. There is nothing cheaper but yet so valuable in angel investing as having good mentors to help you. I decided to a take some time to outline lessons that one of my very experienced mentors gave me.

Photo by Jonathan McIntosh/ CC BY-SA

Pre-define your investment profile

  • What are your must-haves and must-not-haves in your investment? These are personal to you.
  • This is different than your due diligence checklist. You can and should use well-worn due diligence checklists.
  • Your investment profile should be constant and not change to fit a potential investment. You must be ever vigilant and honest with yourself.

Valuation and structure actually do matter

A high valuation and/or bad structure can make an investment in a good company be a bad investment. But, the reverse is not true. You cannot make an investment in a bad company be a good investment no matter what kind of valuation or structure you use.

Look for the special sauce

  • Look for situations where it is clear which company will be the winner in the market. More fog means more risk. You need to be compensated for this risk.
  • Star management/founders and known quantities (people) are very positive.
  • The company needs to have a strong defensible position, secret sauce, a competitive advantage, … whatever you want to call it.


Even when you’ve got what you think is a good investment, you should still spread your bets and diversify.

The hardest lesson

Excerpt from “Angel Investors Do Make Money”

This was probably the hardest lesson for me to learn. Hopefully, when you make an angel investment you are doing so because you believe deep in your soul that: This. Is. The. One. But, if all angel investors have this same feeling for every single investment they make then that means the well-researched stats about angel portfolio returns are already biased toward well-chosen investments rather than investments made using a spray-and-pray approach.

To win in angel investing, you must find an investment that fits your investment profile, passes due diligence, has great founders and people involved, has a special sauce, is in a big market, is clearly going to be the winner, has a good valuation, and is served up with a good investment structure. And, then, you have to find a couple dozen more investments like this over time.

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