Angel Investing: Tricks of the Trade and Mistakes to Avoid
As mentioned in our last post, one of our primary goals with CTA is to create a collaborative learning environment for those looking to venture into angel investing. Like most of the good things in life, much of the success found in angel investing boils down to reps and time. But newer angels can learn a lot from those that have a few more years and deals under their belt.
In today’s blog, we chatted with five different angels to hear what they’ve learned in their journeys as angel investors. They have a variety of experience levels and backgrounds – some have been founders themselves, some have made a career in venture, and some have just enjoyed angel investing as a side hustle.
Tracy Poole
Managing Partner | 46 Venture Capital
What’s the biggest mistake you’ve made in angel investing that you’ve learned from?
Allocating too much capital to too few Angel investments. Need to be able to have more shots on goal!
What’s one tip that’s helped you succeed?
Conduct your individual due diligence as if you were conducting it as a fiduciary for a client or managed investor, leave no stone unturned.
What types of deals have you had the most success in?
The most success I’ve had are in the deals where I brought something to the table to assist the founders whether that be domain experience, experience structuring deals, help getting customers, or just general support when asked.
Amy Buchan Siegfried
Co-Founder | Last Night’s Game
What’s the biggest mistake you’ve made in angel investing that you’ve learned from?
Is the founder willing to listen to the board/advisors when it comes to the company? If not, it will likely fail. Unfortunately, an investor isn’t likely to know that until you’re already committed and down the path together.
What’s one tip that’s helped you succeed?
Sometimes a company can have the most sound technology/product offering, but great technology will fail without the right team/founder. In our experience, seasoned entrepreneurs tend to have more success. We say you bet on the jockey (founder) as much as the horse (product offering).
What types of deals have you had the most success in?
Fin-tech
Dr. Chris Wright
Director, Center for Innovation & Entrepreneurship | University of Tulsa
What’s the biggest mistake you’ve made in angel investing that you’ve learned from?
An area that I am constantly working to improve is my diligence process. I have learned over the years that my areas of expertise are limited and that I need to find good SMEs that can help me evaluate deals. For example, I am not a software engineer so I have a partner that will evaluate tech stacks, source code, tech talent etc. I also spend more one-on-one time with founders to really get to know them personally before I invest.
What’s one tip that’s helped you succeed?
The most important thing we have in life are relationships. Every relationship is precious.
What types of deals have you had the most success in?
I have become more passionate about healthcare and health tech over the past 10 years. Companies that are focused on transforming how we navigate healthcare and treat the person rather than the disease are the types of companies I love. Two transformational companies I am blessed to have invested in are Medefy (www.medefy.com) and Plannly (https://plann.ly/).
Kelly Sievers
Managing Director | Women’s Capital Connection
What’s the biggest mistake you’ve made in angel investing that you’ve learned from?
A couple of our failures have centered around the entrepreneur never being able to raise enough money. I’ve learned how important it is to work with the founder to make sure they are raising enough capital and make sure it’s coming from the right people.
What’s one tip that’s helped you succeed?
In the early stages, there’s not a ton of due diligence you can perform on the technology/product so you really have to trust your gut on the founder and team. One thing I look for in particular is grit, which I think is summed up so well in Winston Churchill's famous quote: “Success is not final. Failure is not fatal. It is the courage to continue that counts.”
What types of deals have you had the most success in?
Generally speaking, those that have really great leaders and can recruit and build a complimentary team around them. Industry-wise, I’ve had the most success in CPG (TomBoyX is one that’s top of mind).
Art Miller
Founder | Miller Business Consulting
What’s the biggest mistake you’ve made in angel investing that you’ve learned from?
I think I would highlight two things here under mistakes.
The first is a due diligence item. Spend as much time as possible getting to know and understand the founder and management team before investing. This can be quite a challenge as the founders are not generally going to have the time to spend with multiple angels or angel groups. However, it is absolutely critical to having a successful investment. (In real estate it is “location, location, location”, but in angel investing it is “management, management, management”). I believe it is easier to do the due diligence on some new form of technology than it is to do it on the founder of a new business.
Be very careful in investing in second/down rounds. We all like to think we knew what we were doing at the first investment. However, if unanticipated problems have cropped up, or the sales have not developed as planned, or we are changing the management team – these are all red flags and you should only proceed with great caution. If money will solve the problem, then by all means go ahead. But normally there are far more concerning problems in the business that suggest they will run out of cash.
What’s one tip that’s helped you succeed?
Spend as much time as you can deciding if the founder is the right person to lead and grow the business. I would also suggest that you have good, clear reporting requirement – both for primary milestones and financials. (I have seen several business founders “forget” to update their investors on a regular basis.) I believe that regular monthly reporting of the cash burn and cash balance, or balance sheet, should be a required item for all new businesses.
What types of deals have you had the most success in?
I have had mixed success in almost all types of deals. However, I have probably been more successful in medical-related deals. There are lots of niches in the medical field and the industry is reasonably fragmented.
