Becoming an Angel: 35 Investors Share their Tips on Angel Investing
If you’ve been following along, you’ll already know that one of the things that drive us here at Propel(x) is the opportunity to bring angel investors together in a big community. It can be difficult to get started as a new angel, so our investors have come to really appreciate the networking opportunities we provide with our platform.
Collectively, our investors represent a lot of talent — and a lot of experience. They’ve bet on thousands of companies and have enjoyed hundreds of exits. These guys and gals have learned a lot along the way and are more than happy to share their expertise with anyone who asks.
And so we did ask.
Specifically, we asked them this question:
What is the one piece of advice you would give to new angel investors?
Below you will find a round-up of their answers. We tried to organize them by category as much as we could. So here they are:
- Get Help
- Focus on the People
- Do Your Research
- Focus on Your Exit Strategy
- Diversify
- Keep Ego Out of It
- Treat It Like an Investment
- Be Mindful of Regulatory Quirks
- Help If You Can. Just Not Too Much.
- Develop Your Own Investment Framework
- Sometimes Timing is Everything
And, just for fun, we asked them to let us know the most interesting thing they discovered last week, which we’ve included as a bonus thought below their main answer.
Over the coming months, we expect to ask them more about their experiences with investing and the lessons they’ve learned. By the way, if you are an investor who would like to offer your subject matter expertise to these round-ups, please register as an investor.)
Without further ado, here we go!
Simon Kim
Lots of investments. One exit.
“Co-invest with another angel who has more investment experience.”
Bonus thought: The Vatican held its very own hackathon.
Shelley Bird
Lots of investments. One exit.
“Join some kind of angel group so you can invest and learn alongside others. I learned a ton from more experienced angels as I was starting out, and having access to them for advice or to ask that ‘stupid question’ accelerated both my learning and my confidence.”
Bonus thought: Another great Warren Buffet insight that I came across last week: “When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”
Mathieu Guerville
Lots of investments. One exit.
“You can assume that the lead investor did some diligence on the company, but you should do some diligence on the lead investor.”
Bonus thought: In Europe, angels are rare, so the government has stepped in to help fund early-stage startups with various subsidies and nondilutive mechanisms. For larger angels and VCs that opens the prospect of having better terms and valuations when the startups take their first institutional money.
Skip Rung
Lots of investments. Four exits.
“Invest alongside experienced friends and groups you like and trust and whose sector interests are similar to yours. After some time doing this you’ll be better able to operate more confidently.”
Bonus thought: There are some amazing restaurants in the Saint Anthony neighborhood of Minneapolis, MN.
Anonymous Angel Investor
Lots of investments. One exit.
“Collaborate early and often with more experienced investors of angel groups.”
Bonus thought: Bacteriophages can be used to potentially treat a variety of medical conditions where antibiotics might no longer be effective.
Timothy Lipton
Momentum Finance
Lots of investments. Three exits.
“Startupland is all about the founder, similar to how real estate is all about the location. Prior to Series A, the challenge is around the ability to find a modicum of product/market fit and expanding that connection — deepening and broadening that connection. Has the founder demonstrated financial maturity before there is real money at stake? Did the founder show respect (appropriate reporting) for the money that she, friends and family, and seed investors contributed?”
Bonus thought: Scientists came up with a test for determining if gravity is an emergent force attributable to quantum forces, versus being a fundamental force. Big fan of removing self-imposed inhibitions, as they tend to not serve us well. Proof of the emergent nature of gravity will radically expand what we think of as possible.
Chris Neil
Lots of investments. One exit.
“Understand if the management team has the right ingredients to succeed. Proven abilities, not just good intentions, to:
1. Precisely define the specific use-case based on their specific first-hand knowledge of the problem, and not just their hypothesis of the problem;
2. Execute on the product design without major unforced errors;
3. Explain in detail the specific Go-To-Market (GTM) plan including a named partner who already has the channels into the market (It is really hard to break into a new market if you have to create your own channel);
4. Convince established institutional investors to eventually invest (VCs will want fast scale-up and large Total Available Market and a clear GTM plan.);
5. Be prepared to give up ownership and control in order to bring in the talent and investors to scale up (no mom-and-pop shop mentality).”
Bonus thought: I read that Deloitte predicts global healthcare spend will be $8.7t in 2020 (10.5% of global GDP).
Jeff Young
One investment. One exit.
“It is important to realize that you are primarily investing in people, rather than ideas. A great idea is nice, but great ideas are out there in abundance. Without the people behind it who have the integrity, experience, and expertise to translate their ideas into a viable business, I would not be comfortable investing. There will inevitably be unforeseen challenges, and you need personnel who can navigate these and transform their businesses to accommodate them.
Second, it is important to go beyond the business concept and understand the go-to-market strategy that will make this concept profitable. Without a clear and well-developed strategy, you are investing on blind faith.”
Bonus thought: I was in New York City last week, and had a couple of experiences I found fascinating. One was a visit to the Guggenheim Museum; I am a Frank Lloyd Wright fan, so really appreciated the design of the structure, which was revolutionary at the time. The other was a walk along the Canyon of Heroes on Broadway, where the 200+ honorees of ticker tape parades going back to the late 1800’s are commemorated by sidewalk markers along the parade route. Several of these are individuals who are now viewed notoriously — a good reminder of how the passage of time can change our perspective.
Jiazi Guo
Tsing Yuan Ventures
Two investments. One exit.
“Make sure the management team has related experience and/or has a seasoned board of directors and advisory board, ideally with some grey hair. Disregard brand names (think Henry Kissinger on Theranos’ Board) unless they bring scientific understanding and real-time operating experience to the table.”
Bonus thought: I’ve learned as an investor you should be helpful, not just [by] investing [money]. Always share your experience with the startup and investment community. That will make you a better investor!
Karl R. LaPan
Lots of investments. Two exits.
“At the start of an investment process, it is about the deal. At the decision to invest, it is about the Founder.”
Bonus thought: Coworking had over 10,000 new locations opened in last year. It is a bubble waiting to burst.
Petra Hansen
Lots of investments. Lots of exits.
“It’s all about the people. Do you have high confidence in the team?”
Bonus thought: Only 14% of total healthcare spending is prescription drugs. Contrary to the attention this topic receives, it’s a relatively small portion.
Anonymous Angel Investor
Lots of investments. Four exits.
“The most important feature of an investment opportunity is the CEO of the startup: how experienced they are and how well they communicate with you.”
Bonus thought: The massive interference by the Russians using social media during the 2016 presidential election.
Anonymous Angel Investor
Lots of investments. Two exits.
“REALLY assess the company’s people and don’t expect a quick payoff.”
Bonus thought: They have wild turkeys in Beauford, NC.
Anonymous Angel investor
Lots of investments. One exit.
“Angel investing is not unlike dating. Accept that most deals won’t be a fit.”
Anonymous Angel investor
Three investments. One exit.
“The old adage of ‘back the jockey, not the horse’ is important, but is only part of the picture. You have to believe in the business model and product concept because even Bill Shoemaker loses on a donkey.”
JC Choi
Three investments. One exit.
“You really have to do your research, especially because information is limited for private, early-stage companies. Platforms like Propel(x) are great because they do a lot of the legwork for you. But you still need to reach out to your personal and professional contacts for perspectives, research the market and competitive landscape, talk to potential customers, etc.”
Bonus thought: My wife is in her 3rd trimester and we’re anxiously awaiting our first son! I finally learned how to install an infant car seat — and it’s arguably more complicated than angel investing.
Bill Craumer
Leevenir Inc.
Lots of investments. One exit.
“Make sure that early-stage companies have sufficient capital to complete product and service development. Development runways are often longer than projected by founders.”
Bonus thought: The incidence of rising sea levels — the result of climate change and warming trends — is compounded and accelerated by sinking land mass, especially when the mass is landfill-based (think Bay Area and other coastal cities).
Marcia Dawood
Mindshift Capital
Lots of investments. Three exits.
“Go slow. Evaluate many companies before you decide which ones to invest dollars in. Start by investing time. You may benefit just as much if not more than the entrepreneur.”
Bonus thought: Stephen Hawkins lived 55 years after being diagnosed with ALS. Most live only 2–5 yrs from diagnosis. My mother was diagnosed 2 years ago. ALS is a ruthless disease. I’m inspired at the life Stephen Hawkins lived despite such a debilitating illness.
Pippa Gawley
Lots of investments. One exit.
“If you like every deal you see, you’re not seeing enough deals. See as many deals as you can be presented in your chosen area. Go to pitch events, watch deals online, read pitch decks to help you calibrate quality and concepts.”
Bonus thought: We have already used two-thirds of our total “carbon budget” (the total amount of carbon that can be put into the atmosphere resulting in only 2°c temperature rise) and at the current rate of emissions have approximately twenty years until we’ve blown the rest.
Peter Adams
Rockies Venture Club
Lots of investments. One exit.
“Most new angels focus on the wrong things. They get all tied up in the story and the idea or the passion of the entrepreneurs. There is really only ONE THING that angels should evaluate in looking at a company and that is its exit strategy. This is basically the answer to the question “how am I going to get my money back?” Not only is this important, but it is also one of the more fun questions to answer. It involves deep industry understanding to see where the incumbents have gaps and how the company can fill it. Of course, the answer will involve all the regular things you thought angels should ask — Team, market, product, competition, IP, barriers, risks, finances, deal structure, etc.”
Bonus thought: I met with a group of Australian startup community leaders and found that a lot of what we take for granted in established startup communities here in the states are very difficult to recreate elsewhere and it takes considerable time, effort and capital to get them launched successfully. Luckily the people I met were smart and determined, so I’m optimistic for them!
Tina Fisher
Lots of investments. Two exits.
“The number one thing I wish I knew when I started angel investing is to consider doubling down on the companies that are doing well. In order to do this, you need to reserve some extra cash to invest your “pro rata” in a company’s next round. This allows you to maintain your percentage ownership. For example, if you invest $25,000 at a $2.5 million valuation, you’ll own 1% of the company. If the company’s next round is valued at $10 million, you’ll want to invest enough to maintain your 1 percent ownership.”
Bonus thought: With regard to utilizing & building your network: “Leverage every relationship you have. Speak to people. Make sure you leave every event with three new contacts.”
Karl R. LaPan
Lots of investments. Two exits.
“Focus on a well-balanced portfolio of at least 2 dozen high-quality early-stage investments; recognize it is better to diversify your early-stage investment than it is to do follow-on investments”
Vladimir Starov
Five investments. One exit.
“Diversify. Spread your capital available for angel funding into 20–50 individual investments. Even successful VCs with their careful due diligence end up with 1 home run out of 10, 2–3 walking deads, and 6–7 write-offs.”
Mary Falvey
Lots of investments. Seven exits.
“If your goals are primarily monetary, individual angel investments are not efficient unless you invest enough to achieve adequate diversification. An alternative is an angel fund, where you will likely trade off engagement for better return through scale.”
Bill Craumer
Leevenir, Inc.
Lots of investments. One exit.
“Diversify early and limit single-company exposure until you’ve built up your bank account in this higher-risk investment category.”
Ruby Azrak
Lots of investments. Six exits.
“The number one thing I wish I knew when I started Angel investing was to really focus on making multiple investments instead of putting a large amount in a few companies. In the beginning, I “fell in love” with a few companies and backed them hard. The right way to invest is to spread the wealth and when you sense a company is turning the corner you invest more money in the next round. Strengthen your position in your winners and understand that companies are going to fold. Take the good with the bad and I believe in the end with a little luck you’ll come out way ahead.”
Anonymous Angel Investor
Lots of investments. Lots of exits.
“Don’t put all your eggs in one basket.”
Anonymous Angel Investor
Lots of investments. Lots of exits.
“It is impossible to pick winners in early-stage investing. Most (>50%) will fail in spite of how good they look at the time of the investing decision. Accordingly, don’t fall in love with any one company. Spread your money around a number of companies.”
