Book Summary — Angel
You can find all my book summaries — here.
1 paragraph summary:
Angel gives a holistic overview of angel investing. Jason has a short, sharp and entertaining way of getting his point across. The book is great for anyone starting out in the investment world, but also has worthwhile elements for VCs and founders to understand the different risk / return profile of angels.
The Mission
I invest in this future because it’s inevitable and I think I can help accelerate the efforts of founders and innovators who are missionaries, not mercenaries. Of course, I plan to make a great deal of money in the revolutions, but I also plan to look back proudly and know that I helped propel changes that made our planet better.
Folks in the tech industry debate if angel investing is gambling or actual investing, and it depends largely on how you approach it. Every year I place forty bets hoping to win back more in aggregate than I’ve put down.
No gamble, no future.
If you learn anything from this book, it’s that you must take risks as an angel investor and in life if you want at least the chance of an outsized outcome.
It can change your life if you suspend fear, squint a little, and focus on not just what could go wrong with a business but what could go right.
Angel Investing $
Only invest if you can afford to lose the invested amount.
Only start if have at least $2.5m net worth and you can invest $250k — that gives you 50 investments of $5k. If one of the companies hits $10b then you return $5m.
If you want to do this properly you need to do the work and invest the time in it.
Good Angels
Best angels in the world have four qualities giving them the ability to:
- Money — write a check
- Time — jam out with the founders about important issues
- Network — provide customer and investor introductions
- Expertise — give actionable advice that saves the founders time and money — or keeps them from making mistakes
Your job as an angel investor is to block out the haters, doubters, and small thinkers, because if you think small you’ll be small. I’d rather see my founders fail at a big goal than succeed at a small one.
Rounds
Sweat equity — founders equity for starting
Bootstrapping — customer money paying for expansion
Friends and Family — first money from relatives
Accelerator/Incubator funding — structured programs incl an investment
Seed/Angel funding — what this book is about
Bridge round — same investors as seed round typically, bridging to next round
Series A — VC leads this round, you want to take your pro-rata
Series B + — you’ll start considering selling some of your stake in “secondary” sales
Get on a Cap Table — starting out
- Founder
- Employee
- Advisor — trade skill, time, connections and reputation
- Angel
- VC
Secondary Sales
For angels, secondary shares are a wise way to “dollar cost average” your returns. If you have a chance to sell 25% of your position once or twice before the IPO, it would be wise to do so because we’ve all seen companies worth billions go to zero, many, many, many times.
Founders can sell some of their shares too — which can allow them for a much more comfortable lifestyle. Caution is advised to have them take out too much money so they don’t lose interest in the company.
Write Deal Memos
Always write a deal memo when you invest — why you are investing, what you think the risks are, and what you think has to go right for the startup to return money on the investment.
For every startup you don’t invest in — write clear notes on the reasons why you passed.
Learn from your notes and mistakes.
It was at that point that I realised that I didn’t need to know if the idea would be successful. I only needed to know if the person would be.
Picking Startups
What I learned is that, while no one knows which of the great founders and startups will have breakout success, it’s fairly easy to know which founders and ideas are so shitty — or worse, small — that they have no chance of breaking out.
That’s really half the battle, focusing on the winners, the big markets, and the clear ideas.
WhenI get an email, I never go straight to the meeting. I ask:
- how many full time employees they have
- how much money they’ve made
- their funding history
- how they acquire customers
- why they are building this business.
This tells you their burn rate and how much money they have in their bank.
There are two businesses in my world: insanely scalable ones and everything else.
Ask yourself a simple question:
Would I buy stock in this person (founder) if I could?
People aren’t everything — they are the only thing.
The Four Founder Questions
- Why has this founder chosen this business?
- How committed is this founder?
- What are this founder’s chances of succeeding in this business — and in life?
- What does winning look like in terms of revenue and return?
I have a game where I try to say things with as few words as possible because it reminds me that this meeting is not about me, it’s about them.
How do you know the person who referred you? — warm up question
What are you working on? — because it’s about the founder
Why are you doing this? — it’s all about the founder
Why now? — timing is everything
What’s your unfair advantage?
Tactical Questions
Quick 5 mins answers to each:
- Tell me about your competition
- How do you make money?
- How much do you charge customers?
- How much does your avg customer spend?
- Tell me the top 3 reasons why this business might fail?
Bonus question: what did your parents do?
Communicate
Send monthly updates
→ Here is my (MB’s) simple template
If a startup isn’t sending you monthly investor updates, it’s going out of business.
Angels want to feel needed, and founders who don’t make their angels feel needed have lost their most likely source of follow-on funding — their current investors.
Life is random, but luck isn’t.
Lucky people surround themselves with the most successful people in the world and take chances. It isn’t hard or impossible. It takes work.
Do the work.
