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February 5 - February 17, 2022
Once you have the phrase “angel investor” on your online profiles, you will have instant deal flow.
As an angel investor, you are going to need to invest in fifty startups (diversification!) in Silicon Valley (location!) over three years in order to have a chance at an outsize return. That’s one to two startups a month.
In the investment community, we have a term for an investment that returns all your capital invested: a “dragon.” So your job is to find dragon eggs.
A syndicate lead who has been investing for at least five years and has at least one notable, unicorn investment A startup that is based in Silicon Valley A startup that has at least two founders (with two, you have a backup in case one quits) A startup that has a product or service that is already in the market (you’re not qualified to invest in startups that haven’t released their products—and frankly you don’t need to take this risk)
A startup that has either (a) six months of continuous user growth or (b) six months of revenue A startup that has notable investors A startup that, post-funding, will have eighteen months of cash remaining, commonly referred to as runway (ask the founder and syndicate lead how many months of runway they will have post-funding)
If you love taking risks and don’t mind being locked up for a decade, I could see you putting 10 to 20 percent of your bankroll into angel investing. If you can tolerate risk, but don’t love it, and you can handle being illiquid for a decade, I could see you putting 5 percent of your bankroll into angel investing. If you were learning how to
In either case, you should invest only to the point that you’re still able to weather the “storm.”
In short, you should look at angel investing as a competition where you’re trying to provide more value than any other angel in the company—including me!
What you’ll undoubtedly learn is that no one knows exactly how or why a startup breaks out, but there are trends—especially in how you think.
For every startup you didn’t invest in, write clear notes on the reasons why you passed. You will look back on these notes and learn exactly how bad you were at this, and over time see how much better you’ve gotten.
Go ahead and ask the syndicate lead why they are investing, meet with the founders, and talk to their customers—learn how to hold a lightsaber without cutting your fingers off.
If you’re doing deal memos, office visits, and talking to customers when investing $2,500, you’re going to be a powerful Jedi by the time I’m finished training you.
It was at that point I realized that I didn’t need to know if the idea would be successful. I only needed to know if the person would be.
Startups. The best deals never see the light of day. They’re quickly filled by insiders who are sharing deal flow, and by elite founders with killer startups tapping their existing network.
Step one, create a spreadsheet of all the co-investors in those ten startups you’ve invested in.
Hey Jason, we co-invested in Company X together. Do you have time for a quick cup of coffee next week? I’ll be investing at least $2,500 into 2 startups per month going forward and I’d like to trade notes. All the best, Jane Smith.
Figure out what they invest in and why. Figure out what value they bring to startups. Make sure they understand what value you bring to startups. Ask them, “Have you seen anything interesting lately?” Offer them, “I just invested in these two startups, which are exceptional. Would you like to get introduced to the founders?” Determine if they prefer double opt-in introductions or blind introductions.
As in all things, be interested in the other person and think deeply about their answers. Be in the moment and have your mobile phone turned off during these casual meetings.
In my mind, how you behave in our meeting should be the peak professional version of yourself. I need to know that a meeting with you is worth my founders’ valuable time. Remember, the hottest deals close before most people even know they even exist. You need to make me want to include you in those deals.
While short, that email doesn’t show any passion, deliberateness, or intentionality—in other words, you are telling me you don’t give a shit.
Again, never say yes in a meeting. Let them know that you need to do research and think about the deal terms. Then, only after you have seen all twenty-five, circle back and pick the best one.
For the Greats, let’s say there are four of them: write out why you think they are going to win.
Put a recurring calendar reminder for every six months to visit this spreadsheet and make a fifth column with notes on how the twenty-four companies you passed on are doing—specifically whether they’ve raised more money or shut down.
you can’t forecast well if you don’t write down your thoughts and check back on them.
Founders always share investor meeting details with each other and your reputation is everything in our industry. If you are helpful, present, and considerate, then you’re going to get a great reputation. If you are unprofessional, cavalier, or conceited, or use your position of power in any way that isn’t in service of the founder, then you’re toast.
Offhand
You should allocate three hours for each startup meeting: one hour of prep, one hour with the founders, and one hour of postmortem.
reviewing their product, understanding the market they operate in, knowing who their competitors are, and knowing who else has already invested in the company.
The reason I do this is that I want to be known for always having time for founders. People tell me, “I know you’re really busy, I don’t want to keep you.” But it’s my job to meet with founders. There is nothing I love more!
holistically,
Parts interconnected when seeing it as A whole
“Would you like to run me through your deck, show me your product, or just talk about your business?”
“How can I be more valuable than they are?”
Looking at other investors
For the love of God, never take notes on your smartphone—you’ll look like a clueless idiot.
Lol
Important people have the ability to turn off their phones because the world can wait for them. People who are not important have to react to their phones and be at the mercy of people pinging them.
WOrd
“conference room prep.”
I want folks to feel like meeting with me is like going to a restaurant with multiple Michelin stars. I want folks to understand that we are professionals.
but I do want to impress upon them that they are meeting with the best angel investor in the world—even if I’m only in the top five or ten right now. Details matter.
the best interviews are the ones that morph into conversations.
The more you listen to the partner, and really take in what they are saying, the greater conversationalist you will be.
Being present and keeping your mouth shut is something that does not come naturally to successful people, but I see it often in the most successful people I know.
inquisitively,
Curious
If you say yes or no during a pitch meeting, you’re going to seem impulsive and not considered—which is a bad look for an angel, who should be wise and methodical.
The superpower that most founders have in common is persuasiveness, and that superpower fades as you leave their reality distortion field. It weakens even more over time.
“This has been great. Give me a couple of days to give it some thought and let’s talk on Monday. I might have some follow-up questions on email as well.”
You don’t pick billion-dollar companies. You pick billion-dollar founders.
it’s fairly easy to know which founders and ideas are so shitty—or worse, small—that they have no chance of breaking out.
I use two methods to sort through the deluge of startups contacting me. I eliminate the small ideas and weak founders. Then I double down on the great founders and big ideas.
I ask how many full-time employees they have, how much money they’ve made, their funding history, how they acquire customers, and why they are building this business.
Asking for more detail before an in-person meeting shows founders that you are focused on things that matter, not just taking meetings because you’re lonely.
Independent films, restaurants, bars, bed-and-breakfasts, consulting firms, clothing lines, and microbreweries are—with very rare exceptions—the businesses that, no matter how hard you and the founders work on them, will not scale.
Oops
I’ve learned that no one can tell the future but I am an exceptional judge of talent.
