I wanted to summarize some learnings and insights both for entrepreneurs trying to connect with angels and new investors considering being an angel investor.
For Investors
Investing in startups is a long-term game. My first investment was in 2017, five years ago. If you’re looking for quick-wins, go to the horse track. Early-stage startups take the longest to mature, it’s exciting to watch these companies grow but nothing happens overnight.
Investing in startups is an outlier business. Across my 50+ investments there is a very wide distribution. The best companies can 10X-20X in value but there are only a few of these. Across 50 investments this equals 2-3 companies (approximately 4%.) This means that 96% of companies have modest returns/results.
Don’t count your liquidity until the deal is done. Companies that you thought were doing great can suddenly perish.
Being in more deals is better for your portfolio than concentrating your bets. It’s better to be in more deals with a smaller check than to be in only a few deals with a larger check. This is because a great return may be 50-100x returns. It’s a roulette wheel with each square paying out either zero or 100X, the way to win is to place a lot of bets.
Have a thesis. This is an area of focus that you’ll understand better than most. This will allow you to see the more interesting deals within the segment and allow you to make better decisions.
For Founders
Do your research. Founders who do even a little bit of homework will pass the initial filter and get more relevant help, assistance and investment. Know who you are talking to.
Don’t be transactional. I know you want money but assume that 98% of your conversations won’t lead to money. Focus on getting or giving value in each conversation. If you can do that each conversation will lead your business in the right direction.
Ask thoughtful questions. Be on the hunt for value, not just money.
Know your numbers. Understand your financial numbers, your model and how you will grow incredibly well. Founders who know their financial numbers will give investors confidence in their ability to execute.
Generate momentum. Your job as a founder is to generate momentum and traction. This is true for your core business but it’s also true for your financing round. Your confidence in your round closing quickly can be a self-fulfilling prophecy in that the confidence helps the round close quickly.