Lessons from Active Angel Investors
I recently moderated a very stimulating conversation hosted by BETA featuring active angel investors, where each of the five panelists represented an alternative industry focus. The purpose of the conversation was to better understand our investors' motivations for angel investing, while teasing out the similarities and differences between their investment activities.
Though each investor came to the conversation with a unique industry lens, the conversation very quickly coalesced around a few shared lessons learned and best practices that any potential investor should consider before making their first investment.
If you were not able to make the event, we encourage you to read some of what we found to be the most salient points, or you can view the entire presentation by following the link below.
Motivations for Getting Started
"I started [angel investing] because I wanted to diversify my retirement portfolio.”
“I had maxed everything else out, [and] saw this as an opportunity. [It was an] attractive investment, but higher risk… participating in a fund is an easy way to do it.”
CEO & Founding Principal of Macrame Technologies
Starting with a self-analysis of your own financial wherewithal is an important step in making your first investment. Most funds, angel groups, and entrepreneurs will require that you meet certain income and/or net worth thresholds in order to participate in the investment.
After checking those boxes, take some time to think through your other life and career goals. Angel investing can be a great opportunity to learn, to mentor, to invest in your community, to network, and to support the causes you care most about.
Where to Begin
"Joining as an LP in funds or in angel groups like Gopher Angels, [are] great ways to learn if you can get involved in the diligence process."
"Look into platforms where you can invest less and learn more."
Founder & CEO of InboxDollars
If you believe that you have to have it all figured out before you take the first step, think again. The truth is that every investment is an opportunity to learn more how to improve your processes for future investments.
This learning can be accelerated by volume of deals and by investing alongside others who have more experience or who look at an investment opportunity from a completely different perspective. Both of these ingredients are common benefits offered by syndicate funds and angel groups, like Groove Capital.
What Should I Be Looking For?
"Early stage is all about the founder - do you believe in them? Founders need to prove if they are coachable; sometimes their passion will be so focused on the product and not the business and that can be a red flag."
"Can they build the business and the team to attract the right talent and customers?"
Co-Founder of Springdale Ventures
“Early stage [startups] do not have the money for big team. [A] team means [management, plus] advisors and members who may or may not not have equity at this point."
"[The] founder and team need to be resilient.”
CFO of Odanata Health, Inc
Most investors will agree that a fair return for the perceived risk that is being taken is table stakes for any investment. If this tradeoff is out-of-whack, a deal may be dead before negotiations begin. How to calculate that risk is often debated, but it usually includes things like the deal terms, market opportunity, timing, competition, and competitive advantage.
Where investing criteria diverge is how to evaluate the team. Though each investor has their own mix of qualitative considerations regarding team assessment, the thing that separates the novice investor from the professional is a rock solid thesis. Figure out what matters to you, test it, refine it, build your own model and process, and stick to it!
Never Stop Learning
“Nothing is static, everything is always changing; [it's a] constant learning process when it comes to angel investing.”
Co-Founder of Gopher Angels
For the right mind, this is the fun part about angel investing—as soon as you've figured it out, something changes and you get to learn how to do it all over again. Industries change, deal structures change, favorable startup conditions change.... it's an ever shifting landscape that requires you to adapt. But, if you're doing it with other smart people the burden of overcoming these dynamics is shared.
Being limited to an hour to cover this topic, we only scratched the surface. And with the launch of the Groove Capital fund and adjacent angel investment group, on top of the return of the Minnesota Angel Tax Credit, we've witnessed a dramatic increase in demand for continued angel education.
If you have an unanswered question or any suggestions for future content related to this subject, we encourage you to send us your thoughts.