I started Angel Investing about 4 years ago. I guessed it would be a good time to write up some thoughts on my experience so far. 4 years is about half way to get a meaningful return, so this post is not yet about returns in angel investing. Others have written volumes about that strategy.
I invest in two ways. 1) direct cash investment 2) Investing my time and expertise with startup companies in return for equity via my company Carabiner.IO
I have invested in 15 companies so far. 3 have exited (sold/folded), 2-3 are on life support and rest are in various stages of growth.
My investments have predominantly been in B2B companies. Best performer so far has been a non software company 🙂
I don’t enter deals alone. I am a member of the AoA and TAGs, two leading Angel groups in Seattle. I have also invested in one deal in an AngelList syndicate. In my AngelList investment, I did the least amount of diligence 🙁
I spend at least 10-15 hours on due diligence. I see no definite correlation between number of due diligence hours and success. In some cases, the more due diligence I did, the more I found it difficult to step out as I had mentally committed to the deal, despite some yellow flags.
- If the CEO hesitates to let you talk to customers, get out. By customers, I include broadly folks that are using the product or have expressed serious intent to use the product via customer discovery.
- If the deal is moving too fast for YOUR comfort, don’t get sucked in. Most companies will need to raise money in the future and it’s likely a better deal is around the corner. This is also called “FOMO” (fear of missing out).
- Try to have a conversation with as many members of the company as possible. Most interaction is with the CEO and they are usually on their best behavior during fund raising 🙂 . I ignored warning signs in a company with CEO/CTO interaction.
- Divide and conquer. In deals that I lead, I try to get folks that are interested be responsible for specific aspects of evaluation.
- Developing a template oriented approach to evaluation has helped.
While Angel Investing is certainly risky, I have enjoyed my experience of interacting with a diverse set of people while doing so.