10 Lessons Learned in 10 years of Angel Investing

October 28, 2022

I recently completed my 10th angel investment and thought I'd put together some of the lessons learned over these years (mostly for my own retrospective). If this is in someway useful to other founders who are foraying into Angel investing, that's also great!

I’ve invested my own cash, scout checks and with different AngelList syndicates.

1. Invest consistently over time

In hindsight, my biggest mistake in arranging my portfolio was not to invest in up and down markets, busy times for me personally as well as not as busy times.

2. Invest in friends and former colleagues first

As an individual angel without much built up deal-flow, your best early bets are on backing the top people in your personal network, hands down. By far, my best-performing investments so far all came from friends or former colleagues that I believed in.

3. Be pro-active with investing with friends

Sometimes your friends or colleagues won't ask you to invest in their company since they are afraid of losing your money. This is where you need to pro-actively keep a pulse on who is starting a company and ensure to them that you won't mind if they lose the full amount of your check.

4. Exits (good ones) take a REALLY, REALLY long time

Bad exits happen fast (shut-downs and acquihires). The good outcomes take years if not decade(s) to materialize.

5. Invest in founders over markets

Yes, ideally the best founders pivot into the best markets, but I've not yet seen a company successfully pivot to a really great market from a bad one. My hypothesis is that the amount of time a pivot is considered in doesn't lend itself to a formative market insight from the founders.

6. Keep your check size consistent to avoid bias

I made the mistake early on of varying my check size based on my conviction level at the time. Big mistake, as the highest performing investments came from a smaller check.

7. Prepare to be wrong about which investments will do best

When I invest in a startup, I make sure to record how confident I am in that investment—OK, Good, or Great. Looking back, only a third of my best investments—the companies that are on track to drive the biggest returns—I rated as Great at the time of investing. Meaning, if I invested only in companies I had Great confidence in, I’d have missed out on two-thirds of my biggest successes.

8. Angel investing is more about access than picking

Back to lesson #5. If you don't have some sort of way to access proprietary deals, you simply aren't going to make great returns. A lot of my initial investing was through crowdfunding platforms and syndicates as I learned, so I don't expect those to be the best returns.

9. The mythical investor 'Value-add' is probably over-rated.

If you aren't a well-known brand in the industry, the signal from your check is going to be very low. Likewise, the amount of time you spend on a given investment will most likely be low too, so instead of trying to be known for your industry expertise and picking, try and differentiate yourself based on some specific set of skills you can help advise on e.g: hiring, growth, product, etc.

10. Don't go it alone

After 10 years, I'm only starting to be public about my investing, which I wish I had done more sooner. Both to get more deal flow from founders, but also from other Investors. Other investors can be a great potential source of deal flow, and making yourself known as an Angel and which kinds of companies you are looking to invest in can help.

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