My wife and I have recently started doing some angel investing (you can see what startups we've invested in on my AngelList profile). If I sent you to this blog post, it's probably because you thought we might be interested in investing in your startup.
Here's a guide on what we're looking for:
As I wrote in this blog post, we consider angel investing to be just about the riskiest thing one can do with one's capital. So we are very, very careful about how we deploy our cash to invest in startups.
For us to justify an investment in a startup, we have to believe that our cash has a greater potential return (and of not being lost completely) than any other alternative -- and since we're very bullish on ETFs for equity growth, and LendingClub for putting cash to work to get monthly distributions, that's a pretty high bar for us, because the reality is that most startup bets will fail.
Some angel investors mitigate this risk by investing in a large number of startups, and this is an approach we've discussed, and may pursue at one point. If & when we do this, we'll be much more likely to be more aggressive with angel investments.
But for now, the main thing we need to see is a lot of traction, a team that knows how to create, and quickly, and a huge addressable market. Here's how our two public investments to date met those criteria:
If you think you have a startup of similar caliber, we'd love to hear about it.
AngelList is a platform that connects entrepreneurs to angel investors to raise seed stage capital.
Out of the $1.5 million dollars in angel funding we've raised for Socialize, over $1 million came from introductions made on AngelList. We were very early AngelList users under our AppMakr brand, with Brendan Baker doing a detailed analysis of our use of AngelList in his Anatomy of a Seed project. I also wrote a lengthy manifesto about our fundraising experience, and when AngelList was very new I interviewed Naval Ravikant, one of the AngelList founders.
Recently, using AngelList has changed the way I've been fundraising. Where traditionally, I've had to dedicate a block of time to fundraise full time, I can now fundraise passively, meaning just by focusing on having an optimized AngelList presence and a few specific techniques, I don't have to spend blocks of my time finding high quality angels. That is a game changer for us -- fundraising is an incredibly distracting process, and it's especially hard to innovate and iterate on your startup when you're distracted by bolstering the company's bank account. Being able to have angels come to me has given me a freedom as an entrepreneur that's just fantastic.
As I was talking to my friend Ben Young, CEO of Nexercise, about this sea-change in fundraising, I offered to critique his AngelList page to help him optimize it for this type of inbound passive investment.
Patri Friedman left this very smart comment on the convincing arguments post -
I’m pretty skeptical of whether researching investments is a good idea for non-professionals. Financial speculation is fun, but you are competing against specialists who have spent their whole lives studying the subject, have teams of researchers, and are betting so much that they can afford to buy the best computers, data, etc. I think almost everyone should just buy the Vanguard Target Retirement 20X0 fund.
The exception is if you’re in the startup world & you know people who you trust & respect who are doing startups, angel investing in them w/ 10%-20% of your income makes sense to me. At worst you’ll lose a little money & learn a lot about who to trust & how startups work. Another is if you know a city/region/country very well and want to own property there – ownership has advantages (ie we have done extensive customization of our cohousing community here in Mountain View) and since it’s such a big asset it’s definitely worth researching.
This is a great point.
I've been studying a lot of finance lately. One that I've really enjoyed is "The Intelligent Investor" by Ben Graham.