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  • Writer's pictureYu Chen

Lessons from my first year angel investing

Updated: Feb 26, 2020

I'm a long-time product and engineering lead in tech, and started angel investing a year ago (my AngelList profile). I've seen that angel-investing still remains a black box to many aspiring angels and first-time founders, so I'm distilling lessons that I've learned to:

  • help aspiring angels get started with their first few investments

  • provide founders tips on crafting pitches that stand-out

Over the past year, I've seen almost 100 startup pitches (that doesn't even count the cold outreach messages). I've also met with and learned from over 20 angel investors. Here are the main reasons I've seen that people get into startup investing.

  • ROI (Return on Investment) - Angel investing isn't charity. We choose companies that have a chance at making us money. Because startups are one of the riskiest assets out there, we look for any edge possible in picking companies. When you talk to an angel investor, they will probably say that they "expect to lose everything". This actually translates to "startup investing is so risky that I've got other reasons for doing this as well". Which leads to the next few reasons..

  • Lend their expertise or professional network - Many investors are experienced and successful founders or operators in their field. They enjoy helping founders through providing advice or connections, and tend to select startups in domains or with business models that they can help with. These investors also see helping as a way to broaden their own networks and keep their advisory skills sharp.

  • Invest in the future they want to see - Most angel investors are optimists about the future, have strong theses about what will happen, and want to help bring about that future. For example, I've met investors who support female or under-represented founders - both for social impact and because they believe it's a good business decision. Others invest in climate technologies because they believe they have a moral duty and a business edge in helping to save the planet from climate change.

  • Access to ideas - this one especially resonates with former entrepreneurs who just love exploring new ideas. These serial entrepreneurs hate just working on 1 thing at a time, and often see their angel checks as a way to gain access to new and interesting developments and teams working on cutting edge technology.

Let's drill in on how exactly investors try to develop an edge in picking winners, and improve their chances for ROI.

  • High Quality People - Many angels only review warm intros from within their network. Some individuals and angel groups are also targeted at fellow alumni of higher ed institutions or employers.

  • Domain expertise (e.g. business models, technologies) - Some angels specialize in models (e.g. marketplaces, SaaS, D2C, B2B, etc..) because they understand what it takes to scale those models. Others focus on certain technologies since they understand and believe in its disruptive capabilities.

  • Personal pain-points - investors are more likely to invest in a market or pain-point that we personally experience or understand.

By now - you can see that each investor's set of criteria span objective market data, personal background, as well as their hopes and dreams for the future 😊 That's a doozy. Where do we go from here?

For startup founders - my next post will be for you, stay tuned!

For anyone aspiring to invest in startups - the future is bright. It's getting easier and easier to get into angel investing, and startups always love having a larger investor pool to tap into! There's lots of information and classes publicly available, and the Obama administration even made it easier through the JOBS act. Here's a few tips to set you well on your way:

  1. Start learning - There's been an explosion of resources on how to invest, the startup landscape, and market trends. A few I really like are: podcasts like This Week in Startups and 20 Min VC, newsletters like Strictly VC and Crunchbase, and #VC twitter.

  2. Get access to startups - Thanks to the JOBS act, anybody can participate in equity crowdfunding (e.g. WeFunder, iFundWomen). If you're a high net-worth accredited investor, take an angel bootcamp class, look for your local networks like accelerators or angel investor groups, or go online and join a few AngelList syndicates.

  3. Practice, practice, practice - get out there and start meeting founders and practice writing deal memos for yourself. You'll start developing a process for sussing out people and ideas that works for you, and that's where you develop your "edge" for picking.

As always - I'd love to hear your experiences and thoughts! Email me directly or comment below!


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