How to get started in angel investing
People often tell me that they don’t know how to get started in angel investing, and ask my advice on how to do so. The reasons are usually the same: they don’t have the confidence, don’t know where to begin, or they feel that they don’t know how to spot a good opportunity.
Everyone has a different strategy for investing, but the following guidelines have served me well.
Colette is an entrepreneur, angel investor and limited partner. You can read this article in Grow with Tech magazine.
Tip one: mentoring = practising
As a mentor for startups for more than ten years, I learned how to quickly assess and formulate a SWOT analysis based on a few meetings. The same processes apply when deciding to invest in a company, although you have more time to reach a final conclusion about whether or not to invest.
In the past when I’ve judged startup competitions, I have seen companies that I would have killed to invest in if I had the capital at the time: TransferWise, Criteo and GoEuro, to name a few. So even though I didn’t have the capital, I knew my instincts were good.
Tip two: set guidelines
My first four angel investments in startups include French television startup Molotov.tv, Latvian SaaS automation platform Attitude AI, touchscreen software and publishing startup Orson & Co and UK education software platform Black Country Atelier. How did I select these? I ran them past my guidelines for investing.
It’s important to set guidelines that work for you. I always make sure I invest in companies that have a straightforward business model that makes sense to me, companies to which I bring more than just money and PR experience, and finally, if possible, I like to invest in BIG picture ideas -- to make a change for good in the world. Not every business can do this, but some have the potential to do so, and that makes investing really exciting.
How did I arrive at these guidelines? I built Ballou PR on cash alone as a sole shareholder, expanded it to three markets that were foreign to me, and along the way, created an award-winning culture. I took what worked for me, and what I learned along the way, and therefore, I like to invest in companies where I can use this same skill set and give them the benefit of my experience. My PR background is also valuable in advising whether the company or product offering is media-genic and if it will get coverage that will drive adoption. In addition, I also reach out to my contacts to see the likelihood of follow-on funding as I know what metrics the company needs to hit before being introduced to the various stakeholders. This helps the startups have their pick of VCs to lead the series A, B and onwards.
Ultimately it depends on you and your background. Maybe you only want to invest in companies that are in your area of expertise. Maybe you want to invest in companies that are based near you, or have women or minority founders. But set those guidelines because you will be overwhelmed with requests and you have to have a filter to stop you from going insane!
Tip three: set a budget per year
Set a budget at the beginning of the year. It’s very easy to just keep investing or, worse yet (for the entrepreneur), to promise them an investment and not be able to follow through — remember, it’s their dream you are playing with.
Tip four: collect the paperwork
It sounds obvious but you’d be surprised by how many angels don’t do this. And imagine not being able to prove that you invested and have shares in a company, when it exits for an extraordinary multiple?
What makes a good investor?
A good investor has a lot more to offer besides money. You need to know how to operate a business, and have relevant skills and experience in the industry of the company in question.
In addition – and this is crucial – you need to know when to stop talking. I have been in several board meetings where other board members drone on, more keen to grandstand than to focus on the business at hand. Investors with super-sized egos are detrimental to the business.
Try to help the business organise. For example, the team at Attitude AI are great at sending weekly emails with accomplishments and challenges, with specific asks to angels for help. They have effectively harnessed the skills and network of their angels in order to solve problems, which helps to move things along quickly. They have board representation so we have quarterly board meetings that cover everything — this includes: financials, sales, sales pipeline, technology, IP, personnel, operations, risks and goals.
Finally, what are the biggest mistakes I've made as an investor, and what did I learn from them?
Don’t rush in. Most people who like working with startups have the same problem: they fall in love with an idea or the team before thoroughly vetting it. Being an optimist is a fine quality, but one must temper it with discipline. I spend a great deal of time consulting with other angel investors and VCs about deals I’m considering, as they are often able to identify stumbling blocks that I don’t spot.
For example, on a recent deal that I declined, I spoke to a VC and an angel investor who had seen the same deck. The reasons they cited for not investing at this stage would have taken me weeks to identify for myself.
In short, my advice is to practice by being a mentor, stick to your investment guidelines, set a budget and collect the paperwork. And enjoy yourself - angel investing is a great learning experience.
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