how to be an angel
DESCRIPTION
How to be an angel investor, Part 2 by Nivi on March 16th, 2009 Naval and I recently put together a talk for AngelConf, a conference for new angel investors. The conference was organized by Y Combinator and included a great group of notable angels like Ron Conway. According to the AngelConf website, “Investing in startups seems mysterious and difficult. How much are you supposed to invest? What legal agreements do you need? Where do you find startups to invest in? How do you pick winners?” People liked Naval’s presentation — Dave McClure called it an “awesome fucking talk,” and other tweets seemed to agree. So we thought you might like it too — it’s good advice for investors and entrepreneurs alike. Paul Graham from Y Combinator wrote up his talk in a wonderful essay called How to Be an Angel Investor. So we’re calling our presentation “How to be an angel investor, Part 2”.TRANSCRIPT
✌How to be an angel
Naval Ravikant
- Serial entrepreneur (Epinions, Vast…)
- Investor (Twitter, SocialMedia, Mimosa, ~30 others)
- Advisor (XFire, Mercantila…)
- Venture Hacks
What do you need to be an Angel?
- Access to capital
- Proprietary dealflow
- Good judgement
Dealflow
Bad
- Social friends are usually the worst source
- Don't forward deals you wouldn't do
- Non-standard models lead to adverse selection; don’t be an incubator, a chairman
Good
- Other angels, quid pro quo
- Brand your advisory services
- No business plans, exec summaries, NDAs
- A high-concept pitch, elevator pitch, and demo is all you need
- Maybe a 10-slide deck
- 20 minute pitch; listen, don't talk
Pitches
Evaluating Startups: Team
- Invest in teams of 2-3 founders; five is unstable, one is too hard
- Best combination is one founder who can sell and one founder who can build
- No to teams with all business guys or lawyers, or outsourced development
- Team matters more in enterprise deals, traction matters more in consumer deals
- Intelligence, energy, and integrity
Evaluating Startups: Customers et al
- Ignore all companies that have not made early and meaningful contact with their customer
- On the Web, this means the product has been released
- Look at 20 companies before you make your first investment; 100:1 is a good ratio
- Find a thought-partner and give him/her an effective veto
Saying No
- Say no fast, over email before you meet
- Say no at the meeting; when in doubt, say no
- Don't use more than 2-3 hours of the entrepreneur's time or 2 weeks of yours
- Only invest in people you’re excited about
- Swings you don’t make don’t count against you
- Try to add value at every meeting
Saying Yes: Terms
- Biggest risk is downstream financing, try to invest with VCs
- Give them rights to invest in the next round so they don’t drive up the valuation in this one
- Capped convertible debt or priced equity
- Investing with groups of angel leads to better decisions and keeps entrepreneurs honest
- No board seats
- Seed investors buy 5%-20% of the company
Economics
- Don't do this to make money because you probably won't
- Even if you have a fund (goodbye carried-interest)
- You're a patron of innovation
- Assume your investments are lost on the day you make them
- Balance your portfolio with ultra-safe investments
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