A Guide to Angel Investing

One of the questions that I am asked on occasion is “what is an Angel Investor” (and can or should I become one)? I have found this video to be one of my favorite guides for both prospective Angel Investors and Entrepreneurs. This virtual “Angel Investing Guide” was presented by Naval Ravikant and Babak Nive from Venture Hacks at the Y-Combinator sponsored AngelConf in 2010.

They discuss everything from the importance of deal flow and the good and bad sources for it (not from your social friends), pitches (yes) vs. business plans (not so much), evaluating startups and investing in a team of 2-3 founders (5 is a crowd); why you shouldn’t move in a herd, but be a pack animal (every Angel investing brings some more knowledge), the need to establish filters, even one as simple as “do what you love”. How critical early customer contact is to an emerging company, saying no early and often and the terms to yes. If you do more than one deal in 20 or 30 you’re over-investing, if you are not out running around and getting to know people then you are not in the venture world.

In addition, they talk about the importance of humility and the need to be a little dispassionate; you don’t want to run the company or even take the power — if you don’t have it you won’t be tempted to use it. And finally, you have to be very careful about trying to shoehorn companies into your own limited experience. There are many paths to success.

There are many other great take away’s from this discussion but the bottom line is that 1) You don’t become an Angel to make money because you probably won’t 2) assume your investments are lost the day you make them (you will sleep better) and 3) balance your portfolio with ultra-safe investments. This all sounds like you need to be a little nuts to be an Angel Investor or an Entrepreneur — and you probably do. All I can tell you is that it is somehow wonderfully rewarding and fun as well.

This should be required material for any budding Angel Investor (or Entrepreneur) :

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