Angel Capital allocation is a tricky thing…
So when You wake up energised and excited about tackling challenges and getting a bunch of StartUps off the ground — this is a sign that you are optimistic, excited about living, the Angel Life.
And maybe You can even have the Fun of your life.
Fun is useful because when you’re curious enough to actively explore life — that is when you’re finding the Great StartUps and having fun in Life…
And it’s the old saw that when You go exploring your world — You invariably find things…
So, by being positive in your efforts, nothing is impossible or off limits, for You.
And at the end of the day, it is the Angels that find the Startups and shape them to what we want — that makes the funds productive. It is not the StartUps that lead the way. It’s the dog that leads the tail and not the other way around.
Of course many times the tail wags the dog — but an Angel has to think that it’s a little more complicated than that.
And if you are an old hand and You’ve been doing early stage StartUp Company Finance for a while — you know that you’ve got always to follow a few simple rules.
First is to keep in mind that few things matter more for the Selection Process of target StartUp companies, than the Team…
That is until it’s time for the next stage investments, where the focus is on scaling up and reiterating the product and service that the startup companies sell for money.
And when time rolls around to fund them again — then, you need to be evaluating all over again, and re-choosing. Rechoosing the best teams, the best innovators, and the best Leaders, amongst our stable of Startups.
Because we can always pass the babies on to the VCs, and the institutional investors downstream. It’s like throwing the small fry into the stream. But it is the good ones that you’ve got to keep…
And we do this always by simply getting to pick the best CEOs, the best teams, and the best StartUps, in a complex maneuver we call “the Dance”. It is a fun dance, but its also an intelligence test, and an exercise to see if the Startup Teams understand disruptive innovation over the Long life of the StartUp.
And for us to have our Founders, StartUp Teams, and all our CEOs, pass this Innovation test, — it is truly a complex tango move.
And when You are dancing with the best founders by picking top of Class StartUps advancing from the best Science and Technology can offer us — then you have to build the best StartUp Teams out there too. And to do that, You’ve got to be agile and always thinking on your feet.
And this is what we focus on because everything else is just a data input. Things like raising Funds, managing the Funds, managing the deal flow and the IRRs, and even M&A of the StartUps, or clearing out the burnouts — are all just inputs…
Of course You need enough deal flow of good companies that are not going to flame out, but you also need to consider getting the best founders to work with you, regardless of the specific company they are pulling for at the moment. Am saying this because this Angel Business game is a People Game.
But deal flow alone doesn’t get founders to come work with you. Reputation and Support schemes, along with high IQ and pattern matching are far more important. But so are the matrix of investments, and the network of Founders in your stable. Everything else is just a filter.
Plenty of high-IQ Angels just do Due Diligence to death, and plenty more just criticize A+ deals to death. Similarly plenty of super high-IQ Angels stay on in their StartUps way past their prime, instead of graduating the Startups to the Institutional Investors. Plenty of Angels fvck up deals that could have been saved, but in the end, you still have to find a way to pick the StartUps well to begin with.
Choose your dancing partner carefully. is is the most important thing. Period.
So at the end of the day, like most service businesses — it’s mostly about the individual.
If that’s so … how does a “great” Angel can help?
Here are a few intelligent ways:
Built the Brand: Individual brands matter too (e.g., far more people knew Mark Suster than the name of his firm before it was Upfront), but having both a firm brand + an individual brand does help. Why? Just like anything else… respected brands are a very imperfect sign of quality, but they are a sign. Given how many new (albeit smaller) funds have been created lately, one could argue that while important, brand is pretty overstated, or at least, over obsessed on.
Institute Democratic and Collective Decision Making. There is so much risk in early-stage. Keeping folks out of trouble, or even more importantly, helping them make the call, can help. Usually though this only hurts. It’s very rarely done well. But in theory it could be.
Institute Collective “Closing”. Done right, having 3-4 partners tell a founder they really want them or not — really does work. The non-sponsors may play a trivial role post-funding, but having a few VCs tell you they love you, especially if they are “known” VCs … does kinda work.
Find ways to Better Optimize the Angel Fund. Most Angels only allocate 30-40% of their fund to seed, first draw, and first checks, into start-ups. The majority goes into the subsequent rounds. Yet most Angels don’t do a great job of optimizing how they invest in later rounds, which often are at much higher valuations — because they think that they can’t compete with the VCs out there…
Doing this right can have a very large impact on returns.
Doing it wrong not only directly depresses returns, but it forces you to live prudently.
And learn to not be afraid to lose out because there will be other trains coming down the railroad pike…
So learn to not be afraid to miss out. You can always get on the next train if you miss this locomotive.
Also it’s vital to get used to say No to any other good deals that shows up on your door but doesn’t fit on your lap.
And don’t be afraid that you could have missed out the best rides out there. More trains are coming your way always.
FOMO or FOLO is not a good advise.
You could always have gotten more great StartUps into the fund but who cares?
FOMO is a tragedy.
Keep that in mind the next time someone wants to push you…
And especially if that ‘someone” pushing to do an iffy deal, is yourself.
We’ve all been there…