3 Must Reads for Prospective Angel Investors
Investing in startups has gotten more common the past few years. Popularized by private equity and venture capital firms, we now have high net worth (and not so high net worth) individuals considering startups as another form of investment.
If you are considering investing in early-stage startups as an Angel investor, here are 3 books I recommend to quickly gain knowledge on the subject. These books are your gateway into the venture capital world, covering the topic from 3 views: The Entrepreneur, the Venture Capitalist, and the Angel Investor.
Venture Deals (Brad Feld and Jason Mendelson, 2016)
A great starting point for a prospective investor as the book covers all the basics like key roles, nomenclature, and who does what. It's also a good introduction to the term sheet and its financial and control terms. The book looks at venture capital from the entrepreneur’s view and gives great suggestions what an entrepreneur should pay more attention to and what is a lower priority.
The Business of Venture Capital (Mahendra Ramsinghani, 2014)
This book approaches the subject from the view of a venture capital firm. It covers fund raising, structure of venture capital firms, and the roles of the partners. A large part of the book is about how VC’s source deals, do due-diligence, and finally make the investment. Even if you don’t plan to be a partner in a VC firm, this book helps to understand how VC’s think, and gives you a great opportunity to learn about their culture and how they operate.
Angel, How to Invest in Technology Startups (Jason Calacanis, 2017)
Written by a seasoned Angel investor in an outspoken and straightforward manner, Jason Calacanis covers the basics about Angel investing, due-diligence, pitch meetings, and syndicates. A big portion of the book covers the selection of founders and the subsequent relationship between investor and founders.
In my opinion the most important point in all 3 books is the relationship between investor and founders, and the level of control they mutually agree on. I’m not a fan of fire-and-forget investments, like getting a monthly update and that’s it. I suggest that as an Angel investor – especially if you are one of the first investors – you should be part of the startup team. Invest, and also work with them to make the team successful; think and act like an employee of the company.
These books give you a good base of startup investment knowledge. Though as with most things in life – reality sometimes differs. After learning the theory, I recommend you get in touch with venture capitalists or experienced Angel investors. The best people to talk to are General Partners in VC firms who were also Angel investors. They combine both worlds and can share valuable experience about deals, contracts, the fine print, twists, what to do and what not to do.
Remember: Every deal is unique.
About the author:
Michael is a recognized expert in intercultural communication. He explored cultures in Europe, Asia, and US, and analyzed how individuals communicate in complex organizations. His specialties are transformation management, global standardization, and leading intercultural teams. Michael is author of the Harvard Business Review article "Aufstand der Lokalfuersten" (HBR German Edition Oct/2010), a case study about standardization initiatives in global companies.