My 1st Year of Angel Investing

You can invest in hundreds of startups like if they were lottery tickets …

… and if you are lucky enough, you might pick a few winners that will set you up.

But to become a great angel investor I don’t think you can just rely on luck.

Luck is an important component in investing and life in general and while there is no cookie-cutter magic formula for picking winners, there are a number of things you can do to maximise your chances of success as an angel investor.

Having a process, a large network and specific expertise is extremely important.

But if you have never started angel investing, where can you start?

Early on I think that joining syndicates is the most effective way to learn and to get exposed to quality deals.

I’ve joined Sydney Angels about a year ago and started my Angels investing journey with them.

There is nothing better than to be able to collaborate with 100+ angel investors on deals due diligence and learn from their experience.

Right from day 1 you can participate in components of deals due diligence, from business models deep dive to term sheets negotiation, offering a very-hands on approach to investing and a strong focus on investor education.

Alternatively, there are other platforms such as Aussie Angels or VentureCrowd that allow you to passively invest in deals offered by investors (or general partners - GPs) you follow.

The main difference here is that the GP does all of the heavy lifting in terms of due diligence, and you only provide capital if you like the deal.

While this is a good way to get exposed to a number of quality deals, getting direct access to GPs and learning from their deal notes, I think you are one step away from the actual investment process.

I think is very important to understand what goes behind the scenes when investing.

If you want to become a great angel investor, you should be able to perform your own due diligence, understanding whether the unit economics of a business make it a viable solution and should spend enough time with the founding team to have enough conviction about the people leading this venture.

Naturally, each approach is different and is reflective of what you are trying to achieve.

I prefer taking an active approach and provide as little or as much help and expertise a founder needs from me, acknowledging my boundaries and limitations.

I personally find it fulfilling and rewarding to be able to help founders, whether I invest in them or not.

I have only been Angel investing in a handful of deals over the past year and while I plan to do many more in the years to come, I still have a long way to go before I find out about my results…

Though, I acknowledge that most of my initial investments might become worthless, especially in the following 12-24 months because that’s the general timeframe until the startup needs funding once again …

… and if the startup hasn’t found product market fit, results aren’t great or existing investors have lost confidence, the harsh reality will start to sink in.

This is when some investors start to drop the ball and stop investing because they see many losses and not many gains.

But this is a long-term process, and the patient and consistent investor will be able to reap the rewards in the following decades.

Yes, I am talking about decades as companies are staying private for longer and for early stage deals it generally takes at least 8 years to realise.

To be a successful angel investor I also think is crucial you build a network of people you can tap into when you come across business models and industries you are not familiar with …

… while developing good professional friendships overtime.

Don’t take me wrong, this is no easy task, especially for an outsider like me having migrated to Australia without knowing anyone.

It has taken me countless networking hours and hundreds of coffees, but I am getting there …

…. and people in the startup ecosystem, I have to admit, have been very inclusive and keen to help.

I feel privileged being surrounded by a number of people who are way smarter that I could possibly be.

But you have to put the time and effort in it.

As Steve Blank puts it – ‘Get out of the building’ – which for me has meant going to Fishburners and other pitch night events, Startmate demo days, community events, investor luncheons or losing money at ?? Rayn Ong startup poker nights.

The network you build will contribute to your own pipeline of deal flow, become a very important contributor of intellectual capital and will allow you to connect other people with each other.

I can’t guarantee you will always get something out of a coffee or an event, but I can almost guarantee you won’t get much by sitting in front of a screen.

You can follow investors and get into deals based on peer reviews…

… but sometimes I think that if you want to find a diamond in the rough, you need to get yourself out there and do the groundwork, build relationships and find quality founders early on.

Something I started doing more recently is keeping a journal ledger about my investment decisions.

This is a personal development journey and by tracking my investment decisions I will be able to learn from my mistakes and better attribute the nature of future outcomes (skills vs luck).

As I mentioned, there is no cookie-cutter magic formula to success but if you get involved, build a network and deeply think about the investments you make, you should be able to make better and better decisions overtime.