What's Your Angel Strategy?

Many people are looking to get started with angel investing, but few know how to shape an early angel strategy. We explore how to develop your early angel strategy in practice.

“Wow, that’s interesting”, said the successful real estate developer in the Middle East. “I’ve never actually thought about developing a real angel investing strategy. This is super helpful!”. Those were the words spoken on day one of our three-day Angel Investor Masterclass hosted in the Middle East in late 2023.

With over 60 participants, the group included successfully exited entrepreneurs, ecosystem developers from across the region, entrepreneurs and real estate developers. All engaged, successful businesspeople, all eager to develop their angel investing skills, but none with a clearly defined angel strategy.

To help the group, we brought out three visual strategy Tools:

• My Angel Strategy Canvas
• Emerging Business Angel Strategy Index (for emerging angels)
• Business Angel Strategy Index (for active angels)

Introducing My Angel Strategy Canvas

Our friends at VC Lab have helped simplify the world of venture capital through the use of a clearly defined investment thesis. Inspired by the simplicity and clarity we developed a similar format for angel investors (thank you, VC Lab crew).

The structure of My Angel Strategy Canvas

Dealflow and selection: how many startups are you planning to see before you invest? A partner at a leading VC firm will see between 100 and 3000 deals, and invest in one. As an angel investor, how many are you planning to see and how many are you planning to invest in, over which time frame?

The first part, how many you plan to see, goes to the volume and quality of your deal flow. Do you have access? Do you see deals before others do? Do you see and share deals with your angel network? Do large, high-volume networks involve you in their deal flow? Are you invited in on structured deals? A business angel can see anywhere from zero to 1000’s of deals in a good year. We would recommend seeing a minimum of 100 before actively deploying your funds.

Second, how many investments, go into your portfolio construction? How many companies are you planning to invest in? A small angel portfolio will have 3-10 investments, with significant concentration risk. Remember, most of your angel investments will go to zero. An active angel is likely to hold 30-50 investments, while a high-volume angel investor is likely to have a portfolio of 50-100 investments. What is the right number for you?

Third. Timeline. We have seen too many angel investors get excited and deploy most of their available capital too quickly. Don’t. Make sure you spread your investments over time, typically 3-4 years. This allows you to see many more deals, and work slowly while you also build up your own network and experience.

Next row, we have ticket size. Here, you define how much you are looking to invest per company. An emerging angel investor can come in with as little as $1.000, or as much as $10M per deal. While most startups have some amount of minimum investment, or what we call minimum ticket size, most can also disregard this for the right angel investors. Think about how much you would like to invest per company, and what your hard limit is. This matters, to prevent you from jumping into a hot deal with more capital than you should.

Next row, what is your support? Most angel investors also want to find ways to support, to back, the companies beyond just the capital they provide. For many, this means taking board seats and actively supporting the companies. Is this something you want to be doing? Is it something you should be doing?

The same thing goes for follow-on rounds. There is a 99% chance that your start-up investment will want (or rather) need to go back to the market and raise more financing. What is your position here? Keep in mind the signalling risk if you do not invest again, it may be harder for later investors to commit. It is not uncommon to see later-stage investors require 20% – 30% participation from existing investors. If you have not decided or even thought about this chain of events, it will likely lead to some semi-challenging discussions between you and the founders. We recommend all angel investors to take an active position on their follow-on and share this openly and early with the founders.

Next row, your investment areas. Are you looking to invest in agritech, edtech, health tech or AI? Are you a beautiful generalist (investing in anything) or a deep tech specialist (only complicated tech?)? Most angels are generalists and stay flexible, but this matters to your access, your deal flow and where you sit in the larger ecosystem.

Finally, we have your contribution. Beyond your capital, this is really where your network, industry experience, access to customers, access to exit partners and investment bankers come in. How are you planning and hoping to contribute – if at all? Sometimes angels just want to participate in deals, with no time or interest for contributing. That’s okay too. Just be open about it.

Generally, we believe all angels can be helpful, most often in recruiting future talent, building boards, and opening their networks to customers and future investors. Sometimes, angels are mentors, sometimes trusted partners, and sometimes just a phone call or WhatsApp message away. Think about what skills and experience you can bring to the table here.

All angels are different

As we discussed in “Eight Angel Types”, all angel investors are different. To illustrate My Angel Strategy Canvas in practice, we have illustrated four examples.

1. Low deal flow, high tickets

Our first example is aiming to see only ten deals and invest in 80% of them over the next 12 months. This high investment rate and investment percentage is likely to lead to fast losses and some serious angel regret. Note also the difference between the average ticket size of $10.000 and the maximum $100.000. We suspect this angel may get pulled into some fast deals going significantly higher than the $10.000 he first indicated.

2. Trusting the network

Our second example is aiming to see 100 deals, and only invest in 5, over the next 24 months. This sounds more like a careful, getting-started strategy. Note that this angel is mostly looking to invest in ‘great deals happening in the angel network’, clearly indicating a willingness to co-invest and work with others. Smart.

Note that this is also a founder, with a network of angel investors around her. Smart. Building the dealflow network.

3. High Volume

This high-volume, German angel aims to see around 80 deals annually, over the coming five years. That is some serious high-volume planning and would require plenty of network and deal flow to succeed. With an average ticket size of $3.000, this is also a great way of getting started relatively cheaply, with a possibility to go to $20.000 in rare cases.

Our German angel is looking to build a portfolio of up to 20 companies, mostly looking for tech companies with proven traction, early users and possibly also early customers secured. Don’t be surprised if this angel investor would want to do customer interviews as a part of his due diligence process. Equally, given his tech background, he may also roll up his sleeves and test out code as he is building his supporting role with the team.

4. High-volume, corporate climate tech champion

Our fourth angel investor recently left her corporate role in energy- and climate tech to pursue a new role in the European climate tech landscape. Her newsletter already has 25.000 readers, a valuable real estate for any founder.

She is aiming to look at 500 companies across Europe and do 5-10 deals, for a 1-2% conversion rate. Her ticket size is relatively low, at $5.000 per deal, with an upper limit of $8.000. But, her network is golden, her corporate access is great and her newsletter makes her a sought-after angel investor for climate-tech founders across Europe.

Your Turn

Now, it’s your turn.

Download My Angel Strategy Canvas and complete your own angel investing strategy.

You may want to reflect on your own deal flow, and how to expand it. Your portfolio construction and your timeline. Make sure to budget the capital to invest (note, that all capital may be lost here). Think about your role and follow-ons. Think about your investment areas. AI is hot today, but may go cold tomorrow (what are the sustainable business models here, after all?); and finally, think about your contribution to the team -if any.

Good luck with shaping your angel strategy.

Join Our Webinar: What is Your Angel Strategy?

Date: 8th July 2024 Time: 18:00 – 19:00 CEST

Globally, there are thousands of angel investors and hundreds of angel networks. However, many lack a concrete strategy. Drawing from our extensive work with angel investors worldwide—from the Middle East to the Nordics, from Silicon Valley to East Asia—we’ll share valuable insights and practical tools.

Join the upcoming hands-on webinar with Christian Rangen & Rick Rasmussen, exploring the essential strategies for successful angel investing. Whether you’re an experienced angel, an emerging investor, or a future angel, this webinar is designed to enhance your investing strategy and ensure long-term success.

Register here.