Becoming an angel investor can be one of the most rewarding experiences of your life. You’ll get to network with entrepreneurs who are building their dreams and creating companies that may one day change the world. When an angel investor writes a check, they become a small part of this exciting journey.
Throughout the COVID-19 pandemic, angel investing has remained buoyant despite some economic uncertainty. As more founders successfully exit their companies, younger investors are emerging in the market. If you’re thinking of becoming an angel investor, here are some pro tips after years of angel investing:
Take your Time
Don’t rush your investments. Angels aren’t required to invest, unlike venture capitalists. Take your time and consider each company and the ecosystems where you plan to invest. As an emerging angel investor, consider building up your recognition of what a good deal entails. New investors also need to ensure they are investing with credible people and funds who share similar values and business approaches. Remember, it’s not always smooth sailing, so it’s important to remember these foundational points as you review each business.
Offer Supportive Guidance
Anyone with extra cash flow can become an angel investor, but you will be known for providing “lazy money”if you don’t offer any value to the companies in which you invest. Being a passive angel who doesn’t provide constructive feedback doesn’t allow for the ecosystem to function effectively. Angel investors must offer support to their founders. Helping founders even before you invest is a good practice and will help you build upon your reputation. At the same time, remember to give a generous amount of support but aren’t being too hands-on or disruptive. It’s important to let founders make their own decisions while giving them a solid foundation of guidance.
Teamwork Makes the Dream Work
Once you meet a founder who has an idea that attracts you or operates in an exciting market, it’s easy to indulge in the company, especially if they are good salespeople. Often, angel investors may find they like the ideas or market but don’t think the team works. Trust your intuition if you don’t think a team is working together well or don’t think these players are the best option to win in their market. Ultimately, the quality and attitude of the team are the key factors of success in any business deal.
Ask about Track Records
Often, a big mistake made by angel investors is to assume that a strong resume (with academic credentials and corporate achievements) equates to a successful business. That’s not always the case. In fact, the reverse is often true as academic and corporate life often can insulate people from the ins and outs of running a business. Ask founders about their previous achievements and how relevant those experiences are when leading their current venture. Assess the founders on more criteria than just their CVs and get to know them so you can understand what defines their character.
Conduct Technological Diligence
It’s important to be rigorously detailed as you evaluate technology products. This doesn’t mean digging around in the code but validating that the key assumptions and processes about the technology work. Ask what it should do and for a tutorial of live demos. It’s important to download the app, look at reviews and talk to the CTO. Do everything possible to get a feel for the development status of the technology and the engineering culture at the company. If you’re unsure about the diligence of the technology, set up reference calls with other investors to understand how they have gone about the process.