Angel Investing: Syndicates, Belief Capital, Investment Pre-Mortems

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🔍 Problem

Founders need early believers, advice, networks and capital.

Most investors wait on the sidelines until traction is clear.

💡 Solution

Angel investors are early believers. They invest in founders with billion dollar ideas and expect for most to fail.

It’s counterintuitive. You can profitably lose 9 out of 10 bets if the winner returns 30x.

🏁 Players

Angel Investors

Angel-Funded

Syndicate Leads

🔮 Predictions

  • More investors will expect founders to have a product ‘in the wild’ before investing. This signals resourcefulness. Especially for non-technical founders. No-code tools lower the barrier to entry.
  • More influencers will get paid in equity. Joe Rogan got a stake in Onnit in exchange for promotion. This strategy aligns long-term interests with influencers.

☁️ Opportunities

For Angel Investors

  • Build a personal brand for proprietary deal flow. Make it clear how you help founders: expertise, network, audience, etc.
  • Start a blog, podcast, newsletter and stay active on Twitter. Widen your luck surface area and stay top of mind for founders.
  • Keep an investment decision journal. Angel investing has slow feedback loops. This gives us time to fool ourselves about why we did or didn’t invest. Journals lock thoughts in time and keep us honest.
  • Avoid the risk of ruin. Most suggest limiting angel investments to 5-10% of your net worth. Naval Ravikant says don’t get into angel investing to make money because you probably won’t. 
  • Do investment premortems. Ask yourself, “If this investment fails, why did it?” Negative visualization helps mitigate/identify the riskiest parts of a deal. (Thanks to Leon Lin for this link)
  • Write fantasy investment deal memos before you start investing. This is how Vedika Jain landed at Weekend Fund. VCs do this too.

For Founders

  • Take some money off the table and join a syndicate. Angel investors hedge risk but most founders don’t.
  • Keep a decision journal. This helps you find patterns, identify bias and improve your decisions.
  • Build an audience first. Leverage your reach to build a startup and raise capital.

😠 Haters

“How dare you write this?! Are you an angel investor?”
Not yet. And that almost stopped me. But I have a growth mindset. You should try it. 😉

“You forgot some angels.”
AngelList has more than 42,000 investors on the platform. The Center for Venture Research estimated that there were 258,000 active angel investors in 2017.

Trends.vc is known for brevity.

Furthermore, some venture capitalists are mistaken for angel investors. What’s the difference? VCs take less risk, have LPs, invest bigger checks at later stages and move with teams instead of solo or syndicates. Let me know if you’re interested in a report on VCs.

🔗 Links

  1. Angel: How to Invest in Technology Startups (Jason Calacanis)
    • Invest in founders. “Would you buy stock in this person?”
    • Start with syndicates and small checks.
    • Negotiate pro rata and information rights.
  2. How to Be an Angel Investor (Paul Graham)
    • Start with syndicates.
    • Understand dilution and valuations.
    • Understand what makes a good founder.
  3. How to Be an Angel Investor (NavalRavikant and BabakNivi)
    • Think of yourself as a patron of innovation.
    • Balance your portfolio with ultra-safe investments.
    • Investing in groups makes for better decision making.
  4. Memo — YC provides great questions to ask yourself as a founder.
  5. The Underrated Types of Capital That No One Is Talking About — KP looks at intangible benefits that angel investors offer founders. Beyond financial capital. They offer belief capital.

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