frank's blog

How Angels See The World

Posted in ideas by aldorf on August 24, 2010

Interesting to see how angel investors think or make their decisions. It’s really useful knowledge if you like to pitch your idea to one or just to see and judge if your business idea is in a good spot.

1) “Drill more holes”. Investing in many companies is the only way to balance the risks of markets, teams and competition. Maintain a relatively large portfolio.

2) If you can’t judge the team, market and product thoroughly, it’s probably not a wise investment.

3) Keep some powder dry for subsequent rounds. While the best return in a successful investment comes from investing earlier, holding some cash back can mitigate some risk.

4) Don’t make assumptions during the honeymoon. While making an investment, you’re probably seeing the company in its best light. Things will likely get worse before they get better.

5) Team over idea – Ideas are cool, but quality teams are cooler. A great team can make a mediocre idea soar or morph it into a better one over time. Often, mediocre teams struggle to create success even when they start with a great idea. I have to believe that the team can knock the ball out of the park. Only then do I consider the idea itself. As a corollary to this, I need to trust the CEO. Surprisingly, I find this to be a real issue from time to time.

6) There has to be a grownup involved – For all the energy, drive, brains and talent in most startups, there’s often a dearth of wisdom. Someone needs to be involved to provide it and be a sounding board for the startup team. This person or these people should be on the company’s Board of Directors. They can come from inside or outside of the investor group (inside preferable).

7) You can’t and don’t even want to try to tie up every loose end – As much as you’d like everything in the investment to be taken care of and completely thought out, it ain’t gonna happen. Things change along the way.  The investor and founding team need to feel like they will make adjustments together as warranted.

8) Friend’s before business – This is a personal rule of mine that I’ve broken more than once. Fortunately, it’s never backfired on me. I take both my friendships and my involvement with companies seriously. As such, the potential for conflict is high if I mix them – things never go the way you plan. There are always going to be situations in which the investor needs to support either the company or the management team. Can you support the company over your friend? Your friend over the company? Why even put yourself in that position? (via Venturebeat)

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