I read the book by Jason Calcanis on angel investing. If you are going to angel invest, it’s a good read. If you are angel investing, it’s still a good read. If you are an entrepreneur and you are going to raise money you might read it because it can help you both pre and post the raise.
Jason is a great investor. He made a lot of money doing it. Can you? It’s certainly possible. Jason was fortunate that a couple of his investments, particularly Uber, went to the stratosphere. As with most venture investors, it’s relatively few companies that make up most of your gain. I wrote a post on angel math a while ago. I don’t think the math has changed.
There are a lot of great points in the book. One point that Jason brings home over and over again that I don’t think can be understated is this; If you are going to invest in early stage startups and be successful at it, it’s a lot of work.
You have to put a lot of time in. What sort of things do you have to do?
- Listen to lots of pitches
- Meet lots of people in all kinds of situations
- Read a lot and think about the future/future trends a lot
- Be transparent and honest
- Find your edge
If you aren’t going to do this and still want exposure to early stage investing there are two ways to do it. Join a syndicate on a crowd funding platform or put some money in an early stage fund and outsource all the work.
That’s the work to get deal flow and into deals. Post investment, there is a lot of work as well! One of the nice pieces of the book is the way it sets out expectations. In the pre-investment period, Jason stresses that you have to be a great listener. Be professional. Take notes.
Post investment, he has tips for entrepreneurs.
- Keep your investor informed monthly.
- Be prepared for board meetings and send out a deck ahead of time.
These are little things that don’t take a lot of time. But, they make a difference.
I’d go one step further for entrepreneurs post investment. Have direct asks of your angels and early institutional investors. By direct, I mean really direct. If you see your company outgrowing it’s office or you are going to transition from a co-work space to an office, ask your investor group if they have any leads on good office space. Ask them for customer introductions. Ask them for employee referrals. Ask them advice on how to do certain things.
Great investors know they don’t have all the answers. Great entrepreneurs know they don’t either. Work through the problems together as a team.
I have one slight difference of opinion with Jason though. He makes the case that if you are going to invest in seed stage startups you have to be in Silicon Valley. Of course, the numbers are on his side. Silicon Valley is the best startup ecosystem in the world. However, it is possible to invest in seed stage startups outside of Silicon Valley and make money.
Jason makes the case that there are more billion dollar valued startups in Silicon Valley than anywhere else. He’s right. For the last 50 years, this has been true. But, as Steve Case will point out there are a lot of great startups that reach “unicorn” status outside of Silicon Valley today.
In Chicago we have had over $20 billion in exits in the last five years from seed stage startups that were founded in Chicago. Now, Uber is worth a lot more than all of them put together. As Jason correctly notes though, you have to invest in a lot of startups if you are going to find Uber. At seed, no one knew if Uber was going to be a billion dollar superstar or bust.
Of course, if you want to go to Silicon Valley you certainly can. Yes, in the next ten years, there will be some awesome startups to invest in there. However, other startup ecosystems are coming into their own. Pay attention to them.