As a founding partner of Year One Labs (an early stage accelerator), which operated actively in 2010-2011, I participated in 5 very early stage investments. But that wasn’t angel investing (although it had some similarities). Nine months ago I made my first independent angel investment. I’ve made 7 in total. They include: anonymous company (can’t tell you yet), sendwithus, Scalability (Hockeystick), Mixgenius, TandemLaunch (a fund / incubator), Breather and Javelin.

I don’t invest a lot per deal, but I hope each of the people I invest in realizes that it’s a lot for me. I made that mistake with an angel investor once (who invested in Standout Jobs) and it’s one I’ll never repeat.

Recently, I’ve slowed down my investing (turns out I like doing this a little too much, maybe!) It also feels like a good time to reflect on what I’ve done and learned through this process.

1. Angel investing is fun. You can see why people keep doing it, even if the returns aren’t fantastic. Being involved (even in a small way) with a lot of smart people, working on a variety of cool things, is plain old fun. I don’t think I’d continue investing if it wasn’t.

   Some parts of angel investing aren’t fun, namely reading legal documents and wiring money. I want to poke my eyes out every time I have to go through an agreement. Why this hasn’t changed is beyond me. Wiring money is also tedious. It’s unbelievable how ass-backwards it is. Bank tellers always ask me if I’m OK with the $25 or $50 fee for doing the transfer. I’m sending thousands of dollars to someone, so yes, paying $50 is fine with me. I wonder when we’ll start seeing angel investments in Bitcoin…

2. Saying “no” is hard. Typically, I like most entrepreneurs I meet. By virtue of the fact that they’ve started a company and taken the plunge, I immediately feel a connection to them, and that makes it hard to say “no”. It’s particularly hard with friends. But part of investing (at any level) is seeing as much as you can, being selective (based on whatever model you construct) and saying “no” a lot. It’s just hard, and not any fun.
3. I’ve done minimal due diligence. I remember reading Dharmesh Shah’s take on this (he does almost no due diligence at all), and you can see why that’s the case. Most of my investments have been extremely early, pre-traction, and there’s just not much to look at. I do want to understand a bit about the industry (if I’m not familiar with it) and understand the founders’ processes for moving forward, but I definitely don’t do deep dives. I like to ask “Why?” a lot, just to see how people respond.
4. I’m biased to people I know. 5 of 7 investments are in people I know very well (4 of them I’ve worked with in various capacities). This isn’t surprising, and I suspect most angel investors start this way. But you have to fairly quickly expand your horizons. I look at AngelList every so often (and get pitched there quite a bit), and while it’s an awesome platform for information gathering, I find it a bit cold as a place for investing. Maybe that’s because I’m new at this, but I like the more personal, hands-on approach. But again, you have to expand quickly beyond your closest network if you want to see enough opportunities.
5. I haven’t invested the same amount in each deal. I feel like this may be a mistake, but it’s the way I’ve done it so far. I have semi-logical reasons for investing this way, or rationalizations that I make to myself about it, but mostly it’s because I want to do more deals, so I invest a bit less in some, to do more investments later.
6. I’m involved more in some than others. This is mostly based on the entrepreneurs and their interest in having me involved. Most of them send regular updates, which in my mind is a necessity for maintaining a good relationship with investors, but a few of them will also ping me regularly with questions, etc. I don’t go looking for work, but I do enjoy helping out where I can!

   Having said that, I always think to myself, “Don’t invest in entrepreneurs that need a lot of help, you want to invest in those that don’t need any help, because they get it.” I read that somewhere (don’t remember where), and it’s stuck with me. I struggle with this idea though, because I like helping, and everyone–including the best entrepreneurs out there–need help sometimes. Plus, you can’t ignore the fact that you get a certain ego boost when you help (or think you’ve helped!)

   At the same time, there’s definitely some truth to the statement as well. If you need my help with the core business then we’re in trouble. I can help with introductions, provide advice around analytics, Lean processes, recruiting (and a few other things I’m reasonably good at), offer a shoulder to cry on, listen, commiserate on the challenges of being an entrepreneur and probably a few other things too, but beyond that and I start to worry.

7. I haven’t always agreed with the entrepreneurs. At the same time I haven’t tried to impose my will. That’s not my job. I put in the money and I gave them my trust. At some point, perhaps, that trust will disappear, and we’ll have real problems, but I hope it doesn’t come to that. I’ve seen what happens when VCs and entrepreneurs are really sitting across the table from one another…it’s not pretty. And I’ve been in situations where trust has deteriorated and relationships have crumbled. It sucks. It’s maddening.

   My feeling on this is simple: entrepreneurs own and run their companies. Those startups are their babies, not mine, I’m just along for the ride. If they want my advice, and I can provide it, so be it. If I see something I think they could improve, I’ll mention it, but I’m not going to harangue them about it. Everyone has to make mistakes, and everyone does, and just because I have a few dollars to invest and some years of experience doesn’t make me an expert on a whole hell of a lot. I know what it’s like to be a founder (it’s hard!) and they don’t need me watching over their shoulders.

8. I haven’t developed a real thesis for making future investment decisions. I’m pretty sure this is a mistake, but I also think it takes time to develop a thesis that you want to stick with. One of the key decision points I’ve used so far is whether or not I’d want to start a company with the people I’m investing in. If the answer is yes, it makes investing a lot easier. So really, it’s a bet on people above all else. But this also seriously limits the investments I can make (because there aren’t that many people I’d want to start a company with).

   I’ve invested in a broad range of companies so far. But one common thread (other than what I’ve mentioned above) is that they’ve all got the makings of an unfair advantage (i.e. a hook, a new approach, something they’ve learned that they can take real advantage of) that could result in them winning big time. A lot of startups don’t have that “thing that really makes them special”, but I think each of the investments I’ve made does. And I can pinpoint that one thing for each of them; that soon-to-be-potentially-amazing unfair advantage that I believe can drive them to win (although startup success comes from a ton of things working well and falling into place too). They haven’t fully realized the advantages yet, and they may not turn out to be true unfair advantages, but the inkling is there and needs to be explored.

9. I’ve been influenced by the participation of high-profile investors (but not too often). Mark MacLeod recently wrote an interesting post about social proof being overrated and it got me thinking about the people I’ve invested with. The list contains some incredibly successful and influential people, and it’s impossible for me to say that I wasn’t influenced by that. Of course, I don’t know many of those people who I’ve co-invested with, which strikes me as odd; here we are invested in the same startup, but there’s no communication at all. You’d think there’d be benefits to having investors communicating together more (although some entrepreneurs would definitely disagree).
10. I’ve also been affected by investors saying no. A couple of times I’ve second guessed my decision to invest after hearing that other investors have said “no”. You’d like to think that as soon as you’ve made a certain decision, everyone else will agree with it, right? But that’s not how this works. Raising money means getting rejected…a lot. So it’s absurd to think that a rejection from a good investor means I should change my mind. But the thought is there. In the end I went through with the investments, even though others that I knew (personally or by reputation) decided not to. Most investors are wrong most of the time; I try and keep that in mind when being affected by what others are doing.
11. Party rounds are bad. I knew this already, but when looking at an investment now, if I see a lot (say 7+) people participating I get very nervous. Angel investors tend to have their hands in a lot of pies and they’re insanely busy and difficult to pin down. And when you need investors to do something for you, at a point that’s critical for your business, you may find it hard to herd the cats. That’s scary for me, particularly as one of the smaller investors in almost all deals.
12. I’d like to work more closely with other angels. I know a few people that are actively investing, and I’ve worked with a couple folks on deals, but I haven’t spent a lot of time building a close-knit group that I trust and lean on. This is something I definitely want to do in the next 6 months or so; it’ll help with deal flow, but also in learning from others how they make decisions, how they handle certain situations within their portfolio, and more.
13. I’d like an early exit or two. Unlike VCs that claim every deal they do is because they believe it’s going to be a $100M+ mammoth exit (which I honestly can’t believe they believe based on some of the deals they do), I don’t have to say that, nor is it something that is a necessity to being successful as an angel investor. In fact, an early win or two, based on the valuations I’m investing at, and the amounts I’m investing, would be pretty meaningful. I could turn around and do more deals pretty fast. Plus it would be (rightly or wrongly) validation that I’m starting to figure out what the hell I’m doing. I could at least make myself believe that!
14. Angel investing is almost completely irrational. Most startups fail. That’s a fact. And I remember an investor once saying to me, “As soon as you invest, assume the money is gone.” I get that. But at the same time, when I look at my investments, I think they’ll all win. The wins will vary in size, but they all look like good decisions. But unless I’m insanely lucky or an investing genius (I don’t think either is true), some of my investments will fail. Fuck, most of them might fail. That’s an awful feeling, especially because I’m quite close with most of the founders. But that’s the reality. And so it’s clear to me that angel investing is almost completely irrational, and done almost purely based on emotion. When angel investors say, “I just want to help,” I genuinely believe that’s true. It’s not the whole story, but it’s true (and that’s a good thing).

Going forward, I’m starting to think about how many deals I want to do over the next few years. I’ve got a yearly budget in mind, which likely means doing 5-8 deals per year. And I’d like to do that for at least 3 more years, which would result in a portfolio of 22-31 companies. I don’t think I could do much more than that and play the crazy volume game, but I don’t want to sit on a handful of deals and expect it’ll work out either.

I’ve wholeheartedly enjoyed my first 9 months as an angel investor. I hope I have the opportunity to continue investing and working with awesome people. If you have the resources to angel invest, I hope you’ll do it. In my mind it’s net positive no matter what happens. You’re helping people take a shot at fulfilling their dreams and hopefully making money while doing it. Don’t do it blindly. Educate yourself about what you’re getting into, but don’t over think it either. Assuming you are (or were) an entrepreneur, jump in like that and figure it out along the way!

What else would you like to know? Anything? Ask away and I’ll do my best to answer…

Also on Hacker News: https://news.ycombinator.com/item?id=6417248.