Tl;Dr:

Understand how contrarian your opinion is.
Be careful with “hot deals.”
Decide what you care about.
Do something. Anything.
Regulate your emotions.
Play to your Strengths.

___________

I wrote my first angel check in 2013, got lucky, and was hooked.

I recently did my 60th deal, and increasingly I’m finding friends and classmates are asking for my advice on angel investing. Here are some lessons.

This probably isn’t useful if you are writing a single check to back a friend's first company. But if you're thinking about making a habit of this, the following might be useful.

Anyway, here goes.

1. Understand how contrarian your opinion is.

The first companies I funded were friends of friends, raising their first round. As I watched presentations, I took the founder’s claims and projections as gospel. These were surefire winners, and I was lucky to be “invited to invest.”

My ego told me I was special, because I was getting pitched – but I wasn’t. In Fact, these were slow rounds that other investors had passed on.

By investing in slow rounds, I was taking very contrarian positions.I was missing red flags that others saw, and overvaluing an upside that others didn’t see.

I’m not suggesting that you only invest in “hot rounds” alongside “big name VCs.” Some contrarian opinions end up being the right ones. And when they are, they pay off the biggest. But you must be aware when you have a contrarian opinion, and you must have some expertise that informs the opinion or thesis.

It also helps to ask yourself: why am I getting this allocation? If this is such an obviously great deal, then why aren’t people fighting for this investment?

At first, I would have answered: “This is an obviously great deal, and I’m getting access because I’m an angel investor, and I’m seeing this deal first.” This was super wrong.

Today the answer is usually a little more nuanced: It might be: “I think that the risks associated with hardware can be mitigated for x reasons.” Or “This is an obviously good bet, and I’m getting an allocation because they want my help with recruiting.”

It’s like someone is trying to sell you a plot of land in Texas because they’re nearly positive it has oil on it. It might. But there are people out there with geology PHDs on staff, who have equipment worth billions, who spend every waking hour looking for oil. To make the investment you have to articulate: what are you seeing, that they aren’t?

2. The flip side of my first point: Be careful with “hot deals.”

By participating in a “hot deal”, in which there’s lots of interest from multiple big name investors, you’re taking a less contrarian opinion, so it can feel like a sure thing. But remember you’re still investing in the riskiest asset class. If you invested in every deal that a16z and Sequoia fought over, you’d probably end up with a great return. But you can’t, and you won’t. If you invest in one or two of the deals that a16z and Sequoia fight over… who knows what will happen.

Don’t get seduced by sizzle – try the steak. Have a strong opinion.

Furthermore, often deals look hot. But they aren't. Founders are getting great at creating artificially “hot deals.” Numerous times, this scene has played out.

Founder: We’re moving fast and closing next week. Can you get back to me Thursday? If not, we cannot accommodate you.
Me: I like you a lot, but I can’t move that quickly. So unfortunately, this is going to be a pass. But I like what you’re doing, so I’d love to help with x, and stay in touch.
Founder: Oh… umm… when would you like to get back to me? I can maybe wait a little longer, and I really would like you in the round.

I don’t blame founders for creating urgency. I support them in generating momentum and being efficient fundraisers. But especially as a new angel making a limited number of bets, you need to think clearly (and not just follow the hype).

3. Decide what you care about.

Several years ago I became a fanatical early adopter of Whoop, so I reached out to the CEO. After getting to know him, I secured an allocation. This was empowering. It meant I could invest outside of my network. You can too.

It worked because Will could tell I care deeply about his product and industry. I’m obsessed. My partner rolls her eyes when new trackers, health books, sensors, and supplements, arrive at the house. I organically decided I care about healthcare.

More recently, I decided to go deeper into Enterprise SaaS and Fintech as well. This level of conviction and fluency isn’t necessary when fielding inbound deals, but it is essential when going outbound.

Focus also drives inbound as you can easily tell friends and investors what kind of deals you like (if you tell them you like everything, they’ll send you nothing).

4. Do something. Anything.

I invested in the Modern Treasury seed, but then wasn’t invited to participate in the A. This was a wakeup call. I had done the “how can I help” thing, and then not provided enough value.

Over the next six months, I helped Modern Treasury hire three employees. and with Whoop, I didn't want to take the chance so I referred a few candidates and helped them land a hard-to-get podcast guest. It worked, both companies let me participate in their next round.

So… If the founder asks for help, help. If the founder doesn’t ask for help, help anyway. For me, browsing posted jobs, and trying to refer candidates is a straightforward and clear value add that doesn’t require work from the founders.

A friend of mine is an expert in corporate communications. For her, the value-add is to write press releases and blog posts for founders. Find something specific you can do.

When you’re working with the best companies, money is a commodity and you’re selling them on why you’re a good team member.

5. Regulate your emotions.

When I first started investing my emotions looked like this:

Now it looks sorta like this.

Not perfect. But it’s better.

I’ve come to realize that this hobby (and for me, it is just that) comes with highs. It’s intellectually fascinating. I get to know amazing founders. I can justify deep research into subjects I care about. I face new challenges daily (CRO search, vetting vendors, building GTM strategies), without the pressure that founders feel. I get validation from seeing my bets pay off.

There are also lows. There are days when doing this part time feels futile. I’m competing against some of the smartest people in the world, who have built huge organizations devoted to tracking founders, winning deals, and offering support.

I rush into deals, and kick myself. I miss deals, and kick myself. I realize I’ve been too busy with work to help founders, and I kick myself.

I’ve found that I’m better at this (and happier) when I keep my emotions in check. It’s all OK. I’m doing my best. I’ve found it is rarely too late to help a founder (or company) I care about. Great deals aren’t usually as good as they seem. Sometimes underdogs win. And the economics are such that a few surprises make a big impact.

6. Know what you’re up against.
Thinking about who you’re competing with is helpful for many of the points above. When you’re frustrated: think about who you’re up against. When you think you have unique deal access, think about who you’re up against. When you think your contrarian opinion is right, think about who you’re up against.

I could expand on any of these points, but let’s look at dealflow. Here are the sources of my dealflow.

At a tiny (fill time) firm, their deal flow sources might look like this.

More often than not… I'm not the first person to see something! How could I be!

And more often than not, I have less to offer. Be aware of this and play to your strengths.

6. Play to Angel Strengths. Be flexible. Be small. Exceed low expectations.

Big firms have ownership and return targets and fund mandates, individuals usually don’t. Accept smaller allocations in great companies to get momentum. If you miss a seed or A, but really care about a company, chase the B.

Don’t compete with firms. Compete with most angels, who say “let me know how I can be helpful,” and then do nothing.

Now what: I realize that many of these points are things to look out for, or things you can do wrong. I’m not trying to dissuade you from investing. I’m saying this: after a first call with a founder, when you’re excited to invest and proud of getting access… take a moment and pause. And consider some of the points above.

If you’re still excited, good luck. Invest. And then turn your focus to earning your next allocation.