How To Be an Angel Investor?

Since 2002 I co-founded, together with my long time business partner Richard Musch, two different internet companies: E2Ma and In 2013 I noticed other (first time) entrepreneurs needed mentorship, and venture funding for their Startups.

So I thought: What is it like to be an Angel Investor? What does an Angel do? How much time does it take them to do their job? What kind of mentorship is requested? I did my home work, talked to many angels, and read a lot of blog posts about this subject. Here are some points I learned about Angel investing:

  1. An Angel Investor should provide domain expertise, and help whenever he can,
  2. He needs to understand his role. In my opinion, an Angel should focus on the “Incubation and pre-Seed phase”. It’s the phase where Customer Discovery & Customer Validation takes place.
  3. Most Startups fail when they scale. When the company is ready to scale you need to sell your shares to the big boys, you receive 2 to 4x return.
  4. Never ever accept Convertible Debt. Yes it’s cheaper, but there are a lot of down sides to Convertible Debt. If you must you need to make sure it’s CAPed, and has a discount (25-40%, on AngelList you get 20% on average, which in my opinion is low).
  5. You need to work the big numbers, gain access to deal flow, and make one Angel investment a month. Most angels -former entrepreneurs- are losing money because they don’t play the numbers. Remember just 1 out of 12 deals is very profitable.
  6. Try to bet on entrepreneurs who are willing to use multiple investment rounds, enabling downstream investors to buy-out the Angels.
  7. Asses the Product not the Teams. If the Product sucks the Team sucks.

I know its not a complete list, so I would love to receive your ideas and insights. It will compliment this list and it will help others to better understand the job of being an Angel.