Angel Investing Angellist Due Diligence Fund Raising

Angel Investing experience

I started Angel Investing about 4 years ago.  I guessed it would be a good time to write up some thoughts on my experience so far. 4 years is about half way to get a meaningful return, so this post is not yet about returns in angel investing. Others have written volumes about that strategy.

I invest in two ways. 1) direct cash investment 2) Investing my time and expertise  with startup companies in return for equity via my company Carabiner.IO

I have invested in 15 companies so far. 3 have exited (sold/folded), 2-3 are on life support and rest are in various stages of growth.

My investments have predominantly been in B2B companies. Best performer so far has been a non software company 🙂

I don’t enter deals alone. I am a member of the AoA and TAGs, two leading Angel groups in Seattle. I have also invested in one deal in an AngelList syndicate. In my AngelList investment, I did the least amount of diligence 🙁

I spend at least 10-15 hours on due diligence. I see no definite correlation between number of due diligence hours and success. In some cases, the more due diligence I did,  the more I found it difficult to step out as I had mentally committed to the deal, despite some yellow flags.

Some takeaways:-

  1. If the CEO hesitates to let you talk to customers, get out. By customers, I include broadly folks that are using the product or have expressed serious intent to use the product via customer discovery.
  2. If the deal is moving too fast for YOUR comfort, don’t get sucked in. Most companies will need to raise money in the future and it’s likely a better deal is around the corner. This is also called “FOMO” (fear of missing out).
  3. Try to have a conversation with as many members of the company as possible. Most interaction is with the CEO and they are usually on their best behavior during fund raising 🙂 .  I ignored warning signs in a company with CEO/CTO interaction.
  4. Divide and conquer. In deals that I lead, I try to get folks that are interested be responsible for specific aspects of evaluation.
  5. Developing a template oriented approach to evaluation has helped.

While Angel Investing is certainly risky, I have enjoyed my experience of interacting with a diverse set of people while doing so.

Angellist Crowd Funding Entrepreneurship Fund Raising Start Up

Crowd Funding

Recently, I helped my company Cartogram list an investment offering on a public funding site – Flash Funders.

One should understand the difference between crowd funding and 506(c). A 506 (c) offering is open to only accredited investors and it’s the responsibility of the manager of the offering to verify accredited status of investors.  The nice thing about this offering is that Flash Funders will pool any investments less than the minimum in a LLC, so the entrepreneur does not have the daunting prospect of having to manage a big investor pool. Model is similar to an Angellist syndicate, but the key difference is that companies can list themselves, rather than needing an investor to syndicate. This is different from crowd funding sites like Kickstarter or Indiegogo as those entities don’t deal with equity and one does not have to be accredited investor to invest in Kickstarter or IndieGogo.

We found the Flash Funders tools very good and their team was quite responsive to us. They reviewed our documents thoroughly and pointed out a few gaps that we were able to fix easily. Going through the exercise itself has been very useful for Cartogram – especially in how much to reveal to a public audience and how to structure the presentation so it’s effective when just browsed. Sensitive information can be left out and provided to a prospective investor during due diligence.

We are in this era of greater access for entrepreneurs to fund their companies now. I listened to Naval Ravikant in a recent Tim Ferris podcast and he had some interesting things to say. His observation is that the communication and information revolution is breaking down the validity of the company as an organizational entity. Somehow, I believe that to truly build great things, the company structure is vital. How does one create a bold mission and attract people to that mission if everyone is just working virtually or free lancing? I am unable to fathom that, but who knows what the future holds.