Becoming a business investor or Angel Investor as they are called in countries such as the UK and the US can be both challenging and rewarding. Many businesses benefit hugely, from these investors, not only from the funding or investment in the business but also, and in our opinion this is extremely important, by working with investors who have been there and done it. In our work with entrepreneurs and investors around the country and from time to time internationally we come across some big players in the industry. One of these guys is Paul Graham, the founder of Y-combinator, a business incubator type firm in the US. Paul's Y-combinator business model is simple, he provides a small amount of start-up capital to young and promising businesses and provide them with the expertise, contacts and motivation they need to get their businesses of the ground.
In a recent online conference, dealing with the benefits and drawbacks of working with Investors, a number of extremely useful lessons came to the fore. The lessons learned were mostly for Investors, but from reading these its evident that both entrepreneurs and investors can gain some insight. A few of the lessons learned are:
* It's a small community -- if you screw one entrepreneur, you'll be out of the angel business because entrepreneurs talk (Conway)
* Angel investing is about learning on the job, which means that you can plan on screwing up your first 10 deals at least (McClure)
* If you assume that the money is gone once you've invested it -- that it is like a lottery ticket -- then you will have a better time angel investing (Buchheit)
* Work with other angel investors so that you can get the advantage of their expertise (Zurich)
* There is no rational way to arrive at valuation, so don't be overly concerned about getting it right (Graham)
* Don't worry if the idea seems crazy -- if it didn't seem crazy, it would be too late to invest as an angel (Graham)
* The lifeblood of angel investors is deal flow -- you need huge deal flow to find enough stuff that is worth investing in (Ravikant)
* The best deals come from other angels (Ravikant)
* Don't be afraid to throw a little dynamite into the status quo and see what comes out of it -- often times interesting stuff emerges (and sometimes nothing does) (Dearing)
* The Rule of 12 -- you need to invest in 12 companies to have statistical diversity -- invest in fewer than 12 deals and you run the risk of them all failing (Maples)
* Like in the movie "Oceans 11," you want to pull together the best team of angel specialists there are out there -- it increases the likelihood that the company will succeed (Maples)
* Help bring your entrepreneurs together so that they can learn from one another (Poler)
* By being a connector, you will see the most interesting stuff and work with the most interesting people (Senkut)
* Angel investing is all about the syndicate -- you can lead if you want to but it can be lonely until others join in the syndicate (Clavier)
* Angel investors need to distinguish themselves from others with money -- what do you bring to the table? Contacts. Experience. Advice. (Young)
* Only invest in stuff you actually know something about -- otherwise you're just buying a lottery ticket (Young)
Yes, plenty here to ponder on.
Till next time - The Investors Network Team
