Since there's been a lot of Twitter chatter about this, here's a thread on How to Get Started as a Microangel investor in startups? >>
1) First, my biggest learning (that I wish I'd learned in my 20s) was that there are a LOT of angel investors in Silicon Valley who are investing $1k checks. Seriously. Previously, I'd thought that you need to be investing $25k+ checks in order to be an angel investor.
2) So while you do need to have *some money* to be able to angel invest, it's not as much as most ppl think. You don't need to be super rich. So conceptually, angel investing can be pretty accessible. Getting deal flow & education have been the bigger blockers to date.
3) Let's first talk strategy. It's VERY IMPT to understand that angel investing is RISKY! Most of your investments will return $0. You will lose $$. So it's impt to have great portfolio construction.
4) This video that I put together on why VCs are obsessed with unicorns ($1b valuation cos) will help walk through this thinking:
youtube.com/watch?v=ko0n3n…
5) tl;dr, you will lose $$ not just on companies that shut down but also on the ones that continue to do well but never have liquidity as well as the ones that do have liquidity but you are at the bottom of the preference stack and later stage investors hose you.
6) And as such, your winners need to make enough money to cover all of your losses plus make more money. As an angel, you don't need to go for the biggest outcomes ever (unlike VCs who manage other ppl's $$) but it's impt to have a similar mindset -- 2x wins are not good enough
7) The way to combat lots of losses is to invest in a lot of cos to diversify your portfolio. One of the biggest mistakes new investors make is thinking they can really pick well & putting a big chunk of cash on 1 co. Don't try to pick a co. Select a portfolio.
8) And for beginners, a bigger startup portfolio is better IMO. A) It helps w/ diversification - mitigate downside risk. B) It helps you learn and get reps in. Investing requires practice like everything else. So you have to see a lot and invest a lot to get better.
9) There are lots of opinions on "concentrated" vs "large" portfolio theory. The pros & cons are large portfolio mitigates risk but returns too. A concentrated portfolio increases both risk & upside. I think for beginners, it's better to walk first. Then think about running.
10) This is why it's helpful to be investing smaller amounts such as $1k. If you're going to diversify in say 100 companies -> $100k over say 5-10 years. This means that you need to have $10-20k per yr. That's the kind of budget you need for this to mitigate risk IMO.
11) Further, when you have no dealflow, you need to team up with ppl who do in order to maximize your chances. Try to find other people who have been angel investing or even funds to at least look at companies with.
12) Although you may have different opinions from these investors, in order to practice, it's helpful to understand how other ppl think about things (and understand what they think about) when they are making a decision.
13) Once you are able to tag along other ppl for dealflow, this is really a game of decision making and how can you improve your decision over time. The more disciplined you are in your thought process / rubric, the more you can improve over time.
14) This is a great interview that @HarryStebbings did with @AnnieDuke one of my favorite thinkers / authors / poker players. https://t.co/2COUcaigQv It is entirely about how to make decisions, score them, and get better at them.
thetwentyminutevc.com/annieduke/
15) Like sports or musical instruments, in order to get better, you need to take in feedback, and work on those *specific weaknesses*. However, many investors don't get better, because the cycle from beginning to exit is yrs. So how do you get feedback to get better?
16) In startup investing, there's short term and long term feedback. In the short term -- it's making a decision to invest into a startup. Then work w/ the startup to re-assess whether your hypotheses were true.
17) For example: Hypothesis: "I think this team is focused" And then let's say you work w/ a team -- and they are really scattered and all over the place. They are doing too many different things. Things that don't matter. Starting other side businesses. Etc.
18) It's often hard to figure this out, because you are not going to be day-to-day with the team. And from my learnings across hundreds of companies, most company updates don't really say much. Hah.
19) But you can mentor at an accelerator and work w/ companies week over week. That's one way (and you can learn a lot BEFORE you put down your own money too). You can also work w/ your cos on a project. Help them w/ their deck. Their website. Provide feedback on their product.
20) All of these things help you validate or disprove specific hypotheses. Over time, you will build a mental model of assess on various criteria better as well as what is impt to you. This is how you get better at angel investing.
21) Finally, it's a long term game. So most of your cos - even the ones that do REALLY well, will not look great in the beginning. They will face MANY downs and will have to pivot. So it's impt to look at the long term and be willing to wait (& potentially lose) all your money.
22) One final thought -- ppl ask how can you invest only $1k? Make a fast decision. The say, "Hey - really love what you are doing. But unfort I'm not rich enough to invest more than $1k. But I won't be a pain & can help you [x]." X = intros, deck or prod feedback, etc
