How to Pick Winners!

Over the past few weeks in this How to Angel Invest series, we’ve covered strategy, sourcing, and diligence. This article is intended to put a ribbon on this process and highlight how you bring all of these steps together to ultimately pick your investments and support your companies. 

Picking: Which deals will I invest in?

Happy Thursday Friends!

Over the past few weeks in this How to Angel Invest series, we’ve covered strategy, sourcing, and diligence. This article is intended to put a ribbon on this process and highlight how you bring all of these steps together to ultimately pick your investments and support your companies. 

Today, it gets real.

You’ve done the hard work and have diligenced more companies than you can count. Finally, you’ve found one that feels right.

You’ve run through your diligence checklist:

  • Amazing Team?...Check ✅
  • Customers love the product?...Check ✅
  • Lots of traction?...Check ✅
  • High Growth Market?...Check ✅

You click “Invest” and the webpage loads…

Success! 🥳

You’ve now entered the ranks of “angel investor”. Sure, feel exactly the same, but if you lean into this world, you’ll find there’s a universe of opportunities waiting for you.  

Let me explain why you should devote yourself to this craft...

Why investing in startups will change your life:

  • Moral Duty: In 2013 Naval Ravikant and Babak Nivi published a post entitled Startups are here to save the world in their Venture Hacks blog (the precursor to Angellist). 

Within this blog I found a few sentences that deeply resonated with me. They have become my mantra, my raison d'etre, my “why”. 

“ Apple, Google, Facebook, and Amazon all deliver innovation at scale: They reliably bring it to the whole world at once. I call them super companies. And there are many more in information technology, hardware, healthcare, and energy.

It might seem impossibly difficult, but super companies can be built. And the only way they get built is by starting a startup.

If super companies are saving the world, and every company started as a startup, then it’s our moral duty to remove the frictions along the startup’s way.” 

If you believe, like I do, that innovation companies do good for the world (e.g Tesla, Amazon, Apple, Google, etc) there is no better way to make an impact than supporting the founders and operators that are bringing these innovations into existence.

  • Financial upside: If you invest correctly, you can generate strong returns. According to a study by the Ewing Marion Kauffman Foundation and the Angel Capital Education Foundation, on average, professional angels achieve an average 27% internal rate of return (IRR) on their investments. Without this upside, nobody would do it. 
  • Education: Many people invest tens if not hundreds of thousands of dollars into education, and frankly, it may not always deliver. By investing in companies on the frontlines of innovation, you put yourself in a unique position to learn. You have a front seat to explore new high-growth industries (e.g BioTech, AI, Autonomous Vehicles), learn new business models, and become an expert on market trends before the rest of the world even wakes up to recognize it. All of this education becomes part of your craft, further developing your pattern recognition, enabling you to capitalize on new opportunities with more speed and intention. 
  • Community: The most driven people I have ever met have been from the startup community. These are the changemakers, the ones you read about in the headlines of your favorite magazines. Being part of this community has opened up more doors for me than I could have ever hoped for. I’m willing to bet it will do the same for you. 

Whats next after the investment? 

Now that you’ve invested, you are feeling good about yourself. So you’re done now right? 

Well, for the uninitiated, yes. But we are initiated aren’t we Bruce? (🔊 Shoutout to my Batman fans 🔊)

Remember, as an angel investor, you’ve got the easy job. The bulk of your startup investments might fail, but you’ve optimized the chances of hitting a breakout success because you’re creating a portfolio of bets and have multiple shots on goal.

But the founder you’ve just invested in, this is their one shot and they’re going to need all the help they can get. 

It’s time to become The Superfan. 

Nav Bhatia - aka the “Toronto Raptors Superfan”

The man above is Nav Bhatia, otherwise known as the “Superfan” for the Toronto Raptors basketball team. He is a Canadian businessman (worth ~$50M...doesn’t matter, but a fun fact) and has attended every Toronto Raptors home game since 1995. Nav holds several records - he is the first ever fan to receive an official NBA Championship ring and the first “Superfan” inducted into the Basketball hall of fame. 

We are the Superfans for our startup investments. As early adopters, we see the product before the rest of the world does, and it’s our job to evangelize it!

 There’s a few ways in which you can help a startup: 

  • Financing introductions: High growth startups typically prioritize growth over profitability in order to become a market leader in a high-growth market. Startups typically burn through the money they’ve raised within ~12 to 18 months of their initial investment. As such, strong introductions to potential investors are always very valuable. 
  • Customer introductions: Companies spend valuable time and resources trying to identify and ultimately get in contact with the right customers to sell to. During a startups early years, it's very rare that they have a sales team in-place. If you make valuable customer introductions you can make a meaningful impact on your investment.
  • Hiring introductions: Talent is everything at a startup. The right employee can make or break a business. If you run into top engineering talent, amazing sales people, or the right market expert, always be sure to recommend them to your startup portfolio.

The reality is that becoming an angel investor is easy. Devoting yourself to this process and continually placing new investments in the country's top early-stage companies...that's hard!

The best investors in the field run a structured sourcing and diligence process, continually track their investment outcomes, and most importantly...modify their process to improve their investment performance. 

I hope that this How to Angel Invest series helped light a fire in you as you further your angel investing adventure. If you’re curious and a lifelong learner, you’re going to have a blast. 

EPO is excited to be on this journey with you as we share learnings from the world's top angel investors and introduce you to entrepreneurs building the companies that will define our generation.

See you next week! ✌️