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Tips/AdvicePaul Graham: How to be an Angel Investor
The man himself: Paul Graham
Paul Graham wrote a new note on his blog, and it’s worth a read (like everything else he writes, given that he’s one of the most successful angel investors around). He writes about some of the things that go behind becoming an angel investor, and believe me (or him), it’s not an easy path.
Here’re are his thoughts on the mechanics of becoming an investor:
“Angel investors often syndicate deals, which means they join together to invest on the same terms. In a syndicate there is usually a “lead” investor who negotiates the terms with the startup. But not always: sometimes the startup cobbles together a syndicate of investors who approach them independently, and the startup’s lawyer supplies the paperwork.”
Syndicating seems to be the easiest way to get into the angel-investing world. It’s easier to mimic someone already doing, and basically all you’ll have to do is write out checks and hope you get lucky.
But, what if you want to do investing by your own, without having to be tied to the decisions of a group of investors? Well, here is what you do when picking a winning startup:
“As an angel, you have to pick startups before they’ve got a hit—either because they’ve made something great but users don’t realize it yet, like Google early on, or because they’re still an iteration or two away from the big hit, like Paypal when they were making software for transferring money between PDAs.”
That’s ok if you choose your startup based on what it does. But what if you look at the entrepreneur when investing?
“If there were a word that meant the opposite of hapless, that would be the one. Bad founders seem hapless. They may be smart, or not, but somehow events overwhelm them and they get discouraged and give up. Good founders make things happen the way they want. Which is not to say they force things to happen in a predefined way. Good founders have a healthy respect for reality. But they are relentlessly resourceful. That’s the closest I can get to the opposite of hapless. You want to fund people who are relentlessly resourceful.”
All of that is nice, but what makes the difference between a good investor and a bad one?
“How do you be a good angel investor? The first thing you need is to be decisive. When we talk to founders about good and bad investors, one of the ways we describe the good ones is to say “he writes checks.” That doesn’t mean the investor says yes to everyone. Far from it. It means he makes up his mind quickly, and follows through. You may be thinking, how hard could that be? You’ll see when you try it. It follows from the nature of angel investing that the decisions are hard. You have to guess early, at the stage when the most promising ideas still seem counterintuitive, because if they were obviously good, VCs would already have funded them.”
The whole article is worth a read, but if you don’t have time, consider this a very clear take-away from it. Mr. Graham makes some very interesting points, which we should all take into account.
Post Tags: Angel investor, Business, Entrepreneur, google, investing, investment, Paul Graham, venture capital
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