Ask me Anything — Angel Investment.
2021 was my most active year when it comes to angel investing. All in all, out of the 29 startups I have invested in over the last 5 years, 13 happened this year alone. This article answers questions I get from other angel investors and founders.
I sourced a lot of questions from the amazing community of startups and investors I belong to. I tried to answer as openly as I could and provide relevant examples.
Note: I also started investing as a venture partner at Innovation Endeavors. I love doing it, but having only 6 months in the game does not allow me to share deep insights in VC investments. That is for a later date.
So, here we go:
General getting started questions
How did you get started with angel investment?
I moved to Silicon Valley 8 years ago to manage Google’s startup program. That meant that from day one I was surrounded by amazing entrepreneurs and startups. When somebody would visit our house, my kids used to ask them “so what is your startup about?”. I kept helping founders (mainly around product/technology) and kept getting offers to make investments. I did not have any spare income, and investing while working at Google was a big pain in the butt anyways, so I kindly rejected these offers.
When I asked my friend Dror Berman, what it would take to be a good VC partner, he said — “Get more experience and invest as an angel”.
It took 3 more years for me to be able to start investing in earnest. I was lucky enough to join Slack in the early days, to be a VP at Twitch, and this year to sell my startup to Twitter. This gave me a lot of experience in startups, as well as the available funds to actually invest.
What is your success criteria as an angel investor?
Of course I hope to get my money back, and maybe even hit some home-runs, making a lot of money. Truth be told, the engineer in me does realize that putting that money on VOO would probably be a lot safer, and probably a more lucrative investment strategy.
If I want to be honest with myself, the true reason I invest as an angel is that I want to help founders make great products and services that change the world. I see my angel investment as a way to make an impact at scale in a way I could not do by focusing on a single startup.
I believe that great products that add a lot of value to the world will return my investment tenfold, both monetarily and spiritually.
How much do you invest?
I write checks between $10K and $100K. Two years ago, I was a scout for Bloomberg beta with the awesome Roy Barhat, where they would double down on every investment I made. Today I tend to invest with other angels, so the final check that the startups sees is usually significantly bigger.
What portion of your net worth is investment in startups?
That is kinda personal, but I will answer it anyways as I do not want young angels to risk too much. Angel investing is a risky business, so I try to keep it under 10% of my net worth. I am significantly under that.
What are the best traits of a good Angel investor?
- Being founder friendly, add value when you can or were asked to, don’t bother the founders unless absolutely necessary. Startup life is a hard mess of ups and downs — support your founders as much as you can, but at the minimum, make sure you do no harm.
- Remember it is their startup, not yours. As much as possible share experience not opinions. Do not micromanage or get into every detail.
- Stay positive and encouraging in hard times. Don’t make your founder worry about you losing faith in them or the startup. Be their cheer-person.
- Let go of your ego.
Deal flow, due diligence, and selection process
What is your investment strategy?
I invest in early stage startups, in dev-tools, work productivity and collaboration, and B2B SaaS.
My thesis is that (a) Workin g at Microsoft, Google, Slack, Twitch and now Twitter, gave me experience to evaluate the team and idea for these domains and (b) These are rapidly growing domains with a lot of money and pains, that I would have loved to broadly invest in.
My strategy is pretty broad, and I do make exceptions, but if you come to me with a mobile game, the chances are I will direct you to friends of mine that invest in this area.
Would you invest outside of your strategy?
Yes, 3 of the 13 investments I did this year were outside of the strategy. They were either an opportunity I was brought into by another angel I trust, or a startup I have been working with and believe in for a long time.
Here is an example — I have been helping Kai (A personal wellness coach and journal solution) for more than a year now. As I built confidence in the team, the CEO and the ability to drive value with the solution, I grew my conviction in investing in the company, which I finally did this year.
How do you startups reach out to you/how do you source your deal flow?
This is my superpower, when compared to other angels. I have a crazy good deal flow. I never chase a startup or go looking for new dealflow.
My trick is easy — I try to help each startup I meet regardless of whether I’m going to invest or not. I always ask founders “What would be a good outcome of the meetings?” and always try to make them see value in the meeting itself. Then those founders send other founders my way.
I also help VCs and other angels with their portfolio companies, I spend time answering start up questions in online forms, and speak in a lot of events. It all pays off in a very healthy and high quality deal flow.
The funny part is, I do not do it for the deal flow. Helping founders is genuinely a fun thing to do — some people like to run, some like art, I like helping startups.
Here is an example: I helped Notion think about their community strategy and API. I became friends with their marketing lead, who connected me to the amazing founders of Byteboard — that turned into my biggest investments in 2020.
Do warm intros matter/ do you take cold emails?
I love warm intros. A warm intro means someone that I trust, has given enough thought about the startup or its founders to make an intro. That is a great qualifier and as a person who believes in chains of trust — this makes me much more inclined to take the meeting and invest.
I very rarely take cold calls. I would say about 10% of the meetings I do with startups are cold calls (mainly over social and LinkedIn). Only 1 of my 21 investments to date was the result of a cold call.
How many startups have you seen this year/how many have you rejected?
I met with a little over 500 new startups in 2021, and I invested in 13. That means I say yes to 2.6% of the deals I am exposed to. Some of these startups did not want me to invest, but rather help them with a product or go-to-market challenge that they had. But I would say that I definitely pass on a lot of opportunities.
I only invest when I have strong conviction in the team, the problem domain, and the solution. Timing and deal terms are also often not aligned with my strategy (for examples: too late stage, unrealistic evaluation, weird terms).
How do you choose which startups to invest in? what do you look for in a startup?
This is my list of criteria by priority:
- Team: I look for a great team (experience, good chemistry, rounded skill sets of tech and business) that I feel good working with.
- Idea: I look for a big disruptive idea in a domain I understand and believe in. For example, this year I invested in a next generation source control that modernizes Git, called Diversion — super disruptive, in a domain I love (developer tool), and lots of pain in this area. I ask myself — Am I excited by the idea?
- Deal terms: I look at deal terms — is it a price round? Is it a Safe investment? What is the amount raised as a whole? What is the amount allocated to me? Who is leading? Who are the notable other investors? What were the last round terms? I look for founder friendly terms and a setup that will not hinder the startup’s future success.
- No red flags: I check that there are no red flags (see question about red flags in this article)
- Peer review: I try to get at least one more person I invested with in the past, to review the opportunity and tell me what they think.
What does a great pitch meeting look like?
Concise, clear, compelling, and short.
For me, a great pitch deck focuses on the problem, the solution, and the team’s fit to achieve it. If there is validation or proof that is awesome — put it front and center. Do not try to sell, try to inspire, but keep it real. Say what you do not know, and what you need to figure out. If you had everything figured out you won’t be raising funds, you would be printing money.
Put the team up front! For early stage startups, the team is all you got! Tell me why you have the relevant experience, who manages what, and how you worked together in the past.
What is the least important part of a pitch meeting for you?
The deck. Founders spend so much time and many times money making their deck pretty. I have invested in several startups that didn’t even have a pitch deck. I am not saying that a deck can look like a 5 year old created it, but there are a lot of good, simple templates out there, just use one of those.
Especially in the world of Zoom/Hangout, I find it super impressive when a founder that knows how to tell the story of the pain, solution, and have all the relevant key performance indicators.
If I could choose a 2nd least-important part of the pitch meeting, it would be the long term milestones/roadmap. The future is unpredictable, and even roadmaps of big companies such as Google or Microsoft get blown up — chances are your long term roadmap is wrong. For that reason, I think a business plan that is more than 1–3 pages is a complete waste of time.
What are common mistakes founders make during the pitch meeting?
- Be late, not realizing the time is up, reschedule at the last minute without a good reason. I find that disrespectful and I like to have a respectful relationship with the founders I invest in.
- On the same topic of time management, some founders spend too much time on the pitch, and not leave time for discussion — this is simple and fixable problem.
- Not knowing your important numbers — how many users you have? What is your ARR? What’s your retention numbers? What are the deal terms? These questions are example of basic information that sometimes founders do not know — if you do not have that data, how can you run your business. If you do not have the information because you are still figuring it out — that is OK, just say that.
- Lie / fudge the truth / exaggerates — If you do not know something say “I do not know”. Assume the investor has seen hundreds of pitches, so they become good bullshit detectors. Same with slides — if you use cumulative numbers to make the graph look up and to the right, please don’t. Unless you are directly competing with Amazon, don’t tell me that the e-commerce market is 3536 gazzilion dollars, it’s not relevant.
- Not taking feedback well. Founders need to deal with feedback all the time. Even if you do not agree with the feedback, taking it with grace is a very good sign.
What are the red flags when considering investment?
- Lack of strategy/product focus — if the customer is “everyone” and the use case is not clearly defined, or there are two products/solutions.
- Broken cap table — when the founders have given away too much of the company, too early, that is a major red flag. This means that it will be harder for them to raise funds in the future while maintaining control of the company.
- Ill-structured board — if the founders do not have majority in the board in the early stages of the company, I am out.
- Ill-structured deal terms — if there is anything that is not standard, that is a red flag — things like promises made to past investors, spacial rights to early investors, IP limitations (gov grants for example), and governing law are examples I have seen in the past.
- Founders still working on other things — if the founders are not 100% committed, I do not feel committed.
- Other non-founder-friendly investors — there is a very small list of investors that I know are not founder friendly, I will not invest alongside them.
- Competition with my other investments — This is very simple, I am very founder friendly, I do not want conflict of interest with any of my investments.
How many of your investments have female founders?
What are your thoughts about diversity?
I think diversity is an important aspect of building a global company. I like to see more diverse founders not just in gender, but also in other aspects like social and economical diversity. I believe diverse leaders yield better companies.
Is there a perfect pitch deck / one pager?
There shouldn’t be. Good enough pitch deck / one pager is great. The effort to make it perfect (which founders sometimes spend many days and weeks on) is usually very marginal in this effectiveness.
A good pitch deck or a one pager is short and clear — tell the story of the problem, solution, team, market, deal terms, and so forth.
Who do you consult with? Do you have pier angel investors?
I have a team of 5 other angel investors in a group we unofficially call “The guild”. We share a pipeline, do peer review, and do due diligence together.
I always ask founders if it is OK to talk to other investors, and always let them meet at least one of the other angels that is helping me do the due diligence. All the other angels are value-added investors, so the intro is valuable by itself, even if we do not end up investing.
After a short due diligence, any of the angels can decide to opt in or out of the deal. The founders get full transparency to the decision, as we always get back to them.
What were the main reasons you did not invest in the other companies?
Truth be told, I think that a monkey investing in every enterprise SaaS with certain criteria (ARR, Team fit,…) would see great return on their investment on average.
The main reasons I declined some of the investments opportunities were:
- Startups in domains I do not understand / domains I do not like (ads for example).
- Not connecting/gelling with the founders.
- No bandwidth to review the deal / being busy doing another deal.
- Poison pills like a bad cap table, team issues, legal complexities.
- No excitement / conviction
Would you reject the deal because of other investors/other circumstances?
Yes, there are very few investors that I know are not founder friendly, or really hard to work with, that I would not invest alongside with. I will also not invest if the deal is too complex legally, or there are any shit-heads involved. Life is too short and the deal flow is too healthy for that.
Do you rather invest in a great team or a great idea?
Definitely team — I am a strongly believe a great team will figure it out and pivot the idea if needed. Having said that, I have yet to invest in an idea I did not believe in. So I do not have strong data to support this answer.
How many of the founders did you have close acquaintance with before the investment?
11 out of my last 21 investments were in founders I knew for at least a year before investing. I made 4 investments in startups of close friends. If I want to be honest with myself, my investments probably perform better when I do not take being close friends with the founders into account.
The investment itself
What's the average time between the first meeting and money in the bank?
It usually takes about a month from first meeting to investment. The due diligence takes about 2 weeks (1–3 meetings with me/peers). The decision takes about another week, and signing the paperwork and bank transfer takes another week.
In cases where I need to set up a syndication with multiple other angels, this can take another month of setup and paperwork. Paperwork is not the most fun part of angel investment.
What are the terms negotiation like?
I rarely negotiate the terms as an angel investor, I usually joined a preexisting deal — I am either in or out. It is actually easier for angel investors, they usually join a deal already negotiated by another investor. As a venture partner I do need to negotiate the deal terms, and I do not love that part.
I rejected 4 deals this year based on deal terms that were too expensive for my judgment. Which is less than 1% of the deal flow, so this is not a big consideration.
Do you use syndication or direct investment?
I do both. I will either invest directly via a bank transfer (painful and lengthy) or join a pre-existing syndication that the lead has created.
There were 4 times last year where I set up a syndication through sydecar.io — I loved the product so much we ended up investing in Sydecar itself as well. My personal syndications are usually zero carry and zero management fee and are shared with selected friends who helped me with the due diligence.
After the investment
What is your involvement in the startup after the investment?
As much as the founder needs or wants me. I tend to give founders space and let them use my skills/network as they see fit. Some founders put me on interview panels, review UX designs, and help with go to market plans. I tell all my founders that my LinkedIn is theirs — If they want an intro they just need to send me the names and text, and I will reach out. I also help founders with intros to other investors if asked.
Just to be clear, I try to be non-intrusive as much as possible. From my experience, founders have a lot on their minds, and not bugging them does more good than most things. Founders will call me when they need me, and I will always be there for them.
What are Best practices you see founders do after the investments?
- Communication — I find it very useful for founders to send out a monthly update. It is a great way to stay in touch, but also a solid way to let the investors know how they can help.
- Know where your investor can help and use them when needed — investors are busy people too, but they’re usually very open to help when you need them. It is important to note that investors are not superheroes, for example I really suck at sales so using me that way might not be optimal.
- Refer founders and startups to your investors — most of my investments are done through referrals, if you like working with me send me awesome startups.
- Share challenges and be transparent — If you have a friendly investor, who was a founder in the past, they will more than happy to hear your challenges and help you work them through.
What were your successes and failures so far?
The places I failed are in areas that I did not put enough work into due diligence. This was due to poor understanding of the subject domain or being biased because of personal friendship with the founders.
Places where my money has done the most return, was where I had strong conviction and strong co-investors. Putting my money as a follow up for major funds has been very effective. The reason is that major funds have the ability to drastically influence the next round — it is an unfair advantage I enjoy when joining such rounds.
Is there a startup you wished would be your 14th investment this year?
So many, I have said no to so many startups that I think will do amazingly well. If you have a healthy deal flow, being an angel investor these days is saying a lot of no to good deals.
Do you regret any of your investments this year?
It is too early to tell, in the first year you rarely get any major signal. Investing in the early stages is buying into the team and dream. It is usually in year 2 or 3 that this dream meets reality.
What surprised you this year?
The amount of new companies being formed last year (2021) was amazing! Feels like many factors of this past year such as Corona, moving major parts of our lives online, and the abundance of money looking for investment has created fertile grounds for a lot of founders.
What are your lessons learned this year? how did you implement them?
- I learned how to say no gracefully. This has been the hardest part of this journey so far. If you are planning to be an angel, this is going to be a major part of your job.
- I learned to work with a team of peer angels. I built an infrastructure (Slack, Monthly meetings, syndication setup).
- I learned to manage my time through calendly — I share a link with founders and other investors and they can send that link to founders they want me to see. This saves me hundreds of emails of coordination.
What is your advise to early stage founders?
- Focus on your customers/users. Too many founders are focused on the investors and forget their product market fit. Providing huge value for the customer is the only way to grow a company, and the only way to do right by your investors.
- Read about and practice Grit. Life of a startup founder is a crazy rollercoaster — there will be many days of ups and downs. You need to be optimistic on the down days, and realistic on the up days.
- Always be communicating. Send updates, collect feedback, talk to your customers and partners often.
- You are all the roles you have not hired for yet. If you are missing a marketing person, you are the marketing person.
- Choose your investors well. Investors are not just money- they can be immensely helpful or a big pain in the butt. Make sure you like to work with and trust your investors.
What is your advise to early stage investors?
- Be helpful when needed, and stay out of the way when not. The startup founder’s life is hard enough without you breathing down their neck.
- Learn to say “no” politely and transparently.
- Find friends to invest with. It makes the investment experience much better and more likely to be successful.
- Give credit to the founders. Remember this is not your start up but theirs.
I plan to do a lot more investing in the coming years. I love the founders I work with and plan to help them and follow up with my investments as much as I can. I will be slowly transitioning into doing more VC investments, through Innovation Endeavors, rather than angel investing, and promise to share my learnings as I do.