Angel investing, the art of the science. Carol A. Curley, is currently the Chief Investment Officer of The Charian Group. She is a Managing Director at Golden Seeds and the Director of their Knowledge Institute.
Over the past few months, I have had several people reach out to me to ask my advice as to how to become an angel investor. So I thought it timely to put pen to paper to provide my take as to how to consider investing in this asset class. There are obviously many approaches to exploring this question; this is just one woman’s view!
When considering becoming an angel investor, consider the following three questions:
How much money do you plan to allocate to this asset class?
How much time do you want to spend in sourcing and reviewing possible investments, mentoring entrepreneurs and getting involved in the startup eco-system?
What are your goals and objectives in addition to seeking a financial return?
In considering angel investing, it is important to take a portfolio approach. Failure rates for startups are quite sobering. While a bit dated, a 2007 report published by the Kauffman Foundation provides some insights into the performance of early stage companies and the importance of constructing a diversified portfolio. The amount of money you have to allocate to this sector will influence the type of angel investor you choose to become. Where you fit on the spectrum of super angel writing significant checks to individual companies to participating in a fund structure with more reasonable financial entry points will again depend on the total dollar amount you are comfortable committing. In investing in individual companies, it is important to keep in mind that follow-on investments need to be factored into the financial picture.
Investors considering investing in individual companies will often choose to join an established angel group, either in their geographic region or one that focuses on a specific sector or investment theme. A great source of angel groups is the Angel Capital Association. Once you have identified groups that may be of interest to you, check out their websites to see their criteria for membership. What are the expectations as to the amount of capital you are expected to invest, minimum investment per transaction, expectations regarding participating in the due diligence process, etc. Try and find a member of the angel group through network connections and reach out to them to get a better sense as to the culture of the group. Most angel groups will invite prospective members to attend a screening or review session to get a better sense as to what it might feel like to be a member.
If you plan to allocate a smaller dollar amount to this sector, you may want to think about participating in a fund structure rather than making individual investments. Some funds will enable their investors to participate in the due diligence process or co-invest alongside the fund. Once you have determined how much of your financial resources you are willing to allocate, it is important to determine how much time you wish to allocate to angel investing. Part of answering this questions, really depends on where you are in life – if you are working full-time in a profession that requires travel, etc. it might be difficult to dedicate a significant amount of time to both sourcing and vetting early stage opportunities. Personally, I have found it very helpful to participate in Demo Days, Pitch Competitions and other activities to get a broader sense of what is happening in the startup ecosystem.
The final question I pose to prospective angels is very important – what are your goals and objectives in addition to seeking financial returns. Is there a vertical you are passionate about, be that healthcare, education… Are you looking to invest in companies having social impact or changing the gender gap that exists in early stage funding? One of the great perks of being an angel investor is that you get to decide on your own investment thesis. Therefore, it is important that you align your personal goals and objectives with those of any angel group or fund family you chose.
I have chosen to construct my early stage portfolio with a combination of individual investments and funds. Through participation in both Golden Seeds and New York Angels, I have access to many opportunities to invest directly in early stage companies while taking advantage of the vast expertise of my fellow members. I use funds as a means to both participate in sectors where I do not feel I have either significant access or expertise – two examples would be Future/Perfect Ventures ( enabling me participation in the Blockchain space) and Blossom Capital ( focused on Series A financings in the European market) as well as to focus on women founders/funders through investments in SoGal Ventures, Portfolia, and the AVG Women’s Fund. In addition, through my investments in Chestnut Street Ventures, I have the opportunity to co-invest with other Penn alums supporting Penn entrepreneurs.
Whatever path you chose to becoming an angel investor, enjoy the ride!
Although long past are the days of racing up and down the aisles of Staples, kids in tow, to acquire all the school supplies on the “list” (probably these days best achieved with a one-click of Amazon Prime), the imminent arrival of the crisp weather of fall always turns my attention to “back to school” thoughts. These days, back to school means reviewing resources to help educate angel investors. Having had the privilege over the past six years to provide leadership to the Golden Seeds Knowledge Institute, I am always on the hunt for training resources to assist both new and seasoned angel investors under the assumption that learning is a lifelong process no matter the discipline. I like to segment investor training into three categories:
BOOKS, BLOGS, & BOOTCAMPS
Although these are many great sources of information on angel investing, a few of the favorites on my bookshelf include:
Feld & Mendelson’s Venture Deals. Filled with rich content covering topics such as term sheets and how to raise money, this is a fabulous resource for both investors and entrepreneurs.
Basil Peter’s Early Exits. This book covers many topics relevant to the exit process such as exit strategy and investor/entrepreneur alignment.
Richard Lambert’s Financial Literacy for Managers. Although geared more towards public company financial analysis, this resource from Wharton Professor Richard Lambert discusses many of the concepts such as benchmarking, DCF analysis and cost analysis which are important to a startup’s financial health.
Clearly, there are many other great publications out there, these are some of my picks.
Subscribing to Blogs from experts in the field is a great way to keep yourself informed as an angel investor. Here is my list of VCs whose blogs I follow and find informative:
Ed Zimmerman, Chair of the Tech Group at Lowenstein Sandler, provides great insight into may topics including his recent post in the WSJ regarding SAFEs – LINK
I am often asked for a recommendation for courses, either online or in-person, that address angel investing topics. Here is my current list:
Golden Seeds Knowledge Institute: Golden Seeds developed a series of investor training modules to help our members understand the basics of angel investing. Several of these modules are open to guests.