Are you an Angel? Probably not.

The other night I was speaking to a self-described angel. I asked the standard questions of “What have you invested in?” and teased out approximate answers for “how much, with how many others, when and tell me about the company?”.

The answers were shocking to me – he had invested in just one company, it was several years ago and for $100-200k only, and he had limited insights about the company. To me the person was not close to being an angel investor.

Which brings us to the question – what is an angel investor, and how do you know when you are one? The answer to me is threefold:

  1. You regularly invest your own money in startups, spending $50,000 to $2 million when you do so.
    The evidence of this is a portfolio of investments, a track record of averaging 3 or more investments per year and the fact that the amounts you are spending are a small percentage of your personal or family net worth.
  2. You make very fast yet wise decisions based on very limited information.
    The evidence of this is that you got in early into some very successful companies, everyone says you are very easy to deal with and that you are very quick to say either yes or no.
  3. You offer superb advice, at the outset and ongoing.
    The evidence for this is that you understand and are connected in the industry, you are seen as a great and rapid judge of people and you have a very sharp strategic and business mind. Perhaps you don’t have all of these, but you are the go to person for what you are great at.

Now for some signs that you are not an angel investor, at least for how I define it:

  1. You only invest as part of an angel network
    Network investors are almost all followers, and are not actively attracting deals, meeting the principals alone and making rapid decisions. Arguably the person in an angel group leading a deal is acting as an angel, but the remainder are not taking responsibility for the relationship and ongoing advice.
    While an introduction service is nice for genuine angels, the vast majority of people in an angel network would be better off investing in a fund (VC or seed) as limited partners (without any control) and giving the mandate to a general partner who has the required skills. They are investors, not angels.
  2. You don’t have deal flow or a portfolio
    Real angels have people continuously trying to contact them, asking for coffees, advice and money – usually in that order. These meetings are productive regardless of whether there is a funding result as the transfer of informations is quick (they ‘get it’) and their advice is so good. They will also be able to point to a few companies that they have invested in, some of which are successful and some not. These companies ill provide great references.
  3. You are a VC or seed fund firm 
    A VC or early stage investment firm has multiple funders and decision makers. This automatically makes it very hard for them to make rapid decisions. Even if a single General Partner has a mandate to spend, she must still consider the needs of investors and the timing and structure of each fund. The pitching process, internal research and paperwork can be onerous. These firms are best for later stage funding, helping you build on what you already have demonstrated is viable.

I see that great angels are also still active, either in your or other spheres. They may be still working in their main business, or taking a leadership role in one or more of their investments. The Angel investing is something they do on the side, and they invest a quantum of time into it that is sufficient but not overly large. They are great at picking people, pick up fast on ideas and excel at identifying the weaknesses and helping to address them, and they do this without being a burden to ‘manage’.

Being wealthy and making the occasional dabble into a company might sound like the ideal life for some, but I would argue that founders are better of delaying asking those sorts of investors for money until after the first one or two rounds.

It should be pretty obvious to readers of this blog who the active angels are in New Zealand. Take a look at Pacific Fibre’s shareholder register and you will see several of them, as you will if you look at companies that those shareholders in turn own. The long term champion is Stephen Tindall, who has invested in a huge string of companies. Some of them have, in hindsight, been awful, others great, and others like Lanzatech, incredible. The best decision was made at the time, and with every new investment comes more learning, and over time the run rate should go up.

The magic about angel investing is that not every bet has to pay off, and a lot of rapid ‘smart enough’ decisions allocating a small part of your net worth will almost certainly result in some breakout successes. But it’s not for everyone, and losing all of the value of your investments is always the highest probability event.

About Lance Wiggs

@lancewiggs
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14 Responses to Are you an Angel? Probably not.

  1. From an entrepreneurs perspective this sounds like a good role description. I hope a post like this encourages some almost-angels to think about committing more, rather than playing down the valuable role other sorts of investors play in the overall ecosystem here.
    A second hand is probably not required to count the number of “real angels” in NZ at the moment, it would be nice to have more… and in the mean time not-quite-angels are still useful.

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  2. Good post Lance but maybe a final para could be added to encourage would be angels to take the first step.

    It seems to me that someone could be an angel investor in a particular company without having a long track record of such investments…

    We want to encourage folks to go down this path, not scare them away with complex definitions…

    my 2 cents

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    • Lance Wiggs says:

      Sure. Any interest and investment is good. We also need to get better, faster and smarter about it.
      Next post.
      L

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    • Lance Wiggs says:

      Investing in a certain company and at alone is great, but it isn’t meeting the requirements for angel investing. It’s dabbling, and very welcome dabbling as that. The challenge is to move from dabbling to truly getting engaged..

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  3. I was interested in the $50k minimum spend per startup. I had got them impression that there were a few people investing $10-20k in the “2 man” startups for relatively small equity.

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    • Simon – I’d not call myself an angel (and my wife would be even less likely to!) but I’ve done a couple of deals ranging between 25 or so and 65. In my view, and in NZ in particular, any more than 100k is VC, not angel. Even 50k is on the upper limits (IMO of course)

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    • I think if you’re getting significantly less than 50k you’ve probably got to ask yourself why you don’t just do some contracting for a few months and save the money. If you’re capable of running a startup you can probably get yourself a pretty lucrative consulting deal of some sort.

      You can call yourself whatever you want I suppose (I think 2M is a stupendous amount of ‘angel’ money), the more important part of lance’s criteria is the expertise and quick decision. Entrepreneurs shouldn’t be wasting their time courting people who can’t contribute well in excess of their cash or who are going to drag them around for months.

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  4. What is this, reverse tall poppy syndrome?

    Between Rowan Simpson telling us who can and can’t be an entrepreneur, and now Lance telling us who can and can’t be an angel investor, they are doing an amazing job of helping nurture the NZ startup community.

    Everywhere else in the world respected commentators do what they can to promote entrepreneurship and investment, but here they seem to want to put it down and give the message that unless you do it my way your an idiot.

    Afraid a fish in our little pond will grow bigger than them?

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    • I think I can see your POV Andy but I disagree with it. These are Lance and Rowans’ respective blogs and it’s totally up to them to express their views in an open way- free and frank debate generally promotes better understanding. Lance might be a bit brash, but that’s not the worst sin

      The research is unequivocal- we’re not doing innovation well enough, our business managers don’t have the capabilities to manage growing businesses, and a lot of kiwi’s attitude to business is too casual and lacks ambition (or perhaps determination).

      Lance and Rowan are doing what they can to promote entrepreneurship and investment; they’re actually doing it, making investments, founding companies, advising and building companies. I’ve spoken to a number of entrepreneurs who they’ve helped immensely, and they’re pretty friendly too for the chaps everyone wants to have a coffee with.

      It can be confusing and was confusing to me as a early entrant to business what exactly I *should* be doing, and their views that a lot of investors aren’t worth courting are important to be broadcast. I don’t know you and am sure you do good work, I’d be delighted to hear you show where they’re mistaken in their opinions but I think their debate promotes a healthier environment.

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  5. @DirtyAndy: “unless you do it my way your an idiot.”

    Seriously?

    Did I step on your toes?

    The whole point of my post was that there are lots of different ways to be successful, and you don’t have to get sucked into the commonly promoted “one true way” (i.e. competitions, govt. funding, incubators, angel networks, etc).

    I’m not trying to tell you who can and can’t be a founder. In fact, the exact opposite. I’m telling you *anybody* can be. As I said in my post, you don’t qualify by getting funding or winning a competition, you qualify by creating something that you can sell to people for more than it costs you to make.

    Read the stories I’ve been posting over the last couple of weeks, they are all companies working hard, and not yet two taking exactly the same approach. However, the energy and time wasted chasing wanna-be investors is a common theme.

    Lance is simply pointing out that calling yourself an angel investor doesn’t make it so – you actually need to make some investments!

    Sheesh.

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    • That’s a helpful clarification of your motivation Rowan. Like Andy, I’m bothered by anything that might discourage people trying to create a business – aside from the truth!

      Tying these two posts together, it’s been interesting the number of businesses in your series who have accessed investor funding in aid of their growth. Finding a “real angel” sure sounds nice, but given their scarcity it’d be a shame if anyone seen talking to government-funded ventures or entering a competition was scoffed at for being “unclean”.

      It’s a tough game, this one, and the truth is you guys are doing as much as anyone to support entrepreneurs in NZ… through your actions and $$ if not the perception the occasional industry critique might give.

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  6. Roger Dodger says:

    I agree that person you were talking to is an investor, not an angel investor because they don’t really add anything to the enterprise (apart from capital). But I dunno. I think it’s okay for them to style themselves as Angels. I assume the person will stop calling themselves an “Angel” if they lose their 100-200k investment.

    I asked a seed fund manager I know what’s the hardest part of his job, and he said it’s finding, securing and retaining monied individuals to fill the coffers of the seed fund (but interestingly he said securing an investor is considerably harder than both initially identifying them or keeping them once they’re involved).

    If VC/seed fund managers want to market the seed fund coffer-filling process as “angel investment”, then I think that’s fine. Where’s the harm? If using the brand of “angel investors” helps monied individuals to (re-)engage with riskier investments such as venture capital, then emerging NZ businesses will be the better for it. The pool of NZ investors in interested in emerging technologies is embarrassingly shallow.

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  7. Pingback: Investing with appropriate speed | Lance Wiggs

  8. Michael Koziarski is right on the money. I’m the founder of a boot strapped web start up. What use is 20k? I could make that in 2 months contracting. And if someone offered me 200k they’d probably want the hard earned shirt off my back. If they wanted my sleeves and could guarantee me $1m in sales from UK based customers and cheap office space over there then let’s talk. My experience of angels in NZ is that they are way too risk averse and many of them don’t take the process seriously enough. Mind you, there are plenty of start ups like that too so they deserve what they get.

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