Lesson: Picking Winners with Ullas Naik

Step #3 Capital Access: How to find the right angel investor

So it depends on what the entrepreneurs are trying to sell for. If the entrepreneurs are trying to sell for just raising capital then they should raise capital from whoever they can because sometimes it's really hard to raise capital. But if they are really looking at company builders then you have to be very selective about who you are initially letting into the angel syndicate. Because what will tend to happen is those people will have a following of their own or folks that they bring into the company as investors as co-investors. So I would say for really savvy entrepreneurs I would say try to find one or two of these real influential people into the syndicate and they'll help you build out your syndicate, in addition to that they'll also help you build the company. They've also a lot of credibility with the larger tier one venture firms for downstream financing as well.

So one natural source of finding angel investors is the angel list. There's a lot of people on AngelList, you can put up your profile on AngelList and get to it that way. Its not the most effective to just put the profile up and try to raise money, it's always more effective if you have somebody who is a champion of your project and then they are then advocating an investment in your company in which case then you will draw more people who want to sort of flock to your company. So that's one way to do it.

The other way to do it is just people who have known you in your past. I often tell entrepreneurs that at the angel stage, they are often selling their credibility. If you are a credible individual you know a lot of people who will say whatever this person does, I'm probably going to put 25 to $50000 behind them because I have a high degree of confidence they'll make me a lot of money. You'd be surprised many entrepreneurs don't really think about that enough and they're often surprised when they sit down and really go through their Rolodex of all the people that they know and that they find that the list is actually pretty big in terms of people they can go and talk to. That's probably the two ways that I would think about raising angel money, at least for entrepreneurs that are here in the valley.

The other avenue for people here in the valley is just highly successful past entrepreneurs who have made a lot of money but then for that, getting access to them is harder and you have to use your network in order to get to them. Often lawyers are a good way to do it where lawyers can make introductions to other folks but that's probably the best way to go about doing it.

I need to be personally very conversant in the market in which I'm investing. I have to be convinced that the market has the potential to grow into a very large market. I don't mind if it's a nascent market today but I have to have the conviction that it's going to grow into a very large market. So those are market related questions I always look at those. I also then look at the quality and the tenacity of the entrepreneurs. I'm always looking for founding teams of more than one ideally, and I'm looking at their ability to work together, the two founders to work together, or history of how they worked together in the past. Ideally the mixture is one of a traditional hacker and hustler where one is in charge of product development the other in charge of business development. So I'm looking for those characteristics as well. Then I'm looking at integrity of the founders to the extent that I can find these elements overlaid with the business criteria that I mentioned earlier around extreme skill. If I can find that mix of things then I'm quite likely to invest in the business.