Lesson: Picking Winners with Ullas Naik

Step #9 Angel How To: Start investing with these tips

If you want to be an angel investor, if you just made money and you want to start angel investing, one way to start would be to start attending demo days of a lot of these incubators and accelerators. The other way is to definitely have a profile on AngelList with some real criteria as to what it is that you're looking for, sectors you're looking for, and the amounts you're looking to invest. You'll be surprised at sort of how much deal flow you'll get out of AngelList alone. The challenge with AngelList is you will get a lot of deal flow, and then you have to evaluate that, and how do you benchmark as to which are good companies, which are not good companies. One indication for that is to look at the co-investor list. Often, as I mentioned, some of these real prominent company builders, if they're involved with a company then it's often a good sign. If you cannot find that, if you see that these are mostly doctors and lawyers from other cities and other states that have invested in the company, I would tend to sort of just steer clear of those ones.

If you are an angel investor some of the best practices would be to be very careful about the investor syndicate you're co-investing with. Try to be in business with people who are better than you are at that investment game. Try to be in that eco-system. Try to get to know them well. Certainly play in markets that you understand well. Have an intuitive feel for the quality of the entrepreneur. If you feel uneasy about an interaction with an entrepreneur, for the most part there's a reason you're feeling it, and I would almost always council walking away from that situation. The interaction with the entrepreneur for the most part has to feel natural, and you have to have a very clear sense for their integrity. So if you have all of those things, I would say that's an angel investment worth doing. If you don't have it, then I would say there's going to be others. No need to rush into those.

Some of the pitfalls to avoid as an angel investor would be when there's a good opportunity, don't haggle on valuation. If there's a good opportunity, get in the good opportunity. Once it meets your criteria of market size, quality of entrepreneur, integrity of entrepreneur, and investor syndicate, co-investor syndicate, I'd much rather be in that deal than not be in that deal. So that's one. If there's something that's off about the interaction with the entrepreneur, there's a reason for that. I would say, steer clear. Manage the number of investments that you make per year. Set a certain goal for yourself. Try not to exceed it. It's a very seductive thing to do if you have the money, to keep investing. You're better off actually investing in fewer companies, but in companies you're really passionate about and adding a lot of value to them in order to ensure their success. These are some of the things that come to mind.