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Above: The deserted Northumberland beach in the middle of August (don’t tell anyone).
Life’s a beach
Last weekend I was up in Northumberland sorting out one or two bits of family admin. Whilst there I was reminiscing about my week-long visit in August. That week my kids came with me and were able to play on a beach that no one else was on, they drove (well, steered) a tractor and messed around on a real farm (not one of those pretend city ‘farms’) and we all got up early one morning and waited to see the sun rise over that same beach in the photo above. I’m pleased we did those things and it’s a privilege to be able to do so. As I thought about it on last weekend’s visit I realised that getting those three perks was all down to three things. Access, network and patience.
Opportunities (Let's Make Lots of Money)
Opportunities to do some angel investing really are very easy to come by. Crowdfunding platforms have dozens of companies raising ‘live’ rounds at any one time, incubators and accelerators have investor demo days and there seems to be an angel investment network pitch event every day of the week. And that’s just in the UK. Because of Covid19 remote pitch events are everywhere. I have been invited to Zoom pitches from all around the world, plus platforms such as Angel List allow angel investors to see investment opportunities by joining one or more of the thousands of syndicates and rolling funds they host.
“We don't get paid for activity, just for being right” Warren Buffett
So clearly finding investment opportunities is not the challenge here and once you are set on angel investing then giving the money away is easy. The objective is to get lots more back than you give out. What is most difficult, however, is getting access to the best investment opportunities. Of course there are no guarantees they’ll be successful but there’s a reason the hot deals are hot and the experienced entrepreneurs get funded fast.
So what can a new or curious angel investor do about this? Just like finding that deserted beach or having fun on the farm, I think it comes down to three things: superior knowledge, who you know, and being patient.
Superior knowledge
There are lots of beaches in Northumberland. One of the most popular is Alnmouth beach. Alnmouth is a pretty little village and even on a cold day the beach is busy, never mind on a sunny day in August. However what the masses don’t know is that just outside the village is a rocky old track with no signposts that takes you to a four mile stretch of beach on the south side of the estuary. I go there every time I visit and the most I’ve ever seen on that south side are six other people.
So like knowing about the rocky track it helps to acquire the right knowledge. How do you get superior knowledge? Ask someone. Ask simple questions. Be curious.
As Steve Jobs remarked, here, “Most people don’t get those experiences because they never ask. I’ve never found anybody that didn’t want to help me if I asked them…that’s what separates sometimes the people that do things from the people that just dream about them”.
Angel investors think that because they want to give away their money then they have to be fully knowledgeable about business. But I’ve found that the best answers come from the simplest questions. In the past I have felt under pressure to come up with some fancy questions about CAC, LTV and cohorts, or feel that I have to make smart contributions in meetings about Moats, Exit Strategies and Company Culture. I still try my best to do that, but in fact just asking a few dumb “Oh OK, why’s that then?” questions actually reveal far more. What’s more, the simple questions can make you more helpful because they are the questions that identify and simplify what actually needs to get done.
As I’ve said before, the best answers come from asking “Why?”. So get curious and lap up that knowledge: Why is the founder doing what they’re doing? Why now? Why has no one else done this? Or if they have why will this founder win and the others lose?
Who you know
OK, it was my cousin’s farm. I grew up there until the age of nine so getting my son a ride in a tractor wasn’t that hard. But the things is, I’d never asked until my son suggested it earlier this year. Him asking made me think, yes, I can make that happen. Obviously related to the above point, but if you start building an interesting network of people (whether they’re relations or not) then you might be able to ask something of them one day. And like when Jack sent his first tweet or when Zuck connected to the second person on Facebook we all start with a network of ourselves and one other.
Join groups of interesting people. There are Slack channels, Facebook groups and LinkedIn groups for VCs, founders, hackers, indie-hackers, growth-hackers and more. And if you can’t find a group that suits your needs then organise one yourself. Back in December 2011 there were no entrepreneur-only dinners so that founders could help each other solve their challenges, so I created 9others. Founders know founders and talk to each other about potential investors. Many times someone has sent me an email or text to say, “I see you’re connected to PersonX — good person or not?” therefore an investment of your time in contributing and learning in some good groups before investing will be time well spent.
Angel networks. Some of these have a bad reputation (high fees and there are often lots of hangers-on only there for the free beer and pizza) but it’s definitely worth going to lots of different events and seeing which ones suit you. I met Joel and Molly from D&D and Priya from Century as a result of angel network events so it’s just as well I made my own mind up about them.
For networking in general I always encourage people to go to every possible event they can find in the early days. Throughout 2011 when working on the Government’s Gateway2Investment programme I was out at networking events three, sometimes four, nights a week after work. If you do this then you get to know which ones you like and which you don’t. The bonus if you keep going to the ones you like is that you then get to know the organisers. Once you know the organisers then you can offer to help out. That’s a good route to becoming a lynchpin in the ecosystem. By doing this for a while you can’t help but become incredibly well connected.
Being Patient
I didn’t particularly want to get up early but I didn’t want to miss the sunrise either. Dawn was 4:50am and sunrise was at 5:34am. Naturally the sunrise was not going to wait until I was up and ready. Nor did I want to set an alarm so early only to miss it by a few minutes so I had to make sure I was up and ready then wait for the sun to get a move on. Watching the sun rise is not something I do very often but it was definitely worth the wait. And once they had stopped moaning about being tired my kids thought it was pretty cool too.
If you want to make money from angel investing it is likely that it will take a long time. And if the ROI is long then why not use that time to learn. The right opportunity may come quickly (most likely from someone you already know) but if not, or while you wait, then take your time to meet people (above) and read and learn from the best (some of that here).
While you wait you can also contribute before asking for anything back. The ‘price’ of this is the time spent and you might not get to invest but you’ll learn, so that’s what you get in return at the very least. And if you get a reputation for being genuinely helpful then people might just invite you to participate in their round.
A good way to decide whether you want to invest in a business is whether or not you’d want to be their employee. (Which is good, because when you invest in a company you should work damn hard for them anyway). So with this in mind patiently get to know not just the founders but the early hires at the company. Why did they join? Why have they stayed? What are their friends and peers doing? If you do this with many, many companies, founders and early employees then over time the patterns will appear.
Putting the work in now, even if you see no meaningful results straight away, is worth it. You get to learn (and with angel investing you’re never done learning), you get to meet, hang out with and learn from some of the smartest people in the world and then, with patience, you might just make a lot of money.
Over the course of the next few weeks I will be sharing more posts like this. You can subscribe to the written posts for free. If you become a paid subscriber (for $50 per year) you also get access to the weekly audio interviews I do with angel investors plus you get my mobile number so you can WhatsApp me anytime to continue the above, or similar, discussions.