This blogpost is not an exhaustive summary of the book. Just contains the notes I took

  • The best angels in the world have four qualities, giving them the ability to (1) write a check (money), (2) jam out with the founders over important issues (time), (3) provide meaningful customer and investor introductions (network), and (4) give actionable advice that saves the founders time and money—or keeps them from making mistakes (expertise).

  • In simple terms, there are five kinds of people on a cap table: founders, employees, advisors, angels, and VCs

  • As an angel investor, you are going to need to invest in fifty startups (diversification!) in Silicon Valley (location!) over three years in order to have a chance at an outsize return. That’s one to two startups a month.

  • You should plan to put $1.5 million to work in these fifty deals, which is $30,000 per startup on average. However, you’re probably going to want to put $1 million into the first forty-five deals and an extra $100,000 into each of your top five winners.

  • I suggest looking for these basic characteristics:
    • A syndicate lead who has been investing for at least five years and has at least one notable, unicorn investment
    • A startup that is based in Silicon Valley
    • A startup that has at least two founders (with two, you have a backup in case one quits)
    • A startup that has a product or service that is already in the market (you’re not qualified to invest in startups that haven’t released their products—and frankly you don’t need to take this risk)
    • A startup that has either (a) six months of continuous user growth or (b) six months of revenue
    • A startup that has notable investors
    • A startup that, post-funding, will have eighteen months of cash remaining, commonly referred to as runway (ask the founder and syndicate lead how many months of runway they will have post-funding)
  • For all ten of the startups you select, you need to write a “deal memo” explaining why you’re investing, what you think the risks are, and what you think has to go right for the startup to return money on your investment

  • For every startup you didn’t invest in, write clear notes on the reasons why you passed. You will look back on these notes and learn exactly how bad you were at this, and over time see how much better you’ve gotten.

  • Step one, create a spreadsheet of all the co-investors in those ten startups you’ve invested in. There should be about fifty investors from the syndicate and a dozen other investors for each startup. That means you will have a pool of six hundred potential investors you can reach out to, minus duplicates.
  • In your spreadsheet, put the person’s LinkedIn, AngelList, Twitter, and Facebook URLs. Connect with each of them on each of these four critical service

  • When you meet with fellow investors, your goals are:
    • Figure out what they invest in and why.
    • Figure out what value they bring to startups.
    • Make sure they understand what value you bring to startups.
    • Ask them, “Have you seen anything interesting lately?”
    • Offer them, “I just invested in these two startups, which are exceptional. Would you like to get introduced to the founders?”
    • Determine if they prefer double opt-in introductions or blind introductions.
    • Keep the meeting short and be willing to travel to the angel. Let them know, “I’m happy to meet you at a time and place that works best for you. I know you’re busy.”
    • After you meet with each of these angels, promptly email them and thank them for their time. Include a list of the ten startups you’ve invested in, with links to each one. Always ask them if they are interested in meeting any of your founders.
  • “Jason, it was great getting coffee with you last week. I noticed that you’re an angel investor in Tesla and I think they have a really interesting vision of a carbon-free future. Was wondering, would you mind introducing me to Elon Musk? I believe strongly in Elon’s vision and I’ve got two specific ideas that I’m positive will help improve Tesla’s marketing and social media.”

  • Now do the same thing for the Goods, writing why you’re not going to invest. For the Greats, let’s say there are four of them:
    • Write out why you think they are going to win. You now have three columns: company name, a Great/Good/Okay rating, why you
    • Remember there are a hundred reasons why these things fail, so you’re not going to have a hard time saying no, and there are
    • For your top four companies—the Great ones—ask for a second meeting and do a little due diligence (see chapter 24). Add a fourth column to your Google spreadsheet where you put your second round of comments on the Great companies, detailing why you said no to three of the Great companies and yes to one.
    • Put a recurring calendar reminder for every six months to visit this spreadsheet and make a fifth column with notes on how the twenty-four companies you passed on are doing—specifically whether they’ve raised more money or shut down
  • Never Say Yes or No During a Pitch
  • There is no reason to say yes or no during a meeting.

  • Good founders will ask you straight up, “Are you in?” or “How much would you like to invest?” Your best response is, “This has been great. Give me a couple of days to give it some thought and let’s talk on Monday. I might have some follow-up questions on email as well.

  • People always ask me, “How do you pick billion-dollar companies to invest in?”

    You don’t pick billion-dollar companies. You pick billion-dollar founders.
    
  • Okay, there are two types of businesses in my world: insanely scalable ones and everything else.

  • If you compare businesses made from atoms (brick-and-mortar shops like Starbucks and McDonald’s) to businesses made from bits (software), there is no comparison.

  • In order for Starbucks to reach a billion customers, they needed to open tens of thousands of stores, which on average serve five hundred to seven hundred cups a day, according to reports. Starbucks was founded in 1971. Facebook launched their Messenger product in 2011 and reached one billion customers in 2016

  • Meetings are important and free. You should take a lot of them. Ten one-hour meetings a week is a good target for a professional angel. Half that if you’re doing this part-time.

  • Your job is not to show off or demonstrate how smart you are by explaining to the founder what they’re doing wrong or by bragging about your heroics as an investor or, even worse, as a founder yourself.

  • 4 questions you need to ask:

    • Why has this founder chosen this business?
    • How committed is this founder?
    • What are this founder’s chances of succeeding in this business—and in life?
    • What does winning look like in terms of revenue and my return?
  • When you are starting a founder meeting, ask one icebreaker question to get your subject warmed up.
    1. How do you know Jane?
    2. What are you working on?
    3. Why are you doing this?
    4. Why now?
    5. What’s your unfair advantage?
  • If you’re building something because another hugely successful company doesn’t already have that feature, well, you’re wildly naive or, more often than not, plain old stupid. For years people pitched me on startups that were supposedly going to be Google search for news, Google search for video, and Google search for books and magazines. We all know how that turned out.

  • In order for you to answer these big, sweeping investor questions, you need to let founders talk and reveal their true selves. If you are talking more than 5 percent of the time during the first half of the meeting, you’re doing it wrong and you won’t extract the information you need to make your

    • Tell me about the competition.
    • How do you make money?
    • How much do you charge customers?
    • How much does your average customer spend?
    • Tell me the top three reasons why this business might fail.
  • If a startup called the Delta Corporation is making $10,000 a month selling enterprise software and they have five FTEs here in Silicon Valley, I simply calculate the FTEs by $120,000 each all in—or $10,000 a month—because they might have non-engineers getting $70,000 sitting next to developers making $150,000. Everyone is getting benefits and you have to pay some payroll taxes. So, Delta Corp is spending $50,000 on head count and probably has $10,000 in miscellaneous expenses a month, for a total spend of $60,000 a month, which means they have a burn of $50,000 (remember, they make $10,000 selling their software already).

  • I’ve also asked at some point during the conversation how much they’ve raised. Let’s say they raised $1 million a year ago. I can now estimate that they’ve lost $50,000 a month over twelve months, for $600,000, and have $400,000 left in the bank. They are burning $50,000 a month, so they have eight months left. And the Delta Corporation is doubling revenue every two months, so you’ll be break-even in six months. With eight months of runway, you don’t actually need to raise money, do you?”

  • To cold mails reply:

    “Jane, Nice start, couple of quick questions: revenue by quarter? how long has the product been in market (months)? i’ve seen a couple of businesses in this space fail over the years—why will it work this time? Best Jason”

  • You can put angel investing into two basic buckets: pre-traction and post-traction. Traction comes in the form of people using and sometimes paying for a product. Pre-traction means the product doesn’t have users or revenue.

  • In the pre-traction bucket, you will hear investors discuss startups in various phases of progress including, roughly from early to later: back of the napkin, basic research, business plan, mock-ups, functional prototype, MVP (minimum viable product), beta testing, and stealth mode.

  • When evaluating deals in Silicon Valley, there is no reason for you, a new angel investor, to invest in pre-traction startups. You can, but you will be taking unnecessary risk. Furthermore because of your limited time, I recommend that you not meet with anyone who doesn’t have a product in the market.

  • Pro rata rights are a must and you should never do a deal without them.

  • That’s why it’s important that you build solid relationships with venture capitalists who write bigger checks and work deeply with founders on scaling businesses that have product/market fit.

  • With dozens of relationships to manage in a venture capital firm, and decades of failed and successful investments made that you have to parse through, there is a simple device by which decisions are codified: the deal memo.

  • Angels don’t write deal memos, but they should, because deal memos force you to crystalize your thinking in the short term. They also help you refine your selection ability in the future by reading your past deal memos to see what you got right and wrong

  • I’ve determined journal notes are important for two reasons. First, it lets the person I’m meeting with feel respected because their startup is worthy of notation by what they typically perceive as a wise, old check-writing angel. When Jeff Bezos took notes in his meeting with me and my Weblogs, Inc., partner, Brian Alvey, I felt pretty darn special, I can tell you that.

  • It soon became obvious to founders that if I invested in your company, I would probably blog about why I invested and have them as guests on my podcast, This Week in Startups. This increased the number of people asking me to invest in their companies

  • Incubators are great to attend, and I recommend doing so, but I don’t think you should embrace the herd mentality they typically ram down investors’ throats. Go to a Demo Day and put all the startups in a spreadsheet, rank the chances of success you think each one will have (low, medium, and high), and write some notes in a column with a date. Pick the top five or ten and invite them to come for a formal meeting. Now write down what your impressions were after the meeting, as well as the amount they’re raising and the valuation. After meeting with thirty startups and picking the one you think has the most traction, the best team, and the most established group of investors, it’s time to let the founders know that you’re interested in investing so they can send you their paperwork. Remember, on average we get paid out seven years after we invest in a company—if we get paid at all. If an angel has a twenty-year career investing and they start at forty years old, then they’ll start seeing returns when they are almost fifty—with just twenty good years left to spend that money.

  • If a startup isn’t sending you monthly investor updates, it’s going out of business.

  • “I would like a monthly update from you that includes the key metrics for the business, as well as what you consider the wins and losses since the last email. I would like you to put requests for me and your other investors in the email as well. Every email should have how much cash you have left, your burn rate, and when you will be out of cash so that we can all plan for future raises.”

  • I keep a Google sheet with each startup in column A and the most recent month in column B, the previous month in Column C, and so on. When a founder sends a monthly update we put the number one in the corresponding cell, and when they don’t we put a zero. We make the zero cells red and the one cells green, then add up the number of updates we get each month from all startups, and from startups over time.

  • It’s fine for a startup to miss a month or to do updates every other month or quarterly if they are more established, but it’s never acceptable to go radio silent. If we don’t get an update for two months, we email them and ask, “Did we miss your monthly update?”

  • However, remember that we want your first ten investments to be $1,000 syndicate-level swings at bat so you can learn at the low-stakes table, where mistakes aren’t devastating. After that, in this book, we talk about making twenty $25,000 bets and quadrupling down on the winners with a $100,000 follow-on investment. In this model, no one investment is more than 12.5 percent of your angel investing portfolio, which in turn is only 10 to 20 percent of your overall net worth. That makes no one investment more than 1.25 to 2.5 percent of your net worth.

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