With startup valuations in turmoil and the tech industry going through a reset, is now a good time to get involved in angel investing? Foreboding blog posts by top angel investors, sporting titles like ‘The Coming Angel Ice Age’, can have the most optimistic newcomers quacking with doubt. But prominent angel Joanne Wilson, who herself recently authored a less than entirely cheerful post about the current investment climate on her popular blog Gotham Gal, is happy to reassure would-be angels.
‘I don’t think it’s ever a bad time’, the New York-based angel, who has invested in 90 companies, said in an interview. Despite the uncertainty in the startup world, Wilson, a fierce booster of women entrepreneurs and organiser of the upcoming WeFestival, believes more people of different backgrounds getting involved can only be a positive development for the world.
‘If you’re smart about it and, by the way, you’re willing to lose all of it, you can have an impact and you can make money,’ she believes. Individual angels who are new to the game just need to be clever about navigating the increasingly choppy waters of seed-stage investing. Wilson offers a few essential tips.
1. Have a thesis
‘It’s important to have a thesis,’ Wilson insists repeatedly. Whether, like an angel she knows in Florida, that proposition is centered around a particular niche, like ‘urban infrastructure’, or as it is for Wilson, is mainly financial, you need to have a plan for your investing.
‘When you haven’t spent any time in the startup universe, you are incredibly lucky to meet really smart people building companies. The first year, every single one looks like a friggin’ genius,’ she laughs. But this abundance of talent can be a problem if you don’t have a definitive yardstick to evaluate possible investments and winnow the field of possibilities.
A thesis also brings financial rigor to your decision-making. ‘If you’re going to do early-stage investing, you can’t say, “I’m going to invest in this one deal this year. I’m going to put $10,000 in and see what happens.” Unless you’re a genius and happen to have incredible luck, chances are that you’re not going to make tremendous returns on your money, so there has to be a thesis,’ Wilson stresses.
2. Leverage your expertise
You might be new to angel investing, but chances are, in order to have gotten to the position where you are able to invest in new companies, you have some sort of deep business experience or acumen. Leverage that, Wilson advises. Maybe you know about financial services, maybe you know branding. Whatever it is, use it.
‘Institutional investors that have decided that healthcare is part of their thesis, more than likely, have a handful of analysts really digging into the space,’ she says. That gives them a leg up in knowing which ideas are interesting and unique, and which are copycats. Not so with angel investors.
‘Many of us are one-person bands, and so to look at something and see what you see knowing what else is in that vertical is not always so easy,’ Wilson says. Previous expertise can help you make those calls.
Your background can also be good for founders, she adds. ‘You have a skill set and provenance that you can bring to the party.’
3. Balance pragmatism and risk
‘It’s good to find other people who are doing what you’re doing, because if you’re a singular person not connected to anyone, it’s kind of hard to find the right deal flow,’ says Wilson, recommending groups who can help get you access to deals, talk through your thinking about investing and boost your confidence.
Similarly, when you’re first getting started, it’s worth taking the time to really think through your approach and get the lay of the land. With so many possibilities for new angel investors, ‘I’ve seen people react to everything that comes in their front door,’ says Wilson. ‘It’s easy to get swept up in the excitement of the entrepreneurs pitching you.’ But enthusiasm needs to be balanced by a healthy dose of pragmatism.
But while learning, discussion and camaraderie are great, don’t let them delay you to the point of missing out on deals.
‘If you don’t jump in early, the chance of you being able to get into that series-A round is pretty nil,’ cautions Wilson, warning that institutional investors are often disinclined to bring angel investors into later rounds. ‘As an investor you do have to have some kind of leap of faith. You have to have the appetite for risk.’