What attracted you to exploring angel investing?
Like many people, I started with traditional investments in stocks and bonds, expanded into micro-loans of various sorts, and eventually moved into residential real estate as well. I am always looking for investment vehicles that help me diversify my portfolio, but more so than that, I was specifically in search of high-risk high-reward, fast moving, full contact, rough and tumble technology development, sprinkled with a good dose of business creation, all tied together with great people wielding their dreams. In short, I was looking for some fun, and I found it in angel investing.
Where do you find most of the companies?
Since my initial entry into angel investing through the Seattle Angel Conference, I have started investing with a number of other local groups such as the Alliance of Angels, which has been wonderful. The number of angel funds that have come online around Seattle in the last few years has seen a small explosion, and I’ve tried to stay on top of all the activity here as well. I’ve also been much more pro-active about growing and scouring my social network to uncover products, companies, and people to invest in. Also turns out investing breeds visibility and I’ve had many a company approach me directly for engagement. I tend to invest alongside other trusted investors, but have just started venturing out alone when the opportunity is right.
What are the top three things you look for in companies where you invest?
Like most other investors, I look for ideas that solve real problems (small problems for lots of people, large problems for few people, or better yet large problems for lots of people), and a stellar team that can execute. Contrary to intuition though, I also look for interesting flaws in the companies I invest in (I do, really). In my experience, every company at the angel phase is flawed in some way. “Interesting flaws” are either ones that I can usefully apply my experience and expertise to, or that I project could serendipitously lead the company to navigate areas that others would not otherwise get into. In a select portion of my portfolio, I also intentionally look to invest in areas I know absolutely nothing about. This forces me to maintain discipline in due diligence, pushes me to grow, and is intellectually challenging in exciting ways.
How did you incorporate angel investing into your overall portfolio?
Angel investing is not a “get rich quick” scheme, at least not unless you get extraordinarily lucky. Like every other investing tool, one has to understand the role it plays in the overall portfolio, and continue to learn the craft as you do. Given that statistics suggest it beneficial to have a portfolio of at least 15-20 companies, it was tempting find the first 15-20 companies that seemed reasonable and throw money at them. Viewed as a long term investing tool though, and one that is higher risk and much less liquid than many others, I have slowly incorporated this into my portfolio. This allows me to engage more fully in the companies I invest in, and I’m hoping this patience pays off.
What have you learned since you started angel investing?
I’ve learned lots. Perhaps the most interesting realization has been that: Good investors find good companies to put money into, and then sit back and hope they do well; great investors find good companies to put money into, and then work hard to make them great. It’s that simple, but also that difficult.
What do you wish you would have known before you started angel investing?
For a long time, angel investing was a big, scary thing to me. I have spent most of my career working either in academia or in large multinational corporations (e.g. Disney, Microsoft), and while I am no stranger to innovation and business creation, and had even considered jumping into the startup space at various points, I felt pretty ignorant of how things worked there. I did not feel like I had transferable expertise and did not really know how to get into it. To those that follow, I would suggest that those fears and uncertainties are generally completely unfounded. Everyone brings something to the table, and there are lots of wonderful people who are willing to share experiences and expertise. Be humble but be confident, ask lots of questions, and be prepared to make (and learn from) mistakes as you go. And most of all, have fun!
What space are you most interested to invest in next?
I am particularly interested in health technologies and medical devices, because the industry seems ripe for change, because I can add useful expertise, but also because the impact to society could be huge. That said, I tend not to go into investing with a priori filters, and prefer to navigate as I go. Almost nothing is out of scope for me (almost because I will not invest in businesses that conflict with my fundamental principles, regardless of how large the opportunity).
What resources should entrepreneurs and angels use to learn more?
There are many. I personally browse the “interwebs” quite a bit (e.g. blogs like joshmaher.net are great, but sites like angel.co and crunchbase.com also help me stay on top of things), attend various organized events (e.g. I like Jason Calacanis’ Launch events as well as the more specific Rock Health ones), and talk to many more people than I used to. I’d you live around Seattle and are ready for the ultimate tutorial, I’d suggest Seattle Angel Conference as a great place to get started. I personally treated the first investment as tuition, and the education itself was probably the best “investment” I have made in a long time.
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