Should You Start Angel Investing?
Something I haven’t written much about in the past, but am planning on writing more about, is angel investing.
Frankly I didn’t write much about it cause I didn’t know that much—I only started angel investing after I started Fintech Today, and I was still learning on the fly. But there’s a ton of demand for angel investing content—it’s one of the most requested topics from FTT Community members. On top of that, I think there’s a lot of content on the benefits of angel investing, but not much about how to do it, if you can even angel invest, or whether it makes sense for you financially (and different ways to make it more affordable.) There are a lot of tips and tricks passed on by other angel investors, and making that knowledge more transparent is always a net positive for an ecosystem. There are also new ways to become an angel investor, through things like scout programs or venture partner roles.
For me, investing was something I thought I’d get into later on in my career. A lot of journalists end up being reporters, and when I left journalism for product management, a lot of my former peers asked why I wasn’t going into VC. At the time I gave some bullshit excuses. But the reality was that it’s somewhat hard for people like me to break into venture (contrary to popular belief, I’m not white.) The advice I had gotten was to build experience as an operator and learn about how products were built, taken to market, and eventually scale to millions of users. After learning about that, I could offer advice and help to a bunch of different kinds of portfolio companies.
I’m glad I ended up choosing that route—if I had ended up in VC too early in my career, I think I would have been a pretty stereotypical VC analyst. VC’s a glamorous role but you don’t learn how to build much, especially as an analyst. You do a really great job of developing a network and learning how to ask the right questions and basically break down a company, but you don’t learn much about what makes companies tick. I always recommend people thinking about VC to spend 2 years minimum in a company building something. Not only will it sharpen your skills as a VC in the future, but you might work at a company that blows up too (in a good way), which will change the trajectory of your career.
I think the biggest question when thinking about getting into angel investing is to think about why you’re doing it. There are a lot of great stories about how angel investors invested $20 in Coinbase and that turned into $10 million (I’m exaggerating) but in reality, those exits are few and far between. Not only that, but if you’re an operator putting in $25k to $50k checks, the economics don’t make sense—you’ll need to pour in more and more money in later rounds in order to keep you ownership percentage or get diluted to very little.
As an angel investor, you’ll probably get into companies that your friends or folks in your network start, and they’ll typically be on the earlier side too. The chances of those companies going public or getting sold for hundreds of millions of dollars are extremely slim. Money isn’t a great motivation to do anything in life, and it definitely isn’t a good reason to get into angel investing. The payoffs are lightyears away and in the meantime you put capital in an investment that isn’t liquid.
I got into angel investing for a few reasons:
- Stay “in the loop” of companies and sectors: I have a lot of different ideas and a lot of different areas of interest—unfortunately I don’t have the time or energy or money to start projects in everything I’m curious about. Investing gives me a chance to be involved in companies I’m interested in but without dedicated 40+ hours a week towards an idea.
- Help Companies: I’ve mentioned this before but I love helping people—I find it extremely fulfilling and it’s been the main motivator for my entire career thus far. As an angel investor, companies are adding you to their cap table because they think you can be helpful—either leveraging your experience as an operator or other reasons like your audience or network. Angel investors are even more incentivized to help portfolio companies than institutions because it’s usually how angel’s develop a track record of being a “value add investor.” Nowadays, I only invest in companies I think that I can help beyond just my capital—otherwise, there are probably other investors that are a better fit for the company. When starting out, I didn’t have the same luxury of seeing a lot of deals, so you need to be a bit more creative in figuring out how you can help.
- Develop A Track Record: One of the most valuable reasons for getting into angel investing is to develop a track record. For a lot of angel investors, myself included, the goal was to develop a portfolio of great companies to show that I can make solid, non-consensus, bets that turn out to be right, and companies that do well (in this case, get marked up.)
That doesn’t mean chasing logos of overhyped deals, but instead investing in areas and companies that weren’t super mainstream yet. A great example is Astra—not many traditional, generalist, VC’s think money movement is a big problem, and that was especially true a few years ago when I met Astra. But moving money fast, securely, and without fraud is actually a really hard problem for fintech and crypto companies—and they’re willing to shell out big bucks to companies that can solve it. The market for money movement is massive and even in a bear market there are more and more companies looking for solutions in that space. With Astra launching new partnerships with Unit and Lithic, in addition to their own sales process, the company’s well positioned to be a key infrastructure player in the future of fintech and crypto.