Introduction
Ah, the age-old art of investing. You might have thought that piling your savings into a company was a modern invention. Well, it’s older than you’d think. The origins of angel investing date back to when entrepreneurs would seek out wealthy individuals to back their ventures, long before venture capital firms ever entered the scene. Fast forward to today, where the concept has evolved, and so has the investor’s role. Due diligence is now as crucial to angel investors as the compass was to ancient mariners. So, what is it really?
Due diligence, in layman’s terms, is doing your homework. It’s about peeling back the layers of an investment opportunity and really getting to know its bones. For angel investors, this isn’t just a recommended step; it’s a vital one. Without due diligence, you’re essentially betting your hard-earned money on a horse just because it has a fancy name. And trust me, that’s not a strategy I’d put my money on.
How should Angel Investor do Due Diligence?
Angel investing, as unique as it might be, requires an approach that’s a bit different from your average VC. Here’s the inside scoop.
1. The Power of Choice
First off, let’s talk about something that gives angel investors a leg up: the power of choice. Unlike VCs, angel investors aren’t tethered by the strings of obligation. They can pass on a plethora of deals without a blink, while VCs often feel the pull to keep that money rolling.
2. The Angel’s Halo – The Checklist
This isn’t about getting out the feathered wings, folks. This is about a structured approach to investing that keeps you from burning those hard-earned bucks.
- Ride the Coattails of the Wise: Always remember the golden rule—invest alongside someone smarter than yourself. For instance, when investing in Buddy Media, having experienced co-investors alongside me was a real comfort.
- A Familiar CEO is a Gem: CEOs who’ve been around the block are invaluable. Michael Lazerow of Buddy Media is a prime example of a familiar face that brought confidence to the table.
- Catching the Demographic Wave: Stay ahead of the curve by tapping into clear demographic trends. For example, the rise of personalized medicine due to the boomer generation retiring can’t be ignored.
- Value, Value, Value: Entering at a low valuation is akin to grabbing the golden ticket. Patience is key here. And remember, as angels, we’re not obligated to jump at every chance.
3. Letting Others Do the Heavy Lifting
When you’re rubbing shoulders with giants like Kleiner Perkins, rest assured, their team is crunching those numbers and doing the due diligence. Still, for that extra peace of mind, you’d want to do a bit yourself.
Due Diligence – My Personal Touch
Now, for my secret sauce. Here’s what I usually roll with:
- Chats with the Top Brass: It’s always insightful to talk to the CEO.
- Gauging the Sales Pulse: Conversations with heads of sales across regions can be eye-opening.
- Feedback from the Ground: Speaking to customers and end users (often different entities) is crucial.
- The Trust But Verify Approach: Background checks on the major players in the company is a must. Can’t be too careful.
- Check-in with Fellow Investors: Last but not least, chat with other investors. Their perspective might just be the missing piece in your puzzle.
But, let me spill the beans on the ultimate hack for efficient meetings: ditch the chairs and donuts. Heck, skip the face-to-face and hop on a call!
Angel vs VC – Who’s got the Edge?
Let’s have who’s got the edge, Angels or VC’s? Given my personal checklist, I’d argue that angel investors can actually outmaneuver VCs. Sure, VCs have their extensive networks, but angels can build strong networks too, especially with platforms like AngelList at their disposal. Combine that with piggybacking on top venture capitalists, and you’ve got yourself a win-win.
And hey, the more success VCs have, the more I (and you) stand to gain. So, here’s to the bubbles in the market, and may they ever be in our favor!
Conclusion
Alright, to wrap things up, remember this: Angel investing isn’t just about throwing money into the ring. It’s a fine dance of due diligence, leveraging networks, and making calculated bets. As angel investors, the way we approach due diligence sets the stage for our successes and failures. How should an Angel investor do Due Diligence? By being savvy, meticulous, and ever-curious. And if there’s one thing I’ve learned from my time in the field, it’s that with the right approach and mindset, the sky’s the limit.
