The Irish have a saying: “much done, more to do.” No matter how experienced you are in your given industry - how high you’ve climbed up the corporate ladder, or how many years you have given to your profession - you know full well that there is always more to learn. It used to be that this learning took place from coworkers, books, trade magazines, interactions with peers at industry events, or simply through trial and error.
With the growth of social media, new floodgates have opened. Now learning can take place anytime, anywhere with a few clicks of a button. Want to know more about a topic? Search Google. Want to keep up to date on industry news? Subscribe to relevant blogs and groups. Want advice? Post a question and you’ll get an immediate response from a variety of people with a breadth of experience.
As Managing Directors of Launchpad Venture Group, Founders of Seraf, and active angel investors, we spent more than 15 years building a knowledge base around angel investing and working with seed companies in the Boston area. As angel investing becomes more professionalized, our goal is to accelerate that transition; in part by creating exceptional portfolio management tools and in part by providing angel education and creating a community where early-stage investors can learn from one another.
This post marks the launch of our core community effort: the Seraf Blog. Naturally, we begin with an overview of what we believe to be the 6 Most Important Habits of a Successful Angel Investor:
- They Discover Great Companies
- They Manage Risk
- They Own a Diverse Portfolio
- They Have Realistic Expectations for the Timing/Size of Exits
- They Invest Financial AND Human Capital
- They Keep Track of their Investment Portfolio
Although it’s stating the obvious, discovering great companies is absolutely critical to your success as an angel investor. However, we all know that it’s much easier said than done. In our section on Finding Companies, we’ll regularly discuss topics like what to look for in early stage companies, how to recognize a great CEO, how to evaluate investments, and other best practices.
Even the greatest startup companies have risk factors. Knowing how to provide thorough due diligence will help mitigate these. Once you’ve made your investment, learning how to communicate with entrepreneurs becomes paramount, even more so if you are a board director or advisor. How often should you expect to hear from your CEO? What can you do to ensure a productive board meeting? All of these issues will be covered in the Managing Risk section.
So you’ve made a few angel investments in early stage companies. Now what? Venture capitalists and experienced angel investors alike know that a diverse portfolio is the key to success. Despite discovering great companies, despite due diligence and timely investor communications, many companies in your portfolio will fail. Or maybe deliver moderate returns. It typically takes a diverse portfolio to have a home run. Our Portfolio Diversification section will deal with how to build an angel portfolio of seed companies that will enhance your success.
Having realistic expectations for the timing and size of exits will make you not only a smarter investor, but also a more successful one. Angel investing is not a get rich quick scheme. You have to be in it for the long haul. And as you make additional investments in follow-on rounds and/or new startups, knowing when to expect returns will help your cash flow. In our section on Investment Returns, we’ll share lessons learned and how you can prepare for exits.
At Launchpad, it is our philosophy that investing human capital is almost as important as investing financially. And in some cases, maybe even more so. It is not only a way of giving back to the community, but also a means of insuring your capital. Learning how to work with entrepreneurs can be tricky. Typically these early stage companies are scrappy - short on staff and starved for time. Lending your expertise can be a godsend for the entrepreneur and give you further insight into the business. The Human Capital section of our blog will help you discover the best ways to contribute, whether it be as a marketing guru, a tech expert, or a board director.
Over the past 15 years, we’ve met many successful angel investors who practice these first five habits. But when asked how they keep track of their investment portfolios, the answers are invariably underwhelming. A key part of your success as an investor in early stage companies is managing and optimizing your portfolio, and finding the tools to do so. Do you know how many investments you’ve made and what your current portfolio is worth? In what industries have you had the greatest success? Do you know the terms of your Convertible Notes and when they mature? Do you have Warrants? Are you familiar with Tax Code Section 1202? Or 1244 Stock? Would your family or advisors know how to figure out your investments? The Portfolio Management section addresses what you need to know to effectively track, manage, and maximize your angel investments.
As we post new articles related to each of these topics, we invite you to add your comments and share your own investing experiences.