"They say no one gets there alone, and halfway through my career, I can tell you this is the truest thing I know."
- Angel, Kindle Location 3169-3170
"Life is short, you should spend your time working with good people, and if you do get screwed, look at it as a small price to pay for getting that person out of your life."- Angel, Kindle Location 928-929
The large risk to an angel investor is the lack of preparation and analysis. Feeling and emotion are part of the job. However, with 90% plus startups failing, it’s a necessity to develop a rhythm and complete the due diligence beyond your gut instinct. Calacanis recommends asking yourself four questions as you meet with prospective startup founders:
Designed to help you dig deeper, these questions help you understand how this startup aligns with your own goals. Allocate three hours for each startup meeting, including preparation, time with the founders, and completing a post-mortem.
It’s critical to develop the meeting and the pitch down to a fine science. You will meet with so many founders, investors and stakeholders. Getting to the essentials helps to effectively and efficiently make a decision.
"Most founders will give their angel investors pro rata rights. If they don’t, something is off. Why wouldn’t you want your early investors to get rewarded?"- Angel, Kindle Location 1911-1912
A nuance about the angel investing world is the concept of pro rata rights.
As an angel investor, a handful of your startups may continue to raise money in later rounds. During these rounds, your percentage of ownership in the startup can become diluted. To maintain your ownership stake, you will need to make further investment. However, when not requested and defended, you may not have that right.
Pro rata rights preserve the angel’s opportunity to maintain their percentage ownership in future rounds of investment.
Calacanis is adamant about this. He believes the collective angel community should make this a status quo. A good angel investor bears most of the risk, time and network during the inertia of a new company. Don’t they deserve the opportunity to also benefit from the ride?
Before you sign a check, make sure pro rata rights are in place and let it be a warning sign if you’re refused.
"Groupthink or perhaps even delusional thinking also tends to set in during investing, with people looking around the bargaining table at each other and thinking, 'If nothing is scaring off those other three successful investors, then I’m not worried, either. I’m sure if something was wrong, one of them would have uncovered it.'"- Angel, Kindle Locations 2125-2127
The startup world is dynamic and complex. Calacanis reminds us that we need to couple the need to do the work along with the research. Over a third of the book covers how to become a seasoned investigator through practice and discipline. In one section, he provides five investigative questions, the responses of which will provide insight into the startup, as well as the genuineness and confidence of the founder(s):
These questions help you ensure that these areas line up. If you see any incongruences, then go deeper or consider walking away.
Calacanis wants you to never assume that other investors have caught everything, regardless of their notability or previous success. In this marketplace, each experienced investor brings a new perspective. These may overlap but, importantly, fill in more gaps.
Startup success is highly dependent on awareness and minimizing being blindsided. Diversity and meaningful diligence raises the bar.
Angel is one of those books that you’ll not only find entertaining, but also hugely informative. It will help you gain a unique perspective into the startup culture and ecosystem.
JASON CALACANIS is a technology entrepreneur, angel investor, and the host of the popular weekly podcast This Week in Startups. He’s the founder of a series of conferences that bring entrepreneurs together with potential investors.
