I asked 8 angel investors how they got started, how they evaluate companies, and what they wish they had known
I asked 8angel investors for their tactical advice and stories on how they began angel investing, how they evaluate investments, and what they wish they knew when they just got started.
Huge thank you to angel investors Katelyn Donnelly, Mollie Fehlig, Sari Azout, Ben Zises, Brett Martin, Erik de Stefanis, Jonathan Wasserstrum, and Matt Knight for their time and incredible insights!
What motivated you to get started in angel investing and how did you get started?
Katelyn Donnelly, investor at Avalanche
I’ve been a professional venture investor for 5+ years and started the corporate venture fund at Pearson so I had confidence in my skills to pick strong businesses and teams and had self-knowledge of where I can add value and when I should listen.
Mollie Fehlig, founder of Fehlig Advisory
I worked on Wall Street for many years, so was exposed to finance and investing from a late stage perspective but wanted to move earlier and help get more women funded beyond the friends and family round through demystifying venture and providing capital for them. So I became an angel to better understand funding in the startup world. Through being an angel investor, I have been able to take my learnings from the financial markets and amplify that with the specifics of the early stage world.
Sari Azout, partner at Level Ventures
I graduated from college in 2010, then I spent 2012–2015 working on my own startup. I met a ton of founders during my own startup journey. At the time, I didn’t have a ton of my own capital to invest, but I started sharing deals with people I knew who were not plugged into the tech ecosystem but had capital to invest. In 2016, I put together a syndicate to invest in a company called Monica + Andy. Within a few months, I was approached by a family office to run their venture arm. I have been investing institutionally on their behalf since 2016. We are fairly limited in what we invest in, so in 2018, I started doing some of my own angel investing, realizing that there were many early ideas and founders that really resonated with me but didn’t necessarily make sense for the fund. It’s the most exciting part of my work right now.
Ben Zises, angel investor, advisor, syndicate lead and fund manager (investments include Quip and Caraway)
I got started as an angel investor after my own experience as a founder. In early 2014 as my real estate tech startup was winding down, I flew from NYC to Miami to pitch a potential investor as a last ditch effort to keep my business alive. While that pitch turned out to be unsuccessful, I stayed the weekend at a friend’s place who brought me with him to a party in Miami Beach. A few minutes after arriving at the party, beer in hand, I overheard a group of guests talking about a not-yet-launched ‘toothbrush subscription company’ that a friend-of-a-friend was working on. My ears immediately perked up and I walked over to the group to learn more. Having been an early customer/fan of Dollar Shave Club, particularly aware of the attention they were capturing in the antiquated men’s grooming market, and witness to the success they were achieving by attracting massive venture capital, my ears were very much to the ground on the disruptive nature of such a large, historically unsexy, everyday use, personal care category — men’s shaving. I used to purchase dozens of toothbrushes in bulk from Groupon since I am somewhat of a germaphobe, and constantly wanted to keep my brushes fresh. I saw a similar, if not larger, untapped opportunity in oral care. It’s easy to forget today just how innovative DSC was at the time, though, I think we all remember how exceptional their viral video was (after all it has more than 25 million views on YouTube)! To finish the story, I asked the person familiar with the company to introduce me to its founders, Simon and Bill, and returned to NYC with an email introduction sitting in my inbox. We arranged to meet at my office a few days later. After seeing the toothbrush prototype IRL, hearing their wider vision to disrupt and improve the oral care industry first hand, and seeing the determination in their eyes and hearts, I immediately jumped at the opportunity. A few days later I handed them a check for $10,000, made out to the company which was later named quip, and committed to helping them in any possible way to turn their vision into a reality. That was my first angel investment and how I got started.
Brett Martin, co-founder of Charge Ventures
There are two schools of thought in investing. On one hand, you have believers in the efficient market hypothesis. All available information is already baked into the price, there is no edge, and that you should just buy the market. On the other hand, you have those who argue that you should only invest in what you know, what you understand, where you have unique insight and edge. After a short stint on wall street covering the world’s largest healthcare companies, I’ve been working in early-stage venture capital. What I can say with relative certainty is that private markets, where there is usually not a single market-clearing bid (ie most companies trying to raise fail to raise) are far less efficient than big public ones. In fact, entrepreneurs often know something that literally no one else in the world knows. And it’s their job to educate the world. This explains why the majority of billionaires in the world are entrepreneurs: they not only had but acted on proprietary information.
Erik de Stefanis, investor at Interlace Ventures and Crescite Ventures
The potential for high returns is definitely a motivator, but also the ability to back meaningful missions from day one.
Jonathan Wasserstrum, co-founder and CEO at SquareFoot
I really like the practice of building companies. I’m not looking to stop building mine (SquareFoot.com) anytime soon so angel investing lets me help out with some others. Also I learn a ton by seeing what works and doesn’t in other situations that makes me a better CEO for my day job. That “pattern recognition” thing that VC’s always talk about :) I got started by asking friends of mine who were raising to let me invest small checks into their rounds.
Matt Knight, founder of PropTech Angel Group
I was an owner and investor in commercial real estate in 2013 and I saw how transformative technology could be to my investments. Since I was syndicating equity to invest in CRE, it wasn’t a huge leap to syndicate and invest in CRE Tech. And that led me to my career in VC.
What are the 2–3 main things you look for in an angel investment?
Katelyn Donnelly, investor at Avalanche
Angel investing is for me two things:
People: Investing in the hard-working, brilliant founders who operate with integrity. These are mostly in my network and/or have been people I’ve known for a while. For example, I invested in The Social Institute founded by Laura Tierney, an entrepreneur who I went to college with Duke who was a 4x all-American athlete and named Duke athlete of the decade. She knows how to win and be relentlessly positive.
Vision for the future: investing in a vision of the world that you’d like to see the founder will into existence. For example, I invested in a fund for FemTech because it’s undercapitalized and as a woman, I’d benefit from great innovation in med-tech products that are designed to address the unique needs fo women.
Mollie Fehlig, founder of Fehlig Advisory
I look for 1) a growth mindset (seeing how they overcome challenges), 2) humility to understand when a pivot is needed and what their weaknesses are to build a team and get help around them, 3) ability to combine short term, tactical goals with the long term vision.
Sari Azout, partner at Level Ventures
Strong Team: Visionary, disciplined, magnetic founders
Multidisciplinary team: Strong business, technical, and product design leadership, Depth of commitment to the problem (“would do this for a decade, and keep going even if funding never appeared”), Miserly with capital until the returns are clear, Differentiated value proposition for talent — e.g. I would work for this team
Differentiated Product: Unique insight, Clear and succinct value proposition, Customer obsession embedded in the product
Market Need: Clear market inefficiency, Large pain point among customers, and willingness to pay, Unique approach to solving pain, Exclusive path to customers — distribution as a competitive advantage
Ben Zises, angel investor, advisor, syndicate lead and fund manager (investments include Quip and Caraway)
#1 Team
Unwavering ambition to build a multibillion-dollar company
Relentless pursuit of perfection + product obsessed
Ability to learn new things + absorb information fast
#2 Market/Category
I target investments where I feel uniquely qualified to assess & evaluate — Consumer/CPG + PropTech (I don’t pretend to be an expert in everything)
#3 Product/Traction
Oftentimes I will invest pre-product and, as such, rely even more heavily on #1 and #2 🔙
Brett Martin, co-founder of Charge Ventures
Building on what I just said, I look for someone with a secret. It’s commonplace to say that entrepreneurship is “all about execution” and that “ideas don’t matter” but I believe that really good ideas are often predicated on some sort of secret, a powerful piece of knowledge that hasn’t been widely distributed yet. The entrepreneur’s job is to take advantage of the short window of info asymmetry to build a defensible business before everyone else catches on. Often this secret comes from some form of founder market fit, where they have deep knowledge of a problem but retain enough of a beginner’s eye to be able to look at the same old problem and offer a completely new solution. I think this is why so many good founders are evangelical in nature. They have to not only build a better mousetrap but convince entire communities deeply rooted in the status quo to do things completely differently. We often ask “Can this founder sell stock?” which is a way of acknowledging that, for a lot of truly disruptive businesses, the founders will need to rely on external financing for some time. To sum up: “What’s the secret?” and “Can she sell stock?”
Erik de Stefanis, investor at Interlace Ventures and Crescite Ventures
1) The team needs to be highly capable, focused and disciplined, open minded and agile. Grit is extremely important: are they ready to devote the next 10+ years of their lives to this endeavor?
2) The company must be solving a real pain and/or addressing a strong demand. Also, there needs to be some form of a moat/defensibility, whether that is the internal processes, IP, brand/community, etc.
3) Is this company/team mission-driven in such a way that if successful, they will have a meaningful and positive impact? Will I be a proud backer of this company?
Jonathan Wasserstrum, co-founder and CEO at SquareFoot
- Is the problem/market that the company is trying to solve something that interests me.
- Is this a venture sized business opportunity? As much fun as I have and as much as I learn, this is ultimately real money at stake so need to see path for success.
- And most importantly, at 11:30 on a school night if this founder calls me to work through a problem, will be I happy picking up the phone.
Matt Knight, founder of PropTech Angel Group
1. Traction, 2. Team, 3. Barriers to Entry
What is the #1 piece of advice you would give new angel investors?
Katelyn Donnelly, investor at Avalanche
If you haven’t invested in a startup before you may want to consider pairing up with an experienced friend or angel network. This will give you access to deal flow, confidence, and avoid mistakes. Second piece of advice: Angel investing is risky and long-term. Don’t go into it expecting to get a quick return. This should be money you can absolutely afford to lose.
Mollie Fehlig, founder of Fehlig Advisory
Join angel groups and organizations like The Council; through these platforms, you meet and learn from others (operators and investors) on how they think about investment analysis, you can be more helpful to founders through leveraging the network, and you can see more companies together
Sari Azout, partner at Level Ventures
All investing is about sourcing deals, picking deals, and winning deals. To optimize all three, you need a clear shtick! Whether it be a specific sector (i.e. consumer SaaS) or area of expertise (distribution), you have to be known for something. Don’t try to boil the ocean. Pick a space that you understand and stay in your lane. The more you understand a space, the better you can vet it and the more helpful you will be. Today, the brand of the individual > the brand of the fund. Build your own personal moat.
Ben Zises, angel investor, advisor, syndicate lead and fund manager (investments include Quip and Caraway)
My biggest piece of advice for new angel investors is to go slowly, don’t put all your money into the first deal you see, and learn from other successful investors that have come before you. One great way to learn is by investing very small amounts of money into syndicates led by more experienced and established investors. Personally, I started by following Jason Calacanis, reading his book ‘Angel’, and making small investments of $2k — $5k into deals he was personally investing in himself. That allowed me access to his deal flow (which took decades to cultivate), ability to read his deal memos, see how he analyzes a business and ultimately develop my own set of criteria. As you go, your deal flow will get better and better, so be sure to portion your capital accordingly. Today I run my own syndicate which has more than 500+ unique backers and provides access to others now wanting to co-invest alongside me. You can learn more about me at SuperAngel.vc and follow my syndicate at SuperAngelSyndicate.com.
Brett Martin, co-founder of Charge Ventures
Make more, smaller bets. This is pretty banal advice but still I see so many first time angels mess it up. They get excited about the first company that comes their way and invest 50% of all of the money that they could reasonably allocate to angel investing in that first round. The truth is that you are playing the long fat tails with angel investing and you have no idea which of your investments is going to break out. So you need lots of shots on goal. My advice is:
1) Decide how much capital you plan on allocating to angel investing (1–5% of your net worth). Let’s say that’s 30k.
2) Divide that by 30 to make sure you have a diversified portfolio. So you are going to invest $1k into 30 companies.
3) But, you don’t want $1k into each of the 30, you want more money in your winners. So make an initial investment of $500 into each company and save $500 for follow ons (if you can).
4) Make 6–10 investments per year to get in the reps to learn how to do it and what you like. You can always invest more!
Erik de Stefanis, investor at Interlace Ventures and Crescite Ventures
Take many well thought-out shots, have conviction, and be patient.
Jonathan Wasserstrum, co-founder and CEO at SquareFoot
Be helpful. Capital is turning into more and more of a commodity. So how do you get a great company to pick yours? Differentiate yourself by actually adding value.
Also you can start with much smaller checks than you think you can. I’ve found that companies love having ceo’s and other operators on the cap table…again if they’re helpful ;)
Matt Knight, founder of PropTech Angel Group
Just like any industry, find a niche and dominate it. Too many try to do too many things and you’ll never be successful that way.
