If you are someone who is new to angel investing, then making decisions to invest can be daunting. Things become much more formidable when you are trying to understand your financial objectives and risks involved.
Bill Powell, long time investor and member of our Northwest & Rockies forum, joined us at our 2021 Investor Capital Expo to share his experience and insights as an angel investor. With this keynote, he shared how new investors can manage their investments better, cut losses, and become better at making investing decisions.
Let’s go over the lessons shared by Bill to make yourselves a better investor:
# Lesson 1: Evaluating Relationships with Fellow Angels & Entrepreneurs
Always seek the right people and ideas -
If you are a new investor, joining angel groups, improving your network, talking to investors, and attending entrepreneurial pitching events are crucial. However, always ensure that you are not completely influenced by others to make investment decisions. You must evaluate deals based on the team's core strength and value of product/service. People will definitely play a role in the process of angel investing by influencing your decision-making, but you need to distinguish between people and ideas - where they fit and where they don't.
Solving the 'Problem-Founder Fit’ Conundrum -
You need to ask yourself - what problem is the company trying to solve? Is the leadership group right to solve the problem? Such questions provide your clarity on investment. Always remember CEOs are the ones who have the ability to identify gaps in the market and figure out ways to market product/service effectively. It’s also vital to perform thorough due diligence to understand the company’s finance, prospects, product, and salability.
# Lesson 2 - Importance of Network & Community
Full Spectrum Ecosystem -
Becoming a member of Keiretsu Forum provides the opportunity to interact with a global network of investors. As someone who is new to investing, networking with seasoned investors can provide a lot of learning. Other than this, participating in due diligence, deal screenings, and interacting with company founders can provide the much-needed practical learning rather than theoretical knowledge. With Keiretsu Mindshare Forum, you also get the chance to work confidentially with other investors to review your portfolio.
Commitment to Research, Development, Innovation & Commercialization -
Whenever you are joining an angel investment network, you need to see if they are committed to research, development, and innovation. As mentioned earlier, a thorough due diligence can help you understand every aspect of the company. Secondly, it is essential to be part of a community that values commercialization. A commercialization model is a process of bringing new products or services to market. Always look for a detailed plan related to commercialization in a presenting company’s pitch deck.
Focus on big problems, not just products -
A lot of the time, companies are focused on making changes to the existing product despite it being liked by the end user. This is also vital but not all the time. If the company is dedicating time to solving problems that are not relevant to the end user, then it is just wasting time.
The products you need to focus on are:
1) Trying to solve a valid problem
2) Has good market value
When choosing a company, it is necessary to identify the problems and invest in companies that can solve potentially significant problems that are prevalent today or will be in the future.
Lesson number 3 – Predicting the Future and Timing the Market Is Futile
Predicting Intersections -
Bill states that intersections in predictive technology are not easy! If you don’t have adequate knowledge of a particular field, then it is best to top investors and talent in related fields. This will not only provide you the knowledge of the field but also predict changes and growth within the industry.
It is Impossible to Time Markets -
Having the right market timing is not only challenging but almost impossible. According to Bill, some companies are ahead of time which makes it difficult for their connection with the customer base.
The pandemic has accelerated growth for some companies because they were already leading the way, and the masses could catch up due to the rapid demand for digitization. These companies experienced 48 months of development time compressed to 12 months.
Lesson number 4 – Structure and Follow-on
As an investor, you must have a diverse portfolio. You need to be structured when building your portfolio in different sectors. Once you decide to invest in a company, be vigilant at every step - the due diligence process, every board or shareholder meeting and while conversing with the core team.
By following a rigorous investment process, you can make optimal allocations and understand when you should move to your next seed round. As you become more experienced in investing, strive to be part of every seed round, learn from every loss and keep growing your portfolio, after all you never know which one might turn into a unicorn. Nothing beats experience!
Lesson number 5 – Have Conviction, Purpose & Time
Always understand your role in every investment, whether it's an active, semi-active, or passive role. When you decide what role you'd like to play after you've invested in the company, you should also ask the entrepreneur for their input. Founders must state their expectations from you rather than simply taking the cheque.
It doesn't matter when you join the company - pre-seed, seed, or later rounds, your commitment to the company in the future funding rounds doesn't change. If you can't add value to the business other than writing checks, re-consider investing in that business. So choose your position wisely.
About the speaker:
Bill Powell is an experienced investor and entrepreneur focused on early-stage startups. He is a Managing Director at Black Lab X based in Boulder, Colorado. BLX is a venture ecosystem dedicated to entrepreneurs addressing problems around “the human” using first principles thinking. Investment themes include vitality, consciousness, community, and the environment. Before joining BLX, he was a Managing Director with Stadia Ventures, a global sports tech accelerator & early-stage venture fund, where he remains on the board. Previously, he was Director of International Private Equity at AMG National Trust Bank with responsibility for the management of international private equity and renewable energy funds. Prior to that, he was active in several technology startups in Stockholm, Sweden. You can watch his keynote here.