The Blade

A scene from the great movie Glengarry Glen Ross shows Alec Baldwin’s character, Blake, chewing out a sales team saying they’ll wind up losers in a bar mumbling, “‘Oh yeah, I used to be a salesman, it’s a tough racket.’” I get this feeling that one day, I’ll be the loser in the bar, except I’ll be mumbling, “Oh yeah, I used to an angel investor, it’s a tough racket.”

Angel investing is a difficult, stressful endeavor, which I summarized in last week’s post. You work alongside founders, struggling to get their new businesses on solid footing (much less reach hockey stick revenue growth); you’re helping convince founders’ frustrated spouses to live for another year on a paltry salary; you are trying to decide whether or not to invest more funds into their businesses; and you’re stressing about the uncertainty of this startup’s future.

I’ve made plenty of mistakes as an angel investor; had I know these fallacies beforehand, I could have saved myself a few drinks in a bar feeling like a loser:

1) Trying to cram processes that have worked at one business into another business: In the beginning, when founders are frustrated by their lack of traction, I tend to push them towards using processes (e.g., sales or marketing methods) that other successful businesses I’m involved with have successfully deployed. This advice may sometimes work, but I’ve clearly gone too far with it on occasion. Each business has their own “groove” – and as an adviser, it’s best to help the founder discover his or her own course—not someone else’s.

2) Occasionally being a nuisance: In his entertaining post, “Are Angel Investors God’s Stupidest Creations?” Ajeet Khurana says, “One way angel investors sell themselves to entrepreneurs is by promising them value in addition to the money they will invest. Upon investment, this value is usually nuisance value.” I’m probably guilty of asking for too much information, butting in, and slowing down the machine when what I really need to is, well—get out of the way.

3) Not being a good listener: When meeting with investors, founders should do 80 percent of the talking. Too many times, I’m doing 80 percent of the talking, or “telling” in too many cases. It’s so tempting to tell someone how to do something, rather than just listening so he or she can sort it out on their own.

4) Communicating with employees instead of exclusively with the founder: I like to dive into the details, and there’s no better way to get details than directly from the horse’s mouth – from the employees managing the tasks. But unfortunately, this doesn’t help the founder because their leadership strategy may be undermined. This should be a no-brainer, but I’ve screwed it up more than once.

5) Not realizing that follow-on investments were common and necessary: Almost every new founder spends twice as much and makes half as much revenue as he or she originally figures in the first few years. This creates a cash shortfall that needs to be plugged just to remain in business. Smart angel investors anticipate these follow-on investments from the beginning and are ready to address them one way or another – often by providing additional funding.

6) Investing on a part-time basis: Just like any career, trying to do investing on a part-time basis is a real challenge. For example, I have no time to generate deal flow, so I only look at a few real deals per year. In fact, I may stop angel investing unless I take it up full-time because it’s too difficult.

I’ve also managed a few things well. I genuinely care about founders; I introduce them to people who could help; I get back to founders when they have questions. At least I’m not haranguing them: “PUT. THAT COFFEE. DOWN. Coffee’s for closers only.”