Later this morning I am participating in a panel called “Angel Investing in Action” at the 2014 Pipeline Fellowship Conference here in NY. The goal of the Pipeline Fellowship is to have more women angel investors (currently only about 1 in 5 in the US). This is a terrific endeavor as it will ultimately also help women entrepreneurs raise angel financing more easily. in preparation it occurred to me that while I had blogged tangentially about angel investing I had never written a dedicated post.

Given that there is a lot of early stage investing these days let me first define what I consider to be angel investing: individuals making occasional investments in startups outside of their day job. In other words, I am not including anyone who invests in startups for a living (such as myself). Having a large number of active angel investors is essential to the overall startup ecosystem because it is where the earliest dollars come from.

The impact of angel investing has gone up tremendously over the last two decades as the cost of starting a business has plummeted. Many new products or services can be launched entirely on angel dollars alone. This impact has been further amplified by better infrastructure for angel investing such as standardized documentation and market places including AngelList and CircleUp (a USV portfolio company).

What then are some of the things you should pay attention to if you are considering angel investing?

1. Only invest money you can afford to lose. This is true not just on a per deal basis but also in the aggregate!
   
   

2. Think of more deals as more risk (not as diversification). To get to diversification you would have to do a great many deals (dozens if not more) and not make systematic mistakes.
   
   

3. Avoid uncapped convertible notes (if you don’t know what that means, make sure to read up on it before your first investment). They tend not to provide adequate reward for the risk you are taking.
   
   

4. Don’t back someone who hasn’t quit their job yet. Your money is committed – they should be too.
   
   

5. It’s OK to invest in friends. But back only friends who you think are entrepreneurs. If you have doubts be a real friend and say so.
   
   

6. Don’t make entrepreneurs jump through hoops (leave that for the VCs – just kidding). As an angel you should ideally be able to give an entrepreneur an answer after a single meeting.
   
   

7. Know what makes for a strong entrepreneur and (ideally) invest in areas you understand.
   
   

8. Say “no” a lot more than you say “yes” – embedded in this is that you need to be seeing a lot of different startups.

Like all rules, these are meant to be broken. Just when you break one of them make sure you understand that’s what you are doing (and that this likely further increases the already high risk).

Later this morning I am participating in a panel called “Angel Investing in Action” at the 2014 Pipeline Fellowship Conference here in NY. The goal of the Pipeline Fellowship is to have more women angel investors (currently only about 1 in 5 in the US). This is a terrific endeavor as it will ultimately also help women entrepreneurs raise angel financing more easily. in preparation it occurred to me that while I had blogged tangentially about angel investing I had never written a dedicated post.

Given that there is a lot of early stage investing these days let me first define what I consider to be angel investing: individuals making occasional investments in startups outside of their day job. In other words, I am not including anyone who invests in startups for a living (such as myself). Having a large number of active angel investors is essential to the overall startup ecosystem because it is where the earliest dollars come from.

The impact of angel investing has gone up tremendously over the last two decades as the cost of starting a business has plummeted. Many new products or services can be launched entirely on angel dollars alone. This impact has been further amplified by better infrastructure for angel investing such as standardized documentation and market places including AngelList and CircleUp (a USV portfolio company).

What then are some of the things you should pay attention to if you are considering angel investing?

1. Only invest money you can afford to lose. This is true not just on a per deal basis but also in the aggregate!
   
   

2. Think of more deals as more risk (not as diversification). To get to diversification you would have to do a great many deals (dozens if not more) and not make systematic mistakes.
   
   

3. Avoid uncapped convertible notes (if you don’t know what that means, make sure to read up on it before your first investment). They tend not to provide adequate reward for the risk you are taking.
   
   

4. Don’t back someone who hasn’t quit their job yet. Your money is committed – they should be too.
   
   

5. It’s OK to invest in friends. But back only friends who you think are entrepreneurs. If you have doubts be a real friend and say so.
   
   

6. Don’t make entrepreneurs jump through hoops (leave that for the VCs – just kidding). As an angel you should ideally be able to give an entrepreneur an answer after a single meeting.
   
   

7. Know what makes for a strong entrepreneur and (ideally) invest in areas you understand.
   
   

8. Say “no” a lot more than you say “yes” – embedded in this is that you need to be seeing a lot of different startups.

Like all rules, these are meant to be broken. Just when you break one of them make sure you understand that’s what you are doing (and that this likely further increases the already high risk).