What kind of investments have you made? What kind of investments do you want to make? Why? Talk to any successful Wall Street investor or real estate investor, and they will tell you that they have a specific investment strategy that works for them. Angel investing is no different. Angel investing requires a strategy. Far too often, successful entrepreneurs with an exit under their belt basically go out to pasture and “become investors”. There are lots of different reasons for this move. Unfortunately, one of the most common reasons is that they think angel investing is an easier way to make money than building a business from scratch.
It’s not. Angel investing is an individual, personal business, and it requires a strategy. Being opportunistic is not a strategy. You’re better than that. To be successful at angel investing, you need to have your very own personal, individual investment thesis. Here are the four reasons I make that statement.
A well thought out thesis allows an Angel Investor to develop a deeper understanding of the risks/opportunities of an investment. The more specific your thesis, the better you already know any opportunity that hits your desk. That step, in and of itself, mitigates a huge amount of your risk.
If you communicate your thesis well to the entrepreneurial community, deal flow will move towards quality vs. quantity. How many deals per month hit your inbox? How many of them never make it past your sniff test? If you knew that every deal that made it to you was worth an hour to read, would that make your deal flow better?
You can create an expert network to support your due diligence efforts. When the potential investments that you look at have a set of very specific characteristics, the team you require to diligence each deal becomes smaller, closer, and more effective.
Having, and sticking to, your investment thesis enables you to develop a network of friendly VCs that will work with you for ongoing rounds, making you and your deals less susceptible to getting crammed down.
Simply put, your specific, individual, personal investment thesis makes your job – and it is a job, not a hobby – as an angel investor easier. Your investment thesis makes you more effective as an angel investor.