This past week, Paul Graham (the wizard behind yCombinator) threw a get-together in Silicon Valley for people interested in becoming angel investors. It was attended by a standing-room only crowd (including Angelsoft’s Man in the Valley, Evan Bartlett) there to hear words of wisdom from a who’s who of West Coast power-angels, including folks like Ron Conway, Aydin Senkut, Ariel Poler and many others.

A great write-up of the sage (and virtually unanimous) advice from the participants has been posted on VentureBlog by August Capital’s David Hornik (host of the annual Lobby conference.) Here’s the distilled summary of his summary:

  • It’s a small community — if you screw one entrepreneur, you’ll be out of the angel business because entrepreneurs talk (Conway)
  • Angel investing is about learning on the job, which means that you can plan on screwing up your first 10 deals at least (McClure)
  • If you assume that the money is gone once you’ve invested it — that it is like a lottery ticket — then you will have a better time angel investing (Buchheit)
  • Work with other angel investors so that you can get the advantage of their expertise (Zurich)
  • There is no rational way to arrive at valuation, so don’t be overly concerned about getting it right (Graham)
  • Don’t worry if the idea seems crazy — if it didn’t seem crazy, it would be too late to invest as an angel (Graham)
  • The lifeblood of angel investors is deal flow — you need huge deal flow to find enough stuff that is worth investing in (Ravikant)
  • The best deals come from other angels (Ravikant)
  • Don’t be afraid to throw a little dynamite into the status quo and see what comes out of it — often times interesting stuff emerges (and sometimes nothing does) (Dearing)
  • The Rule of 12 — you need to invest in 12 companies to have statistical diversity — invest in fewer than 12 deals and you run the risk of them all failing (Maples)
  • Like in the movie “Oceans 11,” you want to pull together the best team of angel specialists there are out there — it increases the likelihood that the company will succeed (Maples)
  • Help bring your entrepreneurs together so that they can learn from one another (Poler)
  • By being a connector, you will see the most interesting stuff and work with the most interesting people (Senkut)
  • Angel investing is all about the syndicate — you can lead if you want to but it can be lonely until others join in the syndicate (Clavier)
  • Angel investors need to distinguish themselves from others with money – what do you bring to the table? Contacts. Experience. Advice. (Young)
  • Only invest in stuff you actually know something about — otherwise you’re just buying a lottery ticket (Young)

David S. Rose :: Mar.07.2009
Angel Group Manager, Angel Investor, Events, Tips, VC