I had a very interesting conversation with an entrepreneur yesterday who I was keen to invest in. He had soft circled $250K of his $750K seed round. I have been a big champion of him and really respect his determination, thoughtfulness and diligence.
I committed to $50K and was going through the details of the investment with him, but letting him know that even if it took him a while to raise the remainder of the funds, I would ear-mark the $50K for his venture.
He then asked me “You know and influence a lot of other investors as well, can you please convince them to join the round”. I said that I can introduce him to investors who have invested in the past with me, but they will have to make their own decision.
I was not going to lean in on them to invest.
He mentioned that I “leaned in” on another VC to invest in a portfolio company, which is what he heard from the other entrepreneur, who I had worked with.
He was correct. I did lean in. So, the signal I sent him (although that was not my intent) was that I was not as committed to his venture as I was to other the one where I leaned in.
First, I dont have as much influence as entrepreneurs give me credit for. That’s just the truth. They may attribute the fact that I am at Microsoft Ventures as a signal that the corporation thinks this is a good investment, which is absolutely untrue.
Second, I believe there’s a HUGE difference between an angel investor (who I dont like to lean in on) versus a institutional investor (who I will lean in from time to time).
Most angel investors invest by reputation, connections and referrals. VC’s will judge an entrepreneur and their opportunity on its own merit, do their required due diligence and will likely pass EVEN if there was a strong referral from a person they trust.
Referral’s get you in the door with an institutional investors, whereas with an angel investor it will usually get you a deal.
Most angels I know have “day jobs” or “other interests” with angel investing being their side project, activity or means of giving back. That does not mean they don’t want a return on their investment, it just means they don’t do as much diligence as an angel group or an institutional investor would.
Knowing that, I believe the biggest challenge is the confidence in my ability to pick winners all the time. I am investing as an individual investor because I believe in the entrepreneur. I don’t know if that entrepreneur, problem set, idea or market is right for the other angel investors I know and invest with.
Well, I do know that to a certain extent, but with angel investors, the relationship I have would be personal as well as professional. With VC’s it is rarely (exceptions exist) personal.
So, when I meet the other angel investors over dinner, with their family, I don’t like having uncomfortable conversations about “the investment that went south”. Many of them are great folks, but not mature enough as an investor to realize many of these angel deals (in fact 70-80% of them) will return in loss of their investment.
Many of the angel investors I invest with are not in the “early seed market” for the long haul and have not seen ups, downs, sideways deals, etc. So, end up investing in 1 or 2 companies, solely because of referrals and recommendations.
I don’t think I have confidence in every deal I do to end up returning my money or generate a great return.
That does not still mean I dont believe in the entrepreneur when I invest in them.
This is truly one of those cases, when its not you, its me.