What the Best Angel Investors Do Differently in Startup Investing
The rush to become an angel investor mirrors the increase in the appeal of the “celebrity entrepreneur” we’ve seen over the last couple of decades. To flourish, the investor community must consolidate more (i.e. become an LP in a fund vs doing our own thing) and those who remain independent must level up their value-add.
I recently had the pleasure of joining PitchFact’s Andrew Kazlow on The Diligent Observer he remarked as we wrapped that my direct and aggressive stances on this correlate perfectly with comments from Mitra Miller (VP of the Houston Angel Network) on the topic of “smart” vs “dumb” money.
Let’s get into it; how to be a better angel investor…
What We Cover About How to be a Better Angel Investor:
- Why most current angel investors should become LPs, illustrated through clear examples of how specialized knowledge drives better outcomes.
- An analysis of why Europe lags behind the US in innovation, centered on the unintended consequences of government funding.
- A practical approach to ecosystem building that emphasizes sector-specific focus over generic “startup community” development.
- 02:04 Global Shifts in Public Opinion and Entrepreneurship
- 05:14 The Celebrity Status of Entrepreneurs and Investors
- 08:14 The Need for Consolidation in the Investment Community
- 10:15 The Misconception of Bootstrapping
- 12:53 The Role of Angel Investors in the Startup Ecosystem
- 26:56 The Role of Angel Investors
- 29:33 The European Venture Capital Landscape
- 32:32 Diligence in VC Investments
- 38:43 The Importance of Storytelling
- 40:13 Trends in Media and Consumer Behavior
- 42:10 The Rise of Torrenting and Streaming Disruption
- 43:27 Final Thoughts and Call to Action
Listen now on Spotify, Apple Podcasts, and YouTube.
PitchFact is a professional diligence resource for investor groups built to provide thorough, high-quality screening and due diligence reports specifically designed for Pre-seed to Series A investor communities.
I join Andrew for episode 26, honored to be a guest among some incredible interviews such as New Mexico Angels President Drew Tulchin (here), Director of Educational Initiatives for the Angel Capital Association, Dr. Margaret Bacheler (here) Elevate Ventures’ Patrick Sweeney (here), and Innovation Fund Manager Mike Wilkes (here).
There could not be a bigger question than what we should be focus on right now, coming out of the US election, going into a new year. What’s both weighing on me and exciting me has to be the global shift that we’re seeing in public opinion about policy and regulation, and the role of entrepreneurship and innovation. And what I’m referring to is of course, not just what’s going on in the U.S. but what’s been going on in Argentina, what’s been going on in Europe, and even in Canada with the news of Justin Trudeau. What we’re seeing is a new age of independence; a social change with regards to this notion that we can and should have the right to support of our communities directly and to thrive individually.
In our world, angels, what that means is a tremendous boon for entrepreneurs; refocus of appreciating what it is that people like us do; this year we’re going to see a resurgence and a new enthusiasm for how new technologies can help us live the lives and work in the ways that we prefer and should be able to work.
We’ve seen a rush of people who want to invest in startups in the same sense that we’ve seen a rush of people who want to do a startup. Roughly, right before the mortgage crisis and the bust in 2008, we started to turn such people into the new celebrity. The celebrity in our culture used to be the athletes or the astronauts, or even the scientists to some extent. Now it’s the entrepreneur. I think everybody can agree. And to a great extent as well, it’s being able to go to a happy hour and say, you’re an angel investor, or a venture capitalist. That is a wonderful thing.
The challenge in that though is that at the same time, the internet completely broke our understanding of what marketing means. And what I mean by that is that historically, 30 years ago, marketing was all of the work related to the market, all of it: market research and doing competitive analysis, figuring out what team you should have, and figuring out who the investors are. It was literally everything. And yet today it’s perceived as just promoting what you’ve got, advertising what you’re doing, or being an influencer.
The challenge inherent in those two things happening, the enthusiasm and the exuberance and the celebrity of entrepreneurship and investing, as well as the disruption of what marketing means, means that we have a whole bunch of people in the ecosystem now who aren’t doing marketing, traditional marketing.
And there’s my criticism and encouragement, angel investors, that if you exuberantly invest in things because your friends so, or because you saw a great pitch, or because you think someone has a great idea, I’m grateful to you, but you’re going to lose your money. You aren’t doing the marketing work or working with the marketers to understand the real trends, what’s actually possible, and what is just irrational exuberance.
What I get really passionate about when I’m working with angel investors and venture capitalists is the appreciation that 20–25 years ago, even 15 years ago, most people who today are individual investors, even family offices, people who want to be angel investors… most of those people would be LPs.
They would put their money with experienced professionals who are managing directors, who are general partners, who are people like myself, or who are managing partners in funds. They would put the money with people who know what they’re doing. Put your money with the people that get the deal flow, have experience with startups, have teams of people, people who do due diligence on things, principals who look at trends in the market and trends in the ecosystem, in order to better direct where capital is allocated.
Almost everyone is coming out now saying, “if you are not a storyteller as an entrepreneur, you’re going to fail.”
If you do not have a community, if you’re not on Substack, if you don’t have a newsletter, then I’m not investing in you. I don’t care what you’re doing. Why? Because you must, you must, you must, you must, you must create your audience. You must support your audience. You must drive demand, right?
And yet, many angel investors don’t require this of their founders. That, or they don’t understand it, don’t know how, or worse, don’t agree.
If you don’t know how, don’t know why, or can’t help founders do this, invest through venture capital funds where the partners and team involved is both taking and mitigating risk for you. If you are capable at a seed stage, when a startup has no clear path to revenue, an insufficient team, and needs help, you’d best be getting involved as a philanthropist and advisors to help them find success. Fail this, and you’re causing problems.
You get the idea. Join me, and Andrew Kaslow, here on The Diligent Observer.
If you’d like to book me for your show or event, or spend some time in some office hours, reach out to me on LinkedIn or via my own Substack here.
Originally published at https://seobrien.com on January 28, 2025.
