New Angel Blogger: Yosko!


Ben Yoskovitz has cranked up his Instigator Blog, and you can tell it’s a hit by the people reading and commenting, like early stage investors Dharmesh Shah, Fred Destin of Atlas, Mark MacLeod of Real Ventures, and Helge Seetzen of Tandem Launch. This week Ben wrote a retrospective on his first 9 months as an angel investor, listing 14 observations. (Only 81 short of Martin Luther’s 95 Theses–perhaps Ben launches the Angel Reformation after his next 4 posts.)  Since I haven’t actually seen Ben in 8 months, and don’t get up to the Great White North often enough, so I thought I’d send this back as an open letter. Ben, this one is for you!

Ben’s points (copied in bold italics) are:

  1. Angel investing is fun.  You got that right. This reminds me a little of Woody Allen’s answer to the question “Is sex dirty?” (Answer: It is if you’re doing it right.)  1a Some parts of angel investing aren’t fun, namely reading legal documents and wiring money.  Amen. Which is why I always recommend that companies use standard term sheets, as discussed by Mark Suster here. Big negative points for those investors who insist on rewriting them. And since I see most of my companies in person, I have no problem writing a check. Take the extra $25 saved and take the entrepreneurs out for a beer.

  2. Saying “no” is hard. I disagree. Saying no is easy. It’s just business. Saying yes takes guts. Trust me, if word gets out that you’re investing, you’ll get used to saying no. Just as I commented in your most recent piece.  But whether you say yes or no, don’t dawdle. A fast no is much better than the slow no.

  3. I’ve done minimal due diligence. OK–I’ve got an inconsistent opinion here. I now do much less DD than I used to. Why? a)I generally make smaller investments now, and more of them, as I am more of a believer in the “spray and pray” philosophy of angel investing, based heavily on the team; b)I’m heavily biased to bet on repeat entrepreneurs, especially on repeat winning entrepreneurs–due diligence on them is pretty darn easy; c) confidence in pattern recognition, as you do this more; and d) age…I don’t do anything for a long time anymore, outside of peeing.  However, for brand new angels I recommend the opposite, i.e., taking lots of time before investing in your first few deals. Start by sitting in on angel groups, and volunteering to be on due diligence committees. (Even though angel groups do these agonizingly slowly.) You need to deeply work with other angels (almost all of whom are too slow) and learn to suck up their experience and/or watch their mistakes. Don’t have relevant experience or knowledge? Not the end of the world. I was lucky enough to have an early exit in an investment sourced through MassMedical Angels. They do EXHAUSTIVE due diligence, and I both trusted the process and the evaluators. Everyone has to outsource some expertise, so don’t feel bad about it if the other elements of the investment (such as valuation, team, and gut instinct) meet your requirements.  When I like those three elements, and the area is something I don’t know, then I will ask a trusted angel friend with expertise in that area to take a look, then I tend to follow their thoughts. This can get various answers: I passed on Space Monkey, which has both smart and vocal proponents behind it, because of some terrific analysis by friend and fellow angel Wayne Chang, who knows the storage area cold and saw some big problems that I hadn’t considered. I think Space Monkey has a good product and a terrific team, but it’s probably too early to escape a premature death against the current forces of evil (ISPs, phone companies, cable providers) who no longer allow “all you can eat” data plans. In another case I backed MomentFeed, because domain expert Jennifer Lum not only looked at it for me, she invested. Which is good enough for me. Social proof is, after all, a strong signal.

  4. I’m biased to people I know.   Amen again. The more you know the people, the better your odds are of predicting success. That’s one reason I love to invest in TechStars companies. As a mentor there and at MassChallenge, I get to see these teams closely over a period of months. There is no better predictor of success.  And sometimes you get lucky: the aforementioned Wayne mentioned he was starting a company, and I immediately wanted to get involved, in that I knew Wayne was driven (and his partner Jeff Seibert an equal superstar.) Easy decision…and that ended up as Crashlytics, which will “return the fund”, as they say. I invested double my usual stake, and it will come out multiples better than my next best exit. Thank you Wayne. I’m investing in dozens of more startups just rerolling the house money created from  brilliance and sweat.

  5. I haven’t invested the same amount in each deal.  Good! See above, sometimes it works. I have 3 levels of investment. Regular ($25k), Committed ($50k, plus follow-on), and Minimum ($15k). Works for me.  But when in doubt, invest less, and spread it over more deals. Here’s a blogpost I wrote a couple of years ago that explains exactly how I go about allocating my money, and why it’s important to have a big top-down plan. Don’t invest too much too early!

  6. I’m involved more in some than others.  That’s gonna happen. You can help some more than others. Even if you can’t be involved, though, you can always make intros and add the useful tip every now and then, including your expectations on how they should communicate with you and your fellow angels. And I know you do all that, so you’re spreading good karma regardless of involvement. 6a. If you need my help with the core business then we’re in trouble. (Love the “we”!) I can help with introductions, provide advice around analytics, Lean processes, recruiting (and a few other things I’m reasonably good at), offer a shoulder to cry on, listen, commiserate on the challenges of being an entrepreneur and probably a few other things too, but beyond that and I start to worry.  Agree completely.

  7. I haven’t always agreed with the entrepreneurs.  I can only think of one investment that I’ve made when I didn’t agree with the basic approach of the entrepreneurs. That was for a company that has great intellectual property which I believe can do good with great social good, but the entrepreneurs are passionate about it just being about fun.  I’m hoping that their passion continues them to tinker with their invention, but that once it’s improved that they then see the light and turn it into a money machine rather than a toy. We’ll see. If we were always logical, I wouldn’t have backed it, and it’s too early to tell. I’ll have a stronger opinion on this later, but it will still be off of a n of 1. 7a) My feeling on this is simple: entrepreneurs own and run their companies. Those startups are their babies, not mine, I’m just along for the ride.  Yep. But as for agreeing on the micro strategy–forget it, that’s in their hands. And when you get a bigger portfolio of investments, you can’t keep up with the micro.  You want entrepreneurs who will listen to your opinion, but make up their own minds. (See my post on Brent Grinna of Evertrue. Glad he didn’t listen to me to avoid the high school clients!)  If entrepreneurs don’t listen, or if they always change opinions based on yours, however, avoid.

  8. I haven’t developed a real thesis for making future investment decisions. That’s OK–whatever thesis you come up with generally gets outdated fast. In retrospect, some of my best investments have been in the mobile space: besides Crashlytics (Twitter), I’ve had exits with UpNext (Amazon), LocalMind (AirBnB), Cardmunch (LinkedIn), and a few others (with more than one being a “zero exit”.) Still, I have no mobile thesis: it’s a space where I have little expertise other than as a user, but all of these investments were in existing products that scratched an itch of mine in some way. But if you are looking to pick a thesis, how about this: pick companies that will be bought by bigger companies. Easy, right?

  9. I’ve been influenced by the participation of high-profile investors. Yeah, well that is not a sin. One reason YCombinator and TechStars companies have such a following is that it’s so hard to get accepted, they MUST have something on the ball. Same thing with getting great investors. AngelList is built on social proof, and I buy it as a good screen. If you think the idea is stupid but the investors are great–pass. (I think of Mahalo and Scvngr, both of which I wish I could have shorted.) If investors, team and concept look good and the valuation isn’t crazy? Buy. But if the CEO doesn’t sell One other thing: high profile doesn’t mean a good investor. Check their records too–respect goes to those with the best track record, not the best publicist.

  10. I’ve also been affected by investors saying no. Believe me, until you get to that A list of people with first looks, like Google Ventures and A16Z, a lot more smart investors will have said no then you realize. A couple of times I’ve second guessed my decision to invest after hearing that other investors have said “no”, but only when I heard their logic.  If you’re wrong, consider it tuition. If you’re lucky, you win! No downside, as long as your bets are small enough you can afford the lesson.

  11. Party rounds are bad. I knew this already, but when looking at an investment now, if I see a lot (say 7+) people participating I get very nervous.  I’ve got a big trouble with having a number make a difference. I’ve got well more than 10 people, because 1) virtually every one I know to be a value-add investor, and the others I’m friendly with or let in as a favor to another member of the syndicate, 2) I want to diversify, in that angels are great on terms and support, but can’t be depended upon to follow-on, and 3) I depend on all of them to feed me ideas, leads, etc. One investor got me my CTO, something I never expected. The more helpful investors you can find, the better! Passive investors…only take them if you need to. But do not judge a deal by the number of investors, large or small. If large, find out WHY there are so many. Numbers alone don’t make a party round. Is there a strong lead investor? Then it’s not a party round.

  12. I’d like to work more closely with other angels. Yep. It’s great. I’m indebted to have been part of syndicates with great investors. And as you expand your network, you’ll get better deal flow and be a better investor. And those angels may even back you on your next startup, because entrepreneurs never stop, they just start another company again. Let’s see more posts on life at GoInstant!

  13. I’d like an early exit or two. Or three or four. Your fellow Canuck Basil Peters literally wrote the book on the subject. A balanced portfolio or team has both power hitter/sluggers with low batting averages, and some leadoff batters with better odds of getting on base, even if they have less power. OK, obligatory sports analogy is completed.

  14. Angel investing is almost completely irrational. I don’t think anyone is disagreeing with you on that one. May the force be with us all!

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