Calling All Angels: Experienced, Aspiring Angel Investors Confer in Cambridge
If you Google “Angel Boot Camp,” the first seven results refer to a Victoria’s Secret competition to find the next “runway angel.” Well, there were no models or runways yesterday at the Microsoft NERD Center in Cambridge for Angel Boot Camp (the eighth result on Google)—but there were plenty of entrepreneurs vying for the attention of potential investors.
A free, grassroots event spearheaded by Jon Pierce, founder of Beta House and co-founder of the Awesome Foundation, the point of the boot camp was to build stronger connections between active entrepreneurs, existing angel investors from the Boston area, and former entrepreneurs who’ve succeeded well enough to consider becoming angels. Accordingly, attendees wore colored dots on their name badges: green for those handing out money, orange those seeking it, and yellow for angels-in-training.
Interestingly, the green and yellow dots seemed to outnumber the orange ones: this was one startup event where the focus wasn’t solely on matchmaking between entrepreneurs and investors (as it will be, for example, at tonight’s TechStars Demo Night, also at the NERD Center). The goal was simply to talk through the basics of angel investing—the risks, rewards, and challenges—and to inspire people with some money to spare to take the leap.
It doesn’t take all that much money to get into angel investing, the veterans on hand explained. Many angel investments are as small as $10,000 to $25,000. (Of course, an individual angel probably needs to invest more than that, across a range of deals, to raise the chances that the occasional wins will cover the inevitable losses.) And choosing the right deals as an angel isn’t really a matter of doing exhaustive due diligence, speaker after speaker emphasized; it’s about finding a team that impresses you, in a business where your expertise will help, and then going with your gut feelings.
As prominent local angel Bill Warner, the founder of video editing giant Avid Technology, exhorted: “Figure out what piece [of angel investing] excites you and just do it. Write a check. Join a group. Network with other people. Syndicate. Figure it out.”
The boot camp event featured a parade of experienced angels and other investors, from the relatively young (27-year-old Alex Ohanian, founder of Reddit, and 32-year-old Angus Davis, now CEO of Swipely) to the more experienced (Warner, John Landry, and Google’s Don Dodge). For the benefit of readers who weren’t at the event, I thought I’d sum up a few of the thoughts that stood out to me as the most original or provocative. Most of these are direct quotes. [Programming note: WBUR’s Radio Boston will feature a segment on angel investing today at 3:00 p.m.]
David Cohen, co-founder, TechStars (who has made 25 angel investments, not counting 60 through TechStars): “People ask me, ‘Isn’t angel investing really risky? The answer is of course, yes, it is very risky. But many of us have had companies that have been successful by leveraging the communities that we were in, so for me it was almost a moral imperative to give back and help the up-and-coming companies.”
Sim Simeonov, CEO, FastIgnite: “Studies show a 58 percent annual return on angel investments. That’s not bad—it’s doubling your money every 1.25 years. There’s a problem, though—50 to 70 percent of all angels are making nothing. It’s a world where some people do well and others don’t do well at all. What distinguishes them? Based on my experience, four things:the quality of deal flow, your ability to pick winners, your ability to win the deal once you get excited about it, and the market environment. Let’s forget about picking winners, because it’s all BS, revisionist history—past successes cause others to believe a few people have the magic touch, therefore they win the best deals, therefore they have better exits, and on goes the loop. So when you reduce it, there are only two things: your ability to see a bunch of deals and evaluate them and win the ones you want to invest in; and dollar cost averaging.”
David Frankel, Managing Partner, Founder Collective (40 angel investments): “Some people feel that their ‘edge’ [as an investor or entrepreneur] is a concept–like ‘applying social gaming to dieting.’ Some people view their edge as people. I fall viscerally into that last camp. If you have been an entrepreneur and you have worked at a company and there have been people who impressed you as extraordinary, those are the people to back. Your edge is that you know those people better than others do.”
Jean Hammond, angel investor, Golden Seeds: “A lot of things are missing from the angel community here in Boston. Early-stage investors are hard to find…Consumer deals are almost impossible to get done, because the people who are investing in this town didn’t make their money doing those kinds of deals. I’m incredibly excited to see the ‘micro-VCs’ coming up like Founder Collective. Even small amounts of fund-based money will be huge for filling the capital gap.”
Dharmesh Shah, founder, HubSpot: “I am the worst angel investor you will ever find, because I suck at the mentorship part. I don’t help at all. I have money but I don’t help. So what’s in it for me? Angel investing has been very helpful getting me into the right groups of people, and that has helped me in my third startup [HubSpot]. I learned as much from going into angel investing as I got out of my Sloan MBA.”
Shah continued: “One thing we do wrong is this delusion around due diligence. It doesn’t map to how startups work. There is no business plan. They just don’t know. The business plan will be completely different in three months, if they are doing it right. So either you like the people or you don’t. The idea doesn’t deserve due diligence because there is nothing to ‘due.'”
Chris Sheehan, managing director, CommonAngels: “There’s a confluence of trends that make this environment really exciting. The first trend is the rise of angel groups. The great catalyst was the tech crash of 2000-2001, when individual angels got burned, leading to the idea of sharing deal flow and pooling capital. And in the last three years, what’s really exciting is the cost to test a lot of ideas around the Internet, mobile, and SaaS spaces has come down tremendously, so now with a small amount of capital you can achieve a lot more than you ever could in the past.”
Lee Hower, formerly of Point Judith Capital (now reported to be part of an as-yet-unnamed early-stage venture fund with Rob Go, formerly of Spark Capital, and David Beisel of Venrock): “It’s not just the technology infrastructure cost that has gone down, but when you have a product in these spaces you can scale up to a medium-sized audience just through social networks, Twitter, and mobile app stores, and prove out monetization through the ad networks. You can create value at an early stage. Why am I doing this as opposed to something else? I do think there’s the potential for very attractive investment returns, and for me personally, as a former entrepreneur-turned-VC, I gravitate to early-stage activities and am excited to work with people with a similar background, mindset, and experience.”
Andy Payne, angel investor, co-founder, FanSnap: “The place where the company starts has changed. It used to be going up to Bay Colony Center with 25 PowerPoint slides with two founders to get $5 million. The rock-star glory has moved to the company that starts with $200,000 or even self-funded founders writing code. What used to cost $2 million you can now do for $200,000. But now that you can do interesting investments for $200,000, we’re seeing a formalization or professionalization of that end of the market. It is going to be hard to be a casual angel.”
Phin Barnes, Principal, First Round Capital: “You can get from Philadelphia to New York two ways, on the express train (which might crash in between) or the local train. When you get to Trenton or Newark you can decide if you want to get off and live there, or keep going. As an angel, your responsibility is to help the entrepreneur figure out the ideal partners, and what does it mean each time they take capital. If you want to take a big swing, taking a lot of capital can make sense. If you want to maintain optionality, taking smaller amounts and working with angels can work.”
Mike Hirshland, General Partner, Polaris Venture Partners: “When you are starting a business that should be following the lean model, and you need a $500,000 round to get you to the next milestone, and you encounter a big VC and they are urging you to take more capital, even if it’s at a higher valuation, it means they have a need to put a certain amount of capital to work and you should run for the hills.”
John Landry, Founder, Lead Dog Ventures: “Since 1995, when I started this, I’ve done about 67 deals, with 33 in the current portfolio. I’ve had nine acquisitions. A lot of people think that here in New England we should grow companies larger, that acquisitions are not a good thing. Get over it. Bits rot. The bottom line is it’s perfectly okay to sell. There is a time and place for everything and the point is you go do it again. Recently we sold Doubletake, LogMeIn, Interwise, and Maven, and now we’ve invested in Blueleaf, Daily Grommet, Oneforty, and Sonian.”
Don Dodge, developer advocate at Google (formerly Microsoft), angel investor: “Angels invest in people they know, in businesses they understand, with investors they know and feel comfortable with, and where they can help. Here’s the trick: don’t invest when only one of these is true, or only two. All four have to be true, or your chances of success go down very fast.”
Angus Davis, founder, Swipely: “You can be a successful angel or entrepreneur here in Boston, but many of the successful exits are still happening through M&A, and most of the acquirers are based in Northern California. So understanding the macro-level trends there and the challenges they face is very important. You can be a successful investor in the 617, but you still want to have those 650 glasses.”
David Cancel, founder, Performable: “The problem is we are disconnected. The future entrepreneurs are not here in this room, or where you live. They are not in Nantucket or at your lake house in Maine or New Hampshire. They are in college. We need to find the kids who are sophomores and juniors. And we need to create a startup hub, focused around one very small area—within a two-mile radius of where we are right now. The institutional investors need to move out of Route 128 immediately. You can’t sit on Mount Money and whine about not seeing enough interesting deals. The folks we saw today from First Round Capital, they are not even Boston guys and I see them on the street in Cambridge more than the Route 128 guys.”