Angel Investing: The Most Satisfying Experience You’ll Ever Have

8/9/10

[Editor's Note: On July 29, leading Silicon Valley angel investor Ron Conway, the founder of SV Angel, gave the opening talk at AngelConf, an afternoon conference for budding angel investors sponsored by the Y Combinator startup incubator program in Mountain View, CA. The following is an edited transcript of Conway's talk, published by permission.]

I’m going to spend my seven minutes talking to the people in the room who have never angel invested before. I have invested in over 500 companies as an angel over the last 12 years, and it’s definitely been the best 12 years of my life. I’m delighted that after dabbling in angel investing for about five years prior, when I was investing in about three new companies a year in the early 1990s, I decided “Hey, I like this angel investing, even though I haven’t had time to do a lot of it.”

I had sold a company that I had acquired to a NASDAQ-listed, publicly held company, so I had a chance to change my career. I went home and told my wife, “Guess what my new job is going to be? Angel investor, full-time.” I teamed up with Ben Rosen. He lives in New York, but we made most of our investments out here in Silicon Valley. In 1994, Ben and I decided we would only invest in this thing called the Internet. In 1994, Netscape had not even been founded yet. The Internet has now become a massive, huge sector. But I absolutely love doing it.

Why do I angel invest? After the Google IPO, frankly, I could have stopped investing. But you know, it’s not about the money. For me, it’s one simple word: Because it’s interesting. Angel investing is the most interesting thing you will ever do. If I could, I would convince you in seven minutes to take the leap and start angel investing. Because if you talk to an entrepreneur, and they are starting a company—usually, there are about four cofounders in each new company—you get to listen to those entrepreneurs tell you what is going to happen in the future. Entrepreneurs are a crystal ball telling the technology industry where it’s going to be in four to five years. There cannot be anything more exciting and interesting than being part of that. I’m just completely addicted to it. There is no way I’m going to stop.

Six years ago, Mark Zuckerberg sat down at the University Cafe and told me that “I will have 300 million users” and had complete conviction about that. And he was “wrong”—Facebook has 500 million users, going to a billion. Just having that conversation is very exciting—experiencing his passion and conviction.

Some of these companies go out of business, but if you take a portfolio approach the way I do, which is fairly aggressive because I make a lot of investments, in that portfolio you will usually, over the course of a couple of years, have a hit that will pay for all the future angel investments that you make. So you won’t have to be nervous about “Am I overinvesting?” If you hang in there, usually angel investing will self-fund for you.

There is nothing complicated about this. Don’t over-analyze it. It’s writing a check and mentoring and adding value. All the documents today are pretty standard. You don’t need to get involved in “what are the terms?” That doesn’t happen anymore—the business is mature enough.

Go find an entrepreneur you think is a great team-builder. We invest in the entrepreneur first, not the idea. The idea morphs too much. We invest in people we like. Write a check and get going. The Black Eyed Peas have a great song called “Let’s Get It Started.” Use that as your theme song.

There is a little controversy over whether there are too many angels or too many super-angels or too many “boutique angels.” I hope that every entrepreneur with the guts to start a company gets funded. The more angels we have in Silicon Valley, the better. The more ideas get funded, the more innovation happens. There are thousands of entrepreneurs who need us. We are funding innovation. We are funding the next Google and Twitter—it could be in this Y Combinator class.

It’s interesting and coincidental that we are meeting at Y Combinator, because when you come to Demo Day, you are going to see 36 companies that are very heavily pre-screened. Y Combinator is basically the MIT, the Harvard, or the Stanford of incubators. I spoke to the class this week and I told them, “You guys have a leg up—you are highly pedigreed already,” having been selected by Y Combinator. You’ve got to find one or two out of this class and make the leap and write that check. Get to know the entrepreneur, mentor the entrepreneur, and it will be the most satisfying experience you’ll ever have.

I started Altos Computer and took it public, and that was exciting, but not as exciting as investing in these startups, and the sense of accomplishment you get. How do you think I feel when I see Mark Zuckerberg now? I say “Hey, do you realize that when I met you, you were basically a kid in shorts and flip-flops?” A few months ago, I told him that I’d told a reporter that, and I was worried that he was going to quote it. And he goes, “Why would I be pissed, it’s true!” Meeting humble people like this, who are building the future of Silicon Valley, is the best thing you could ever do.

The other sense of satisfaction you get is that we are contributing back to technology when we do these startups. A lot of them go out of business, but if you help an entrepreneur learn how to wind down a company successfully, there is an art to that too. It’s a very satisfying experience. And believe me, quite a few of these companies do go out of business.

I have one minute left, so I am going to rattle off the personal characteristics that we look for when we talk to an entrepreneur. This is after 15 years of investing in 500 companies and talking to thousands of entrepreneurs. First of all, we look at the individual themselves. Are we going to have good chemistry? Do we think this is a good person? That is number one.

The other characteristic is a clear vision. Can the entrepreneur build a team? Is he or she passionate? Are they flexible? They are going to have to morph their idea. Are they decisive?

Are they good listeners? Do they move fast? Do they believe execution is everything? Do they trust their gut? In the end, these entrepreneurs make lots of hard decisions, and they’ve got to trust their gut, make a decision, and move ahead.

Are they being reliable? Do they communicate with their team and their investors? Do they hire ahead of needs?

Do they lead by example? The entrepreneur has to understand that if they aren’t working 24/7 the team is not going to. And 24/7 is what startups are about.

The other thing I tell entrepreneurs we invest in is that “Your reputation is your biggest asset.” Whenever you operate, make sure you don’t impinge your reputation.

With that, welcome to the angel investing world! Get your checkbooks out. “Let’s Get It Started.”

Ronald Conway, an active angel investor, was the Founder and Managing Partner of the Angel Investors LP funds (1998-2005) whose investments included: Google, Ask Jeeves, Paypal, Good Technology, Opsware, and Brightmail. Follow @

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  • http:///www.dailygrommet.com Jules Pieri

    Thanks for sharing this edited transcript. I particularly appreciated the Facebook story, the bit about winding companies down, and the list of characteristics Ron looks for.

    I also liked the part about not sweating the terms too much…I had one inexperienced angel investor about drive me nuts over that. I decided to never work with first time investors again. This person just did not understand that every minute of time she took was coming straight out of the business….it really does not make sense to reduce the value your of your own investment in the process of investing!

  • http://thyagav.tumblr.com Thyaga

    Ron says “Go find an entrepreneur you think is a great team-builder. We invest in the entrepreneur first, not the idea. The idea morphs too much. We invest in people we like. Write a check and get going.”.
    Writing the check part may be an easy part. Then ‘get going’ is where it differentiates good & bad among investors & entrepreneurs.

  • Tom

    > “I have invested in over 500 companies as an angel over the last 12 years”

    500 companies in 12 years is over 40 companies per year.

    From a angel investing perspective, isn’t this the definition of “spray and pray”?

  • Ferdinand

    ‘How do you think I feel when I see Mark Zuckerberg now? I say “Hey, do you realize that when I met you, you were a backstabbing sleaze bag with absolutely no scruples or conscience?” A few months ago, I told him that I’d told a reporter that, and I was worried that he was going to quote it. And he goes, “Why would I be pissed, it’s true!”’

    • Heart

      That awkward moment when you die of a heart attack.