Ten commandments of Angel Investing

“Ten Commandments of
Angel Investing”
What commandments might a “higher investing power”
pass on to angel investors, to help in their quest for
success in early stage company investing?

Although not necessarily etched in stone, we’ll take a
stab at what might be considered the “Ten Command-
ments of Angel Investing”: a set of basic rules for early
stage company investing.

“Ten Commandments of Angel Investing”
©2012 Tech Coast Angels

I.
“Profit is the ultimate goal.”


1. “Profit is the ultimate goal.”

 Angel investing is not charity.
 Invest to create successful companies.
 Invest Create Grow Exit (M&A or IPO).
 The goal is to yield profits for future investments.


II.
“Invest in great teams.”


2. “Invest in great teams.”

 Avoid single member “mad scientist” investment.
 Great entrepreneurs build great teams.
 Great teams can overcome most challenges.
 Try to find, and fund, great teams (business
experience, business diversity, attitude).


III.
“Invest in big ideas.”


3. “Invest in big ideas.”
“I skate to where the puck is going to be, not where it has been.”
-- Former NHL hockey all star Wayne Gretzky

 Look for big idea, where market is heading.
 Avoid the “me too” investment (similar ideas in
crowded field).
 But: big idea must be backed up with data.


IV.
“Invest in large markets.”


4. “Invest in large markets.”
 Large markets allow for growing pains; “larger
field”, more “playing time”.
 Large markets support inevitable competition.
 Even “somewhat successful” result might yield
“large exit” in a large market.


V.
“Know the valuation range.”


5. “Know the valuation range.”

 Angel investing is risky investing, don’t overvalue.
 Companies should be reasonably priced.
 Use “comps” of similar companies but always
adjust for risk.
 Remember: failure more likely than success, don’t
be afraid to walk away, there will always be
another deal.


VI.
“Always do due diligence.”


6. “Always do due diligence.”
“There are known knowns; there are things we know we know.
We also know there are known unknowns; that is to say we know
there are some things we do not know.
But there are also unknown unknowns – the ones we don’t know
we don't know.”
-- Former United States Secretary of Defense Donald Rumsfeld

 Angel investing is full of “unknown unknowns”.
 Use your due diligence time to uncover them.
 Take nothing for granted, be thorough.


VII.
“Support your companies.”


7. “Support your companies.”

 Keep “dry powder” for future investment rounds.
 Listen and advise where you add value.
 Help “keep the faith”: start-ups succeed with
persistence and patience.


VIII.
“Create an investment portfolio.”


8. “Create an investment portfolio.”

 If one or two out of ten or twenty are “homeruns”,
you need a portfolio of co.’s to increase odds.
 Invest where comfortable but diversify.
 Be patient: a good investment portfolio takes time
to develop.


IX.
“Know when to fold „em.”


9. “Know when to fold ‘em.”
“You got to know when to hold 'em, know when to fold 'em.
Know when to walk away and know when to run.”
--“The Gambler” by Kenny Rogers

 Don’t throw good money after bad in deals.
 Don’t just chase the “homeruns” (100X exits).
 Reasonable returns in a reasonable timeframe
(doubles, triples etc. keep you “in the game”).


X.
“Give more than you receive.”


10. “Give more than you receive.”

 Always be teaching, as well as learning.
 Mentor and help entrepreneurs and startups, even
those you may pass on, for investment.
 Those you help, may later help you one day.


I. VI.
“Profit is the ultimate goal.” “Always do due diligence.”

II. VII.
“Invest in great teams.” “Support your companies.”

III. VIII.
“Invest in big ideas.” “Create an investment portfolio.”

IV. IX.
“Invest in large markets.” “Know when to fold „em.”

V. X.
“Know the valuation range.” “Give more than you receive.”


Who are the Tech Coast Angels?

Tech Coast Angels, www.techcoastangels.com, the largest angel investor
network in the United States, provides funding and guidance to more
early‐stage, high‐growth companies in Southern California than any other
investment group. Since its inception in 1997, TCA members have focused on
building valuable companies, personally invested more than $100M, and
helped portfolio companies attract more than $1B in additional capital, mostly
from venture capital firms.

TCA members give companies more than just capital; they also provide
counsel, mentoring and access to an extensive network of potential investors,
customers, strategic partners and management talent.

TCA has more than 300 members, including its venture capital affiliates, in five
networks in Los Angeles, Orange County, San Diego, Westlake/Santa Barbara
and the Inland Empire.


Ten commandments of Angel Investing

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