Two months ago I wrote my first check as an angel investor.
It was just a tiny check – a small bet, if you will – but afterwards I felt a huge rush of endorphins. I wanted to keep investing.
The advice I received was this:
Be selective. Look at a lot of different companies, and aim to invest in only about 10 of them a year.
"Ok, fine." I thought. And then, "How do I look at a lot of different companies?"
That's right... today we're diving into the exciting topic of how to nurture dealflow.
But first... why 10 investments per year?
This isn't a hard-and-fast rule, but aiming to invest in 10 companies per year is a good guideline.
Reason #1: After a few years you'll have a decent size portfolio, around 30-50 companies.
And that's enough to be able to draw some conclusions about your investment process.
With 30-50 companies under your belt, you'll start to have a sense of good signals versus bad signals. Then you can use your learnings to make smarter bets in the future.
Reason #2: You won't blow through your investment fund too quickly.
It will likely take 5-10 years to see returns on our investments (if we see any at all).
So we don't want to deplete our savings too quickly, and miss out on a great opportunity because we ran out of investment budget.
Limiting your investments to about 10 per year is a good way to learn a ton while pacing out our spending.
Investing in 10 companies a year doesn't mean looking only at 10 companies, though. We have to look at a bunch of companies so we can start to compare which ones are smart bets and which ones are not.
1. Learn From Other Investors
One of the easiest ways to get started nurturing dealflow is to join an Angel program.
You may be asked to pay a fee to join, but it's often worth the cost. You'll get a chance to evaluate a ton of startups, and start to benchmark what "good" looks like.
Most importantly, many SPVs give you an opportunity to talk with and learn from other Angel Investors about how they think through their investment process.
2. Join an SPV
SPV stands for Special Purpose Vehical. In the investing world, they're a way for investors to pool money to invest as one single unit.
Venture firms often use SPVs to help their portfolio companies raise additional money.
Sometimes SPVs are raised in between institutional rounds, to bridge the funding gap between raises. Other times SPVs take place alongside the VC fund's investment, as a way for the startup to fill allocation.
Regardless of the circumstances, being part of an SPV group is a way to see lots of dealflow.
And even if you don't get a chance to talk to the founder directly, you'll still learn how to benchmark the companies... just don't forget to actually read the deal memos 😉.
When you get more comfortable getting access to deals, you may want to consider running your own SPV. Then you can invite all your new angel friends into larger allocations that you can't fill by yourself.
3. Mentor Startups
This will require the most bandwidth, but may be the best way to collect intel before making an investment.
Nowadays, many VCs and accelerators provide mentorship to their portfolio companies.
You could reach out and offer your services as a mentor. Even if you don't have subject-matter expertise, just offering to review a pitch deck or sales deck for clear messaging and compelling narrative can be useful.
So, why is this a learning opp for you?
First of all, founders who are working with mentors aren't in pitch mode. So they're more likely to be open about what they're struggling with. Which means you get honest insights about how things are going.
Secondly, mentorship opportunities are often ongoing. So you may meet with a handful of companies many times over a few months. You can follow along with their progress and track how well they execute.
After working together for a while, you may identify a few startups that look to be on the right track, and offer to write a check.