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What I Look For When Investing In Startups

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Updated Jan 23rd: Please don’t email me your pitch. I’m not looking for new investments outside my personal network. If you’d like you can follow me on Angel List to get notified of my new investments. Thank you.

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I’ve always found “angel investing” to be such a funny term. It almost comes across as being some kind of religious business saviour when it’s really just people who’d rather take risk and make a bet on a person who’s got the audacity to change the world.

Regardless, that is what we’re called and I personally wish there were more.

I am hoping this blog will inspire others to invest and get involved helping amazing entrepreneurs in your community.

Exclusive Training: Download an in-depth training webinar that goes over my complete step-by-step fundraising process.

My “Why” For Investing

I don’t know if you know my story, but I grew up in a pretty challenging environment and got into a lot of trouble as a kid.

In my later teenage years I met people who really showed me the way… who set me on a different path and really believed in me.

I wouldn’t even be in business if it weren’t for them.

Most people thought that I would have ended up dead in a ditch, locked up in jail for the rest of my life or found in a loony bin…

So I really feel blessed and amazed with all of the success I have had in business.

I have started 5 companies (even though the first 2 were complete failures!), I’ve gone on to raise money twice now, built and sold three companies and have been an angel investor in 33 companies and counting!

I don’t say this to brag, but to let you know that no matter where you are at – whether you are starting out as an investor or you are trying to raise money as an entrepreneur – I have been there!

I’ve had all the same self-doubt thoughts that keep us from doing more, but I was fortunate to have been surrounded with amazing people who helped me get through them.

That why I share and invest in others.

In a small way, it’s my way of giving back and honouring all the amazing people that have helped me along the way.

My Filters For Investing

Here are the three criteria that I use for myself when looking to invest in an entrepreneur:

1. Am I Inspired By The Founders Story?

Have they taught me things? Would I want to spend time with them? Do I like them? Would I want to sit down and have a drink with them?

I can’t tell you how many times I meet entrepreneurs and they are super aggressive in their approach or they come off as a little too cocky (and hey, I totally get cocky… let’s be honest here!), but they just don’t realize that it’s about building a relationship with somebody and getting to know them first, not about getting right into the pitch.

Ask me questions.

Talk to me about my experience.

It’s about building relationships… just like in business development, it’s all about getting the customer to know, like and trust you – then they will buy. And for me, investing is no different.

I need to know, like and trust you first – before I will even consider parting with my money.

For me, investing is very personal, I don’t do it for the financial rewards (although I have been fortunate to have some success in investing). I really do it because I look at it as a way for me to learn and to be around people who inspire me.

2. Do I Have The Experience To Be Helpful?

It’s not just about investing. Can I create value for them outside of the money? Is their industry something that I know about? Are there people or contacts that I have, that if I made an introduction to them, would be super valuable for them? That’s really important to me… Can I create value for that entrepreneur? Can I be helpful over an extended period of time? Is it something I know about?

3. Have I Had The Problem?

Simple said: would I be a customer? Do I understand the problem? Have I felt this problem? For me, this is one of the most important criteria. If I’ve never felt the problem, then I’m not emotionally connected to the solution and therefore I am not emotionally connected to the startup.

So if you come to me with a biomedical device or some financial algorithm, there’s a high likelihood that I wouldn’t even be able to help, because I don’t understand it. I wouldn’t be a customer of the product. It’s not knocking the opportunity and the amazingness of your team, it’s just who I am as an investor. I really need to feel like it’s something where I can be a customer and that I have felt the problem.

The Best Way To Find Deals (IMHO)

Any time I have a problem – and it occurs to me that there should be a product for this problem – I will google it or go on AngeList and search to see if there is a company already trying to solve this problem. It’s actually through this process that I discover a lot of opportunities that I end up investing in.

I prefer to source deals because its more inline with my 3rd filter of experiencing the problem.

For example, I’m still looking for a service where I can order a haircut (a la Uber) at my office. Simple idea but still haven’t found a startup to make it work.

When they do, I’ll be their first customer.

The Right Way To Approach Investors

This is a bit off topic, but it needs to be mentioned to all the entrepreneurs reading this.

Recently I was talking to a friend, and he was cold-emailing investors (reaching out to them directly), and I thought, “That’s the most ridiculous approach!” Well, it’s not the way I would raise money.

I did a webinar recently on “raising capital like a pro” and in it, I said that investors don’t want to meet you – they want to be introduced to you.

If you dissect that sentence, don’t cold-email or cold-call somebody, but actually find somebody that they know, like and trust and get an introduction. For me, I suggest that people go after the entrepreneurs.

I wanted to share my criteria to invest with the world, so that if anybody is thinking about reaching out to me, they understand the context of how I invest.

Inspiring Others To Invest

For those of you thinking of investing in entrepreneurs, I hope you find value in my beliefs and principles and use these as filters to find great investments.

If you have the means, I’d suggest investing (supporting) another entrepreneurs vs. buying a new car.

It really comes down to people that I would want to spend time with, who inspire me and teach me things; if I can be helpful to them in moving and growing their business forward and if I feel like I would be a customer of the product or have felt the problem and love the solution.

Regardless if you’ve made investments in the past, or if you’re raising (or have raised) money for your company – the core message is that we all need to share our lessons learned to help the next generation get better at it.

I hope you found this post useful and that you have an amazing rest of the week!

Are you planning on raising money for your startup? Then watch this FREE webinar I created on Raising Capital Like a Pro. I go over the 3 phases of fundraising, a 7 week process for starting & closing your round, and 5 slides for telling your products story, plus much much more. Watch it now.

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The SaaS Metrics Dashboard: Is Your Company Growing The Way It Should Be?