Angel Investment Number 03: Breaking My Own Rules
My journey deeper into the angel investor market continues. Deals 03, 04 and perhaps even 05 appear to be on the near-term horizon. But how did I reach this point in the angel journey — and why?
As you may recall, I disclosed some early details about the effort in April 2019. By August 2019, I had developed a goal of 20 investments and exits by 2030 and disclosed my first two angel investments.
The bad news: I’ve taken longer-than-expected to nail down angel investment number three. The good news: I suspect investment number three, four and five could happen in rapid-fire fashion. The pending targets involve three startups that focus on (A) cybersecurity, (B) marketing automation and (C) a next-generation PC peripheral. Admittedly, I’m keeping the descriptions quite vague. I’ll share the company names if/when the investments become official, and if the startups permit disclosure. One of the three is in stealth mode heading into 2020.
Refresher Course: My Angel Journey So Far
ChannelE2E and MSSP Alert remain my main focus. But I eased my way into angel investments for a few reasons. No doubt, I want to be at the forefront of “what’s next” in the IT industry. And it’s pretty cool to think that investment dollars can create a few (or even a lot) of jobs along the way.
As longtime readers may recall, I dabbled in the New York angel market during 2014 and early 2015 but never really found my niche. As I began to spend more time in Florida on personal travel, I stumbled onto Florida Funders in early 2019. The organization is a hybrid venture fund and angel capital crowdsourcing system. Soon after, I invested in two Florida Funders-backed startups: 2U Laundry and Trash Butler.
Still, I needed to polish my investment thesis — that is, my core focus in the angel market. My thesis took shape after reading Angel: How to invest in technology startups and Angel Investing: The Gust Guide to making money and having fun investing in startups. Those books convinced me to set aside at least 5 percent to 10 percent (well, maybe not 10 percent…) of my net worth for angel deals across about 20 startup companies during the next two to four years or so. I figure the entire portfolio would have exit events by 2030 or so. To jumpstart my journey, I focused on startups that have at least six months of revenue or six months of customer growth.
Still, I needed to build a deal pipeline. That involved networking. Heavily. In addition to joining Florida Funders, I connected with the Angel Capital Association, Angel List, Entrepreneurs Roundtable Accelerator (ERA) New York, Long Island Capital Alliance and Propel(x), among others. Also, I speak and communicate regularly with such peer angels as Gerwai Todd and Lloyd Wolf. Todd helps me overcome my blind spots in due diligence. And Wolf is a solid example of an entrepreneur who has pushed far beyond the IT world to spot emerging opportunities in other sectors.
Angel Investing: Breaking My Own Rules
Most of my investment research occurs on Sundays during NFL football broadcasts. As a New York Jets fan, it’s safe for me to treat football as background noise while performing due diligence on potential angel deals.
And in recent weeks of the NFL season, I’ve essentially realized that I’m ready to break some of my own angel investment rules. For instance, I still prefer to target startup companies that have at least six months of revenue. But lately, I’ve seen a few pre-revenue companies with great leaders and solid business plans that are designed to solve some major market gaps.
Also, I’ve expanded my angel investment focus from software to hardware. Yes, hardware — which typically requires piles of capital to get the first product out the door. Yes, hardware — which typically involves one-time sales, long upgrade cycles, and the dreaded long-term margin squeeze. And yet… I’m seriously considering a “disruptive” investment in that sector. In some ways, I’m on a waiting list to get in the door on that one. We’ll see.
Looking ahead, I suspect I’ll have clarity on pending investments 03, 04 and 05 by sometime in January 2020. And I’m still building and researching my pipeline each Sunday during another losing NFL season for the Jets. Stay tuned, and special thanks to those who continue to help me along on this journey.
Hi Folks: Dana Epp posted the following question for me out on LinkedIn. I posted a response, but LinkedIn limits the number of characters I could share in that response. Hence my more lengthy response below…
From Dana: I’m curious Joe, what’s your motivation on sharing your angel investing journey with this audience? What is your goal? Will you be providing (un)biased insights into the startups that you explore? How do we, your readers, benefit from this? How do you?
My Extended Reply:
1. How will readers benefit?: Many ChannelE2E readers are tech startups seeking funding. In 99.9% of cases, I’m not in a position (financially, time, expertise, etc.) to invest. But through my blogs about the angel journey, I can “connect” startups with potential funding resources. Much in the way that I’ve been a connector in the IT channel. I’ve mentioned some of the sources above — such as Florida Funders, Propel(x) and Angel List. I am not compensated by those organizations. If I develop any type of financial relationships I’ll disclose them. None are planned or expected at the current time. Ultimately, it’s about being a connector. Quite a few MSPs who built, sold and exited their businesses are now active in the angel market. And we’re quietly in touch about how to accelerate their angel activities…
2. How do I benefit?: Through our ChannelE2E industry coverage, I’ve learned quite a bit about later-stage investments (private equity; venture funding; Series B, C, D, etc.; IPOs; M&A). Poking around the angel market, I’m now learning about much earlier stage investments. Meanwhile, I’m about to celebrate a birthday milestone — and I’ve begun to wonder what I’ll be doing a decade from now. Not next week or next month or next year. But 10 years out. Perhaps the answer involves advising or assisting startups in a more formal way. Hence, my closer look at how tech businesses from all backgrounds are built and funded. Blogging about my angel activities (successors, failures, learnings… the journey) potentially sparks more industry connections for me and ChannelE2E’s readers. The goal for all involved: Faster deal flow with better, more qualified investors and startups. I also potentially benefit financially. Though my investments also stand to lose money.
3. Will I share unbiased insights?: In previous blogs, I’ve disclosed my angel investments to date (2U Laundry and Trash Butler) and why I made the investments. Though the financial terms (i.e., valuation) often have to remain confidential. I’ve looked at an additional 30 companies or so over the past year. Some of the due diligence involved 30 minutes. Other due diligence involved far more. Those due diligence journeys remain confidential in terms of specific company names. But I can certainly share learnings — for instance, common ways startups stumble in their funding efforts. Or common reasons I decline to jump into a deal. Still, I can’t claim that my views are unbiased. Blogging typically contains personal biases. That’s the nature of the beast. As usual, I’ll strive to put my biases in context.
Thanks for the question and best wishes for a great 2020.
-jp