I’ve recently become a member of the Sand Hill Angels. Angel investors, by definition, invest their own money in early-stage start-ups. In contrast, venture capitalists generally invest other people’s money in addition to their own, and often invest in companies that are better-established than those which angels fund. To quote the web site, SHA is “a group of successful Silicon Valley executives and accredited investors.”
(Hey, one out of two ain’t bad.)
Frankly, I expect to lose everything I invest. After all, angel investing is inherently risky; I’ll be backing companies with unproven products, little or no revenue, and limited resources. If I do make any money, I won’t make it quickly; it generally takes years for companies to reach the point where angel investment becomes liquid. And, these are the risks all angel investors face. I have the special privilege of a complete lack of experience in start-up investing.
So, why do I think that my decision to join this group is going to pay off?
To answer that question, I need to explain a little about how the group works. There are three meetings every month. The first is a conference call to review the (thirty or so) applications received for the month. The second meeting features presentations from the (approximately) eight companies judged best on the conference call. And the third meeting is a more detailed presentation from the three or four companies that met with the greatest level of approval in the second meeting. After that third meeting, those members who are interested (if any), do further due diligence, and, eventually, invest in one or more of the presenting companies.
SHA does not invest as a group; there is no “Sand Hill Angels Fund.” Instead, each member decides which deals are attractive and which are not. In other words, you bet your own money, and your financial returns are dependent on your own skill and luck, not those of the group. But, there is considerable discussion and collaboration so you have the opportunity to benefit from the expertise and wisdom of your fellow members. And, the members who have chosen to invest work together to help the company that is the recipient of their capital.
SHA is a diverse group; there are CEOs and technologists, lawyers and bankers, professional investors, founders of schools, and even an actual rocket scientist. The insights that these people offer are illuminating, both for the expertise they share and for what they reveal about investor thought processes. I’m rapidly gaining an intuition for the kinds of financial terms that investors are willing to accept, and the style of presentation that seems to best attract the right kind of attention.
In just a few meetings, I’ve seen pitches for everything from wearable devices to rocketry to geolocation. And, as these presentations fly by, I’m learning about new technologies, new markets, and new strategies. Of course, each company faces challenges of massive proportion. Every presentation is a vivid reminder that start-ups must compete with entrenched players for market share and with each other start-ups for capital. It’s easy to come up with long lists of possible failure modes for these companies; competitors could move faster, capital markets could dry up, entrenched players might have patents that apply to the start-up’s idea, the founders could quit… The list goes on forever.
And, yet, each of the CEOs that presents is intelligent and passionate. Each of them has identified a potential market of substantial size and has advanced a plausible plan for attacking that market. Lots of bad things might happen, but, then again, a few of these companies will go on to be successful. One or two might even become a household name.
Perhaps most importantly, as a would-be company founder, I find it inspiring to be reminded again and again that there is no perfect idea. I’m unlikely to suddenly awake with a vision of the perfect company: one that requires little capital, faces no competition, achieves massive growth rates, and is therefore almost immediately massively valuable. Instead, at best, I’ll have a decent concept. With a lot of help, a lot of luck, and a ton of work, perhaps I’ll achieve moderate success.
In other words, if you’re playing Start-Up Poker, you don’t need a perfect idea to ante. I find that realization profoundly freeing. That said, despite the “angel” appellation and a genuine desire to help portfolio companies, early-stage investors are going to try to get as much as possible for their money. So, you should bring a good concept, a strong business plan, a great team — and your complete commitment.
So, why am I excited about joining Sand Hill Angels? Because, even though I have no expectation of beating the S&P 500 in my angel investment portfolio, I expect to learn a lot about both technology and business, develop valuable relationships, and have a lot of fun. I think it will be worth every penny.