Talent and Commitment: My Approach to Angel Investing
I don’t fund a startup based on its idea or its business model. So what criteria do I actually use? First of all, I want to stress that I don’t expect to make money from angel investments. I invest (more like donate) to give back to the startup ecosystem. Hopefully, I will get my money back, but if it doesn’t work out, I will not blame the entrepreneurs who lose my money. With that in mind, here is my checklist for my approach to investing in startups:
1. Strong technical talent: I do not invest in companies who outsource their technical team. This is obvious since I am investing in tech startups, which are supposed to use technology to innovate a new process or a new product. If you don’t have the technical ability, I don’t really get what I am investing in. I prefer founders to be highly technical and well respected so they can attract other great developers to work with them.
2. Good references: I check references on companies I am about to invest in to make sure they are not fraudulent and the founders are reliable. Extra bonus points if the team is well respected. I use mostly back-door references through my networks on Facebook and LinkedIn.
3. Show me the product and tell me why: Unless I know the founders well, I don’t invest based on just an idea. I want people to show me the product to prove that they can execute and also try to understand the product myself. I also want to understand the motivation. I want to understand why the team is working on this particular product at this particular time. What is the long-term big problem they are trying to solve? With this exercise, I can gauge how committed they are. Extra bonus points if the same team has worked in the same domain for 2+ years and has found the product market fit. The chance of them quitting is a lot lower.
4. I like what they are doing: I invest in things that are interesting to me. This is important because if I am going to lose money, I would rather lose it to things that I like or believe in. That’s why my investments seem all over place, ranging from E-Commerce to 3D scanning technology. (I have wide interests.) Sometimes I pass on investments that meet the above three criteria simply because I am just not that interested. (Apologies to teams who work on games or salesforce for XYZ.)
Most entrepreneurs I’ve met are pretty amazing and have gone through a lot of pain to get their product to a state where it’s ready for fundraising. Founding a company is hard. As a startup investor, my act of giving them money to grow is trivial compared to the blood and sweat they have to put in to make it work. I strive to give my “yes” or “no” answers to entrepreneurs within a reasonable timeframe, always thank them for their time and wish them the best.
You should read my first post: Embrace Bad Ideas and No Business Model.
Yung-fang Juan was the first author of ad server of Facebook Ads, which grew from scratch to a multi-billion dollar business in less than 3 years. Previously, she was the Chief Scientist at Soldsie, a social commerce startup that helps small business owners sell on Facebook (FundersClub portfolio company). She is currently co-founder of Stealth Startup.Yung-fan is also a FundersClub panel member.