What defines a good angel?

I’ve continued to dive deeper into learning what principles are the best to teach to new angel investors. Earlier I asked for some recommendations who the best angel investors are (I still don’t have a solid list so send me an email or post in the comments who you think is the best or what defines the best)… I was surprised that only one of the few I asked about in my post were called out by people as the best. I mentioned Paul Buchheit, David Lee, Benjamin Ling, Aydin Senkut, Dave McClure, Jeff Bezos, Jeff Clavier, & Paul Graham. Only Mr. Paul Graham was called out as one of the “best” angels despite the fact that guys like Ron Conway with 118 investments under his belt could have been added to the list. I even mentioned Aydin who was not brought up by people in my network as one of the “best” angels (Aydin has 78 investments under his belt). There are many others locally such as Rudy Gadre, Rob Shurtleff, Haresh Ved, Dan Shapiro, Bill Bryant, Chase Franklin, Andy Sack, Fraser Black, Gary Ritner, Andrew Conru, Dan Rosen, Andy Liu, Kelly Smith, Scott Larson, Chris Devore, etc. that weren’t brought up – again a surprise.

The biggest thing I found was that the names of the “best” angel investors weren’t coming to mind for people as there is not a clear definition of the “best” angel investor. There isn’t a great way to measure angel investments as there are a variety of reasons people invest in early stage companies. The conversation that did arise was about what defined a “good” angel investor. This was particularly interesting as there seem to be a wide array of viewpoints out there on what defines a good angel investor.

There are two types of angels…

My experience is that there are two types of angel investors, those that care only about the returns and those that care about the purpose of the business as well as the returns. The first type is closer to a VC and is easier to quantify who is better. The second type is more unique to angel investing and quantifying the best investors is a lot harder.

One investor that I work with has several strict standards about the type of business he invests in. For example, we were speaking with a company that scraped people’s information from the web (LinkedIn, Twitter, etc.) and used that information as a means to categorize people for marketing/ad targeting. An interesting idea, but this guy couldn’t get past the fact that he didn’t put information on LinkedIn so that a company could use the information without his permission to target him. This is interesting and is certainly a good question about privacy. This investor didn’t want to go any further than the conversation about privacy though. The questions about business model, growth, addressable market, team, etc. were all secondary to the fact that the company didn’t care about privacy. Now this is a smart guy, he is an accredited investor and has done well for himself (and I’m sure he’ll continue to do well for himself). But he falls in the second category of investors that care about the purpose of the business as much as they care about the returns. He only wants to invest in businesses were he sees value being added to the universe regardless of the business model or return potential. At the end of 10-15 years he couldn’t be measured on numbers alone as he intentionally is choosing businesses that may have a lower return potential with a higher value to the world. I personally watched his involvement in some of the businesses he worked with change the game for those startups (even if those startups would barely return a profit and only ever return 1-2x).

On the other hand, there were a couple other investors I was working with on that same deal who didn’t care at all about the privacy issues and only cared about the business model and if there was potential for high growth, reasonable returns, etc. These investors were in the first category and at the end of 10-15 years could easily be measured based on numbers alone. They obviously cared about the business and their involvement in other businesses that they did invest in had the sole focus of improving the product, profitability, etc. Regardless of the benefits to society.

These are pretty different types of investors, so there are some obvious differences in who invests and why. I received a lot of feedback about what makes a good angel, but the opinions were a little mixed. The key themes I heard were that the best angels…

• Understand Optionality

  (I think Taleb explains this better than anyone so buy his book)

• Understand basic portfolio math

  (notice this link excludes the rest of the personal portfolio, I am working on putting together something more comprehensive for entire portfolios. If you have interest or expertise in this area, I’d love to toss around some of my thoughts with you.)

• Are active in their portfolio companies

  (this is fairly loosely defined as well… for example, do angels need to stay involved through Series A, B, IPO? – I am working on a better framework for this)

• Are great at Due Diligence

  (I have some work here as well and would love some feedback)

I did receive a few votes for the best angel investors (despite the obvious lack of an ability to quantify “best” or have an agreement on a qualitative “best”). So what do you think are these the best angels? Am I missing some? I don’t really care where in the world they live, what they invest in, where they invest. I’m just interested in who the “best” angel investors are despite the definition. I think that we can come up with a better definition of who the best angels are if someone spends some time distilling the things that the “best” investors do to be the best. Here are the few names I have votes for…

@JoshMaher @nwangelconf @Angel1Dan @crashdev @DavidLBangs @ckindel @erikb Rich Barton, Nick Hanauer, Chris Sacca, Mike Maples, Reid Hoffman.

— Tren Griffin (@trengriffin) December 30, 2013

 

@JoshMaher, but if pressed, I’d say @geoffentress, although he benefits from sitting within a VC office

— Michael ‘Luni’ Libes (@lunarmobiscuit) December 30, 2013

 

I think folks running accelerators like @paulg @asack @bfeld @robbkunz are actively engaged with their startups @JoshMaher

— John Sechrest (@sechrest) December 30, 2013

What do you think? Is this it? Send me an email or post in the comments – If you think it might be you… that’s ok too, let’s chat about why you are a great angel investor or what principles you think make a great angel.