Hi y’all, Cokie here. 

Last week, I made my first angel investment ever (shoutout to the Socially Financed Syndicate & the team at Daylight). 

If you’ve been following my writing here for a while, you know I was broke broke in the not so distant past. As recently as 10 months ago, I would say things like “I’ll never angel invest.” Over the past year or so though, I’ve been privileged enough to turn my shit around and get on a path to financial health and stability.

The purpose of this article is to examine that inflection point, “when do you make your first angel investment?” Through the lens of my own experience and the experiences of prominent fintech angels. The secondary purpose of this article is to figure out why we do it. 

For your own edification: angel investing is when one invests personal capital into a private company, typically at the earliest stages while the company is still gaining traction. Ok, let’s dive in.


Part I: When to splash your cash, fintech edition 

As you grow in the industry, you'll inevitably be asked to invest in a startup. I didn’t think that was true, but I can confirm it now. And thus, before you know it, you’ll be faced with your first opportunity. 

They say you always remember your first — here’s what many well known angels in the FTT community had to say about why they chose to make the jump: 

  • "My first angel investment was a startup called The Collaboratory. The backstory on that is that I’d known the founder for over 5 years at this point, we went to grad school together.”  Julian Rowlands, Spruce
  • “Loved the founders, knew them for a while.” Tom Seo, Dashfund
  • “I knew the founder for a really long time and we worked together when his company was using Plaid.” Charley Ma, Alloy

Are you sensing a theme here? Founders: as you chase angels that you don’t know personally, do a little research. First time angels are rather unlikely to enter the fold for someone they don’t personally know. 

Unless, of course, they were proactive about their investing like Maia Bittner at Chime.

“My first angel investment was a scout deal. I wasn’t known as an angel investor. It’s one of the most proactive investments I've ever done. Stumbled upon this company, posted them to Product Hunt, and offered any help I could give. I was super impressed with their founder and asked them if I could invest. That’s very rarely how my investments go these days. This was coming after I had spent a long time meeting with founders and advising and coaching.”

It’s important to momentarily note the privilege surrounding the whole angel ecosystem. I asked our participants where they were in their personal financial journey at the point of their first angel investment. Here’s what I learned: 

  • Saira Rahman, the most sensible person I know, says: “I think there’s a level of financial comfort required to do this. A lot of people are under the incorrect assumption that this is going to make them money, without first contemplating the underlying economics. I look at this like excess money I need to place in a market I’m not already heavily betting on, so whenever I was comfortable enough to put money somewhere that isn’t going to transparently price itself or give me clear indications on value in the long run, I started doing it.”
  • Charley Ma had available capital, he tells it better, “My retirement accounts were maxed, so I was very comfortable. I was saving a ton of money for business school, and then decided I didn’t want to go. So used that capital to angel invest. I’m disproportionately allocated out, 25% of my net worth is actually angel invested.”
  • Dan Kahn, Plaid, who I will be referring to as “Clearly Bullish” from this point forward said, “I was maxing my 401k and investing a little in public markets already and had very little debt and I didn’t buy a house. So I had extra money to invest. It was really just like play money. At the check size that I’m talking about, I can make 20 of these before I have any data. If I lose all of it, I’m fine. Funnily enough, I could’ve made a lot more money if I just invested in crypto.”
  • The infamous Aaron Frank, Man About Town™, “I’m either gonna be really wealthy or really poor and I want it to be binary. I probably had $50K in the bank account and I wrote a check for like half of that? I like to live my life as humbly and frugally as possible until one of those plays out very extremely.” Hoping Aaron gets very, very rich so he’ll give me a ride on his yacht. If not, he is welcome to sleep on my couch.


Part II: Angel investing is the new Rolex. 

Let’s talk about status in the technology world momentarily. You rarely see your boss with a Rolex like you would in investment banking or hedge funds. Angel investing is the tech industry’s status symbol. 

But more than that, many of the people quoted in this article cited networking, education, growth, interest, and most importantly, they believed in the founder, as reasons they wrote their checks. If these pieces don’t fit together, Tom Seo, Dashfund, suggests “it’s not the right story.” What he means by that is, “don’t invest just because some top tier VC did.”

I went into this assessment believing that people didn’t angel invest with a career path into VC in mind. I was wrong. After surveying 20 people, I was somewhat surprised at the amount that said “yes.”

fttea-with-cokie-so-you-wanna-angel

Most interviewees said they would work in VC, but many caveated their responses like Laura Spiekerman, Alloy: “Yes, at the right firm.” Rowlands considers moving back and forth from operating to VC, citing development: “People talk about being a T shape person in terms of your expertise. I consider operating and VC as different parts of the T. Operator = super deep. VC = super broad.” 


Part III: Bet the house?

Wisdom has historically been passed down through oration, I shall continue that tradition here. Here is the collated advice on angel investing bestowed upon me for your viewing pleasure:

  • Saira: “Make sure you don’t care about that money. Make sure that you could easily bet it all on red in Vegas. That’s how you should look at it.”
  • Tom: “1) Invest in what you know. I’ll spend most of my time on fintech because that’s what i know. 2) Invest in people that you know and trust. Can’t do proper diligence or burn founder time as an angel, so just pull the trigger or don’t. 3) Get out of the way as quickly as possible. I would fund like half a day of burn, so it was really them doing me a favor. Don’t be onerous.”
  • Julian: “1) Don’t force it and 2) Trust yourself.”
  • Aaron: “Start small but make yourself uncomfortable with your first check. And write it off! Because you’re probably never gonna see it again.”
  • Laura: “Focus on the people first and what you would gain out of it if you lose your money. If you choose the right people, then almost anything else shouldn't matter because the right people will figure it out. Biggest quality in people, IMO, is coachability.”
  • Dan: “Find somebody who’s already investing and invest in what they invest.”
  • Charley: “Why are you doing it? Maximize how you invest around the why. If you’re doing it purely for returns, it’s an awful awful awful idea.”
  • Maia: “Same advice I give to everyone all the time for everyone. Be super clear about why you’re doing this and what you want out of this. Whatever that is, make sure the investment does that for you… Make sure it’s serving you. Make sure that it’s even the best way to get what you want.”

A general theme I came across during these various interviews was as follows: if something is unsexy and has high margins, invest. Invest now. 

So to conclude my lengthiest article to date, here’s what I learned: 

  1. Back people, not ideas.
  2. Secure your own bag first (max your 401k, have a solid emergency fund, etc).
  3. Get to the root of what your goals are for angel investing and make sure you’re getting that out of the experience.

Remember: if somebody comes to you and their company is named Lasagna, throw money at them ;) 


Premium Sneak Peek

With everything that happened in the world of fintech last week (like billions of dollars worth of fundraising announcements, Plaid and Visa calling off their acquisition, and Affirm going public) this week might have been the most important for fintech in recent memory. That's why Julie is diving into these announcements to find out what they symbolize on a deeper level. Does Plaid and Visa's deal getting called off mean companies will be more skittish about M&A? Does Plaid becoming an independent company again mean that we can expect even more innovation from the company than there would have been inside Visa? What does this mean for all the companies that raised funding this week? And does Affirm having a blockbuster IPO mean we should expect Klarna to go public ASAP? Check your inbox on Sunday to learn more. 

In the meantime, enjoy the holiday weekend, and tweet me your thoughts on angel investing! I'd love to hear about other experiences as I start to dive more into this world myself. 

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