Why you should invest in startups

To play, you must understand the basic mechanics of the game. Let`s walk through a venture ecosystem landscape, to understand the startup risks, typical win and failure stories, the role and profile of angels, as well as a required competence and experience to become a successful angel investor over time. 

Assessing the risks: what is the right fit for you? Going from “I am interested in startups” to “I understand that I may not see my money back in at least 5 years, or at all, and I am okay with that for X amount in the first year.”

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Startup assessment is science and art, which you will master over time. Don`t worry over not being able to understand something, or not knowing how to assess certain angles to the business – it does take time and experience, and you are just getting started.

First steps forward? Understanding basic principles of assessment, practicing it repeatedly, gaining visibility and doing your own research. We will go through a couple of approaches to startup assessment and evaluation, hands-on.

What is startup and what is not? How to read a deck? What metrics mean and how to read them? Lessons learned from typical startup and investor mistakes. Reducing unnecessary risks: focus on your own field of competence, comfort zone and perception of risks. A hint: common sense works miracles.

Going from “I like this team for some reason, but I don`t know much about this market” to “I understand that this team in my view is sufficiently competent to build a business, I understand the market very well and can validate the problem-solution fit, I may not fully understand their product/marketing strategy, but the team has a verified experience to do their job.”

First rule of acquisition? The investment discipline. Defining your own profile, with its natural limitations, will help you build your first angel portfolio consciously, and cut down unnecessary risks.

Private markets present you with a high level of risk generally, so your job is two-fold: take the risks you understand and cut down the risks that you do not. What`s your reasons to invest in startups? What`s your personal skillset and superpowers? How and where can you personally find startups? How are startups going to find you? What`s your available liquidity to invest for one year? What`s your preferred time horizon for exits? What`s your network and where can you find good opportunities? Which areas of startup assessment you are okay not understanding, while being an investor? And what would be a deal breaker?

Going from “I want to invest in startups” to “I am going to invest in HR tech B2B startups in the US, together with 2-3 syndicates I am already connected to, with a limit of 25k in the first year, and I am okay with not understanding a certain area of a particular startup, as long as the bigger picture is there”.

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Two ideas: understanding due diligence and legal is indeed very important but you do not have to master it immediately – you can outsource this role until you need it, by joining a syndicate, angel club, hiring a lawyer or following a leading super-angel. 

Yet, understanding the mechanics is important, and it may allow you to walk away from deals that you think are a higher risk that you personally are willing to take. It`s your money, remember?

We are going to dive into the intricacies of due diligence for startups - and for other investors. What’s the red flags to check in a team and on a cap table? What are the potential implications of previous investments conditions? What`s the reasonable checklist to go through in pre-seed, seed, or later stages - and what is the difference? 

Going from “I am not a lawyer, what am I supposed to do?” to “Joining a leading angel in my sector and market, within my network, and follow some of their deals with legal taken care by them, while doing a reasonable checklist for myself, to expand my skills.”

Assembling our jigsaw puzzle: how to create a personalized, repeatable, and coherent decision-making framework?

You have assessed your general risk tolerance, gained the basics of startup assessment and due diligence, narrowed down your best skills and experience, and chosen some of the parameters of your angel profile.

Lets match your risk profile, liquidity expectations, time horizon for investment returns, skillset and networks, various startup stages of investing and your personal preferences to strategies that work individually for you and see where is lands you.

And we are going to make one step further: create a personal investment strategy as of today, – and a blueprint you can use in a few months or years down the road.

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