16 Angelinvesting.it - From idea to Series A - Weekly Newsletter
The angel investor dilemma
3 Minutes to reflect
Imagine evaluating a pre-seed investment on two axes: do you like the project, yes or no; do you like the co-founding team, yes or no? For two of the four quadrants, there is no doubt. If it's an excellent team and an excellent project, you invest without any problems. If you don't like the team and you don't like the project, you don't invest a single euro.
The other two scenarios are a bit more controversial, or at least one is. The scenario where you don't like the team and you don't like the project is an easy pass for me because I am investing in people, and if I don't like the people, it's game over.
But when I like the people and find the team to be of great quality, but they're working on a project that I don't believe in, what do I do? Talking to some investors, I realized that there are typically two possible strategies.
Strategy 1 is the absolute Kantian approach where you only invest in the quadrant where you like both the team and the project. Strategy 2 is the optionality approach: you invest in the top quadrant, but also in the quadrant where you like the team but not the project because the team is the most important thing.
I have to say that, gut-wise, and if I had a deeper portfolio to make seed investments, I find Strategy 2 more attractive than Strategy 1. It requires an exercise in humility in admitting that you don't have all the elements to evaluate a project, and if the team convinces you, the team is all you need.
I also like to think that a high-level team will give you the opportunity to invest in their next project if the first one doesn't work out, and they will help you recover the money you lost in the first project.
At this stage where I have placed many bets, I see the first significant returns, but they are on paper. I have to manage the allocation of chips carefully, and many times I have passed on co-founding teams in which I honestly wanted to invest.
2 Resources to pro level
I have shared the angel investor dilemma questions with 10 of my favourite angel on Twitter. Check this list, follow all of them and Twitter will start to amaze you:
Harry Stebbings (link) UK based, 20 minutes fund and podcast (pre-seed to A)
Eugene Hauptmann (link) US based, angel investor, entrepreneur, advisor (pre-seed)
Elizabeth Yin (link) US, Hustle fund (pre-seed)
Martin Tobias (link) US, Incisive Ventures (pre-seed)
Matt Turck (link) US (East Coast), First Mark (pre-seed)
Alex Iskold (link) US, 2048VC (pre-seed)
Gil Dibner (link) London mainly, Angular Venture (seed)
Jenny Fielding (link) London maybe?, Everywhere Venture (pre-seed)
Nichole Wischoff (link) US, Wischoff Ventures (pre-seed)
Auren 𝐇𝐨𝐟𝐟𝐦𝐚𝐧 (link) US, Flex Capital (pre-seed)
Following the original Tweet with some very clever answers!
https://twitter.com/Cimminelli/status/1653799595003052032?s=20
Few of my favourite answers:
That box doesn't exist. You are either wrong about the team or the idea. And before everyone jumps on me: Yes teams can pivot from a bad idea to a good idea. But a great team will not raise capital for a bad idea. If they are truly great, the idea is probably not as bad as you think.
Invest a small amt knowing you will probably not see a return. Build a relationship with the founders. Be supportive when the company folds. Wait for the team to recover and re-emerge with a great idea. Invest.
If early-stage (pre-seed, seed) – invest. Later stage – lol, pass. My thinking is that they are likely to pivot, and find a better traction with the next idea. This is almost classic approach from the top accelerators anyway.
Help them get acquired!
1 Reason to be happy
A new season of Black Mirror will be released soon. A preview of a dystopian future, exactly what we needed 🤣
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Have a great weekend,
Simone
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