My Rules for Successful Angel Investing

When I first started angel investing in 2009 in India it was considered (and probably still is) a from of gambling that was reserved for haughty, tech-obsessed, introvert &  radical investors who were chasing a pipe dream in that one “jackpot” investment that would make tons of money to cover all losses.

Infact I vividly remember my father having a tough time explaining what I was doing with my career to friends or family with any semblance of pride.

I must be honest – I was very green and still learning the ropes of investing in public markets at that time let alone the world of the unlisted! I just knew that there was going to be a winning set of rules that will separate the winners from the losers in this space. 

So over the years I have read/seen/heard, tried & tested the theories many types of early stage investors from across the globe.  I have imbibed their knowledge & experience and combined them with knowledge & experience of the great investors (like Buffet, Soros, Munger, etc) in developing a set of rules that have worked very well for me.

Disclaimer: Probably none of these are my original creations and I have no intention to impart any investment advice. I am just jotting down what I follow as simple rules and could be handy for you too in evaluating a startup for investment 

  1. Invest a maximum of 5-10% of your overall portfolio into early stage
  2. Divide that amount into 10-12 companies to be invested into annually 
  3. Build a diversified portfolio 
  4. The earlier you invest the larger the risk and the reward
  5. Set a maximum valuation over which you will not invest – doesn’t matter how well the company is doing
  6. Bet on the founder & not the idea
  7. After the founder the “lead” investor has the 2nd most weightage in the investment decision
  8. Make sure you have set aside money to invest in follow on rounds
  9. Build a portfolio of startups instead of a startup that makes up your entire portfolio
  10. Invest in businesses you understand (conceptually)
  11. Completely understand their revenue & profit model before investing
  12. Take enough equity for your money to make it worth your time  
  13. Leave enough equity on the table for the founder to stay motivated 
  14. Be prepared to book losses quickly and workout a tax efficient strategy for winners

These are the rules that have helped me and have given amazing returns to many investors that I have met who have been generous to give me the opportunity to learn from their experiences. 

Would love to hear your thoughts on these..