Previously, I said that every angel investor should develop their own personal, individual investment thesis based on these 11 very specific characteristics. Doing so sounds big and complicated and very introspective, but it’s not as hard as all that. Here are the 6 steps I used to create my personal investment thesis, followed by my actual thesis.
Step By Step
- Analyze your success and failures critically. What are you good at? What do you suck at? Where have you really been effective, and where have you been wallcovering? Write these down – both successes and failures – to acknowledge them out loud so you can build on the successes and not repeat the failures.
- What are your strengths? Understand markets, personalities, technology? What is it that you do best in the life cycle of a business, from idea to exit? Be specific, and make a list – no matter how short – of the things you bring to a business.
- Collaborate with other Angels to create a network to understand the deal flow. Investing is like any other job: in order to get really good at it, you need to talk frequently to other people who do it and are good at it. Do not assume just because you’ve had an exit that you know it all. You don’t. Be willing to learn.
- Get super specific with your thesis at first. Stand out in the crowd. You want your peers to be able to say, “He / she only does XYZ kind of deal.” You want to be known for exactly, specifically what you do.
- You don’t have to be definitive with every characteristic. Pick the characteristics that you are most comfortable with, and rely heavily on a close group of peers to handle the others.
- Test and iterate your thesis. There have to be startups that fit your thesis for it to actually work. Test it with startups, but also talk to Series A institutional VCs and get their help in validating your thesis.
KP Reddy’s Thesis
Here’s my personal angel investment thesis:
I invest up to $100k in Pre-revenue companies that are SaaS marketing automation products in Atlanta with first time entrepreneurs. I provide capital as priced equity and require board control but not necessarily controlling ownership. My investment should be no less than 10% of total capital required to cash flow the business. When milestones are met, I will invest in follow on rounds pro-rata. I look for liquidity in less than 3 years.