What I Learned About Entrepreneurship Through 15 Angel Investments

entrepreneurship

Over the last two and a half years, I made fifteen angel investments with my own cash. Although I have made a decent number of investments, I don’t consider myself an “angel investor” because I don’t search for companies to invest in; I don’t lead financing rounds; and I don’t know how to read term sheets.

When I first started investing, I did it because I wanted to make more money. But I started enjoying investing in startups because it was teaching me a lot about entrepreneurship.

For the last nine years, I have been an entrepreneur and have heard both good and bad stories about investors. But I never really understood what investors went through until I started investing my own cash into other people’s companies.

Here’s what I learned about entrepreneurship through angel investing:

Entrepreneurs have a tendency to embellish

I can’t even count the number of times I have run into entrepreneurs who embellished. And it isn’t just bad entrepreneurs who embellish; good ones have a tendency to do it too.

The worst is when they tell you that everything is great and that the company is doing really well, but a week later they mention that they’ll be out of cash within the next thirty days.

If you are going to be an entrepreneur, be a straight shooter. People respect that, and, in the long run, you’ll gain the trust of your team members, customers, and even investors.

Don’t account for revenue until it hits your bank account

The biggest mistake that I see entrepreneurs make is that they account for revenue before it hits their bank accounts. Why would you tell your investors that you are going to make $60,000 this month when the month just started? Wait till the end of the month to count your money.

Plus, if you start accounting for revenue that hasn’t come in yet, you can get yourself into a really messy situation, especially if you start spending that money before it comes in. If you want to tell people estimations, that’s fine, but don’t forget to mention that it is an estimate, which can vary drastically.

The best way to keep your investors happy is to be transparent

Most of the companies I have invested in never give me status updates. It’s nice to hear how your investments are doing every once in a while. It doesn’t matter if it is bad news or good news. I just want to know what’s happening.

When my business partner and I raised money for KISSmetrics, we decided to be transparent with our investors. Every week, we send them a weekly update of our progress.

Sometimes, our updates are positive, and sometimes they aren’t. When we have bad news, we make sure to talk about what we have learned and what we will do to avoid making the same mistake in the future.

If you ever raise money, your investors know that you are going to make mistakes. They aren’t dumb. So, be transparent with them.

Plus, it never hurts showing that you are progressing as an entrepreneur because if you need more money, ideally you’d want to be able to go back to those same investors.

What’s best for your investors is typically what’s best for you

When people give you advice, they aren’t giving it to you because they want to see you fail. Believe it or not, the advice they give is supposed to help you succeed.

Granted, sometimes their advice is wrong, but at least they are trying to help you. And who says that you have to follow through on their advice? They are just making suggestions.

So, stop thinking that investors are in it for themselves. If your company does well, not only are your investors going to make money, but – chances are – you will too.

And, yes, sometimes what is best for your investors isn’t what’s best for you, but those cases are very rare. You’re always going to hear horror stories, but you have to keep in mind that there are two sides to every story.

Companies can turn around; you just have to have faith

Funnily enough, the companies I invested in that I thought would be home runs are starting to look like they might not be. And the ones that I wasn’t very sure about are starting to do really well.

This doesn’t mean that the good companies are going to go bankrupt and the bad companies are going to be the next Google; it just means that you have to be patient.

It can take five, if not ten, years for a business to grow big, so don’t start counting your chickens before they hatch. And if things aren’t working out the way you expected, just give it some time because time really does solve a lot of problems.

Entrepreneurship is a numbers game

Out of the fifteen companies I invested in, one has already failed, but the rest are still up and running. In the next year or two, I expect a couple more to fail, a few to at least return the money I invested, and one or two to be home runs, which will make up for all my loses and still leave me with a surplus.

If you are going to be an entrepreneur, don’t expect all of your businesses to do well. What’s probably going to happen is that your first few businesses are going to fail because you’ll make a lot of mistakes, and your next few will do well.

The longer you stick with being an entrepreneur, the more likely you are to succeed. Just stick with it, and keep learning from your mistakes.

Ugly businesses are sexy

I haven’t invested in something as big as Twitter, Foursquare, or Facebook, but I have invested in a few companies that are really well known although I don’t consider those businesses sexy.

Why? Well, it’s because they usually have a ton of competition, and they don’t always have a clear path to monetization from the start.

I personally consider businesses that no one cares for as sexy businesses. Quinstreet, Omniture, Hubspot, and Salesforce are examples of businesses that very few people talk about, but they are printing money.

You’re in business to make money, right? If you want to make money, you’ll have better odds of doing so by starting a business that you can monetize from day one. And, yes, that won’t give you the glory and fame that you would have achieved had you created Facebook, but your odds of creating a company like that one is slim to none anyway.

Business ideas are a dime a dozen, but great entrepreneurs aren’t

I’ve learned the hard way that business ideas are a dime a dozen. Every time I invested in a cool idea, and not the entrepreneur, it ended up losing me money.

I don’t think that investing in a great entrepreneur guarantees that you’ll make money, but it will at least give you a better shot.

Great entrepreneurs have a tendency of treating their investors’ money better than they treat their own money. They try not to waste it, and if they lose it, some even try to pay it back.

And when things go south, they don’t jump ship and leave the investors hanging. They stick it out until they can either turn the business around or until they drown with the sinking ship.

As an entrepreneur, you need to understand when to spend money and when not to. You also need to understand that you have to execute fast. And when things aren’t working out, you need to pivot. Most importantly, you have to be loyal to your business because even if you don’t have investors, your team members are still counting on you.

Closing thoughts

As an entrepreneur, you shouldn’t be close-minded. Stop looking at things from your perspective only, and start looking at things from your investors’, or even your team members’, perspectives.

You’ll be surprised to see what you can learn.

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Comments

  1. Many of my clients are entrepreneurs and one misconception is the obsession with appearing “larger” to impress potential big fish. I’ve seen, numerous times, this leading to squandering investment money on needless trips, inordinately expensive meals, hotel stays, cars, and dishonesty to themselves and others about the condition of their business; all of this in an effort to have the “image” of success and profitability. And, as long as their image stays afloat, there is a sense of makin’ it until the bank account runs dry.

    Thankfully, most of them have learned from their spending mistakes and have started to have some restraint & pay more attention to their books.

    • I agree with you… often times they thing that appearing big is all it takes, but actual investors look for is people who are serious and passionate about what they do.

      • Adam, this is a great comment. Very true. I’ve seen entrepreneurs squander venture capital money on the silliest things.

        If you’re an entrepreneur taking money, remember that every dollar you spend is a dollar you’ll have to pay back when the company is sold. Investors get paid back first in the case of a sale, so spend wisely!

  2. Who could write this better then you? Both entrepreneur and investor!

  3. Out of curiousity, what is your average funding size?

  4. being an entreprenuer myself, i’ve got loads to think about. i was looking for investors until a few days ago but not now, i’ve decided that i should fund myself! :)

  5. Well said Neil, well said.

    Biggest take-away is “being honest with your investors. So easy to only spread good news, but shedding light on the mistakes or issues is where they can assist in helping you dig through the forest.

    Btw, I’ll see you over at BlueGlass at the Hard Rock… right down the street for me.

    Chris

  6. Entrepreneurs embellish. That is an understatement!! I have yet to work with a good one that doesn’t lie all the time – although lying isn’t the right word, its more like selective memory and willingness to represent conjecture as fact. Its basically the second cousin to the lying politician. I dont take in personally, I just always fact check before I repeat claims. Its part of the game. In fact I actually take comfort when I hear fibs or distortions from entrepreneurs – it means they might have the right DNA. One of my favorite things to say is “I dont believe that fact, but I wont hold it against you for trying”.

    They are always refining the elevator pitch and searching for soundbites that resonate, trying to be more efficient at generating the hype that’s necessary. Over time they lose track of the distinction between facts and sizzle.

    Nice post.

  7. Hi Neil,

    First time commenting on your site. I came across it when I signed up for CrazyEgg.com. I love your blog!!

    Anyway, nice tips here you have listed. I just have one thing to say, Hubspot – not sexy?? really??

    Thanks for the great post…talk soon. Ciao! =)

  8. Most businesses and people don’t plan to fail,,, they fail to plan.. I read this years ago and it has stayed in my memory as someone elses lesson I can learn from.

  9. Wow. Very insightful indeed. I really liked this part:

    “Why would you tell your investors that you are going to make $60,000 this month when the month just started? Wait till the end of the month to count your money.”

    I remember once being told, You have to spend money to make money, so assume you’ll make X amount by next week. Therefore, you should buy Y tomorrow and just count on the money being there.

    Froze me from insurance sales, let me tell you that!

  10. Thanks for sharing with us, Neil. The point that resonated the most with me is “Business ideas are a dime a dozen, great entrepreneurs aren’t” — how true! People come up with ideas every single day, but it’s the execution that really matters… and it takes a great entrepreneur to make the execution happen.

    Justin

  11. After reading this, I feel like it is not simple to invest in startup companies. You must be both financially and mentally prepared for failure to accept 1/15 fail so far and expect for more failures. Very inspiring!

  12. Instantly re-tweeted.

    Great article – well written and great content. It is also a pleasure to read because you have good typography and good use of space.

    Cheers Neil and I love your Crazy Egg, awesomely helpful.

  13. Great stuff, Neil. As I’m JUST getting going on angel investing over the next six months, this is definitely helpful.

  14. Great post. Very good points. I am not investor but business owner and I can say that I see many other business owners make mistakes that you wrote. It’s not always easy but I also try to control budget as much as I can, I don’t spend and invest in some things untill I double check that I have the funds for that.
    Also about being patient, it took me 4 years to start paying myself salary but as it seems now, it was worth waiting. First time on your blog but I like what I see ;)

  15. why are these investments called “angel” investments? sorry for being stupid.

  16. Hi Neil, this is the first time I read your article. It’s quite nice and insightful and easy to understand. (You know, English is not my native language.)

    I just have some problem with “Don’t account for revenue until it hits your bank account.”. I think that during my investing, I have to know how much money do I have. So we just don’t share this information with our investments, right?

  17. Great article, maybe entrepreneurs can now understand a point of view of the investors and don’t make the same mistakes as other.s

  18. Neil,

    Thanks for this honest and straightforward article. Speaking to the basics and following up with related advice made this a worthwhile read.

    When I wrote my business plan, I made sure not to lie (embellish) to myself, partners and potential investors. I wanted real projections as much as for myself as my investors.

    You’re the type of investor I’m looking for : )
    If you’re interested in investment #16, I’ve got a plan for you – fantasy games, with social/network reach, several revenue streams.

    http://www.last2left.com

  19. Your best investor is your landlord, try to befriend him if you can. Like it or not he is your partner if you have a long time lease. I give him yearly P&L statements in good times and in bad. He has every one of my P&L’s for the last nine years. I meet with him face to face 2 or three times a year, We like to have a working lunch at restraurants with unique cuisine . I use him as a one of mine board of directors. His comments have very useful insight. Also in the process he has become a friend . You need be completely open to all the issues in your business. His help in these strange difficult times is beyond belief

  20. Thanks Neil for a candid account of your journey. So far, we are following your suggestions, especially communicating with our advisors/investors and not embellishing any aspect of the opportunity.
    However, we have been told at times that we are too conservative with the potential in our data driven application. How do we balance such? Also, we’d welcome the opportunity to pitch to you — as our app may live in the same space as KISSmetrics — when would you have an hour for a phone conversation in November?
    Many thanks,

  21. Kudos for having the balls to do it man! Slowly but surely I am starting to invest more into different ventures. No where near your level, but each one brings in a bit more and builds my confidence! Thanks for you insight!

  22. @euonymous / Mary Cole :

    Nicely written from the investor side. I’ve always considered myself to be on the entrepreneurial side, working with a startup and putting in the very earliest seed money. Some work out, some don’t.

    Absolutely true that you have to be willing to invest 5 to 10 years to become an “overnight success.” That’s life. And you aren’t just investing in “the” entrepreneur. You are investing in the team. Startups with 2, 3 or more founders are much more likely to succeed. They already have more than one committed person. A good team reinforces each other and contributes a broader set of skills than a single – however bright – entrepreneur.

    Another point with respect to startups: good entrepreneurs, like all good business people, are tight with a dollar. Remember all those Aeron chairs bought by the dot com folks? I remember working in the old Digital Equipment Corp. mill space which was rented originally for 50 cents a square foot. It started out as a dump and improved over the years as the money was there to fund it.

    A lesson you might add is to not spend money you don’t have. Don’t overextend the company. Pace yourself. If you need more money, figure out how to earn it or get more investors. Don’t borrow unless that is part of your funding strategy (which assumes you have a revenue stream). Debt will sink a startup because it gives the employees the sense that there is more money available than there really is. And they don’t need the Aeron chair right now, trust me.

  23. I was a civil servant – the worst kind who will never become entrepreneurs because of the nature of our job, and the culture of obedience and expected conformity. I read with great interest and heartache that all these years I have wasted my life serving the government and the public with so little recognition for our innovative and entrepreneurial spirit, too. I wish I had met more investors that could recognise and make something of us. What is your comment and observation of creative people in the public service? Those who can’t teach and be civil servants, and die believing they do good with no monetary returns.

  24. Great article. Inspiring and grounding at the same time. This first time entrepreneur is planning to buck the trend of first time failure though ;)

    I’m not sure that I can truly call myself an entrepreneur yet though since I’m holding on to my day job unless (until) i make some serious progress.

    anyway, thanks for publishing this and all of your other great articles!

    • I have been dong full time business since 2006 and still not claim to be a successful entrepreneur. Learned a lot from Neil here. Hope to reach that status soon. I’m sure you can too, just start with part time business or investment profile while working. It is important to have monthly income to support our business growth and family.

    • Definitely a smart idea for you to keep your day job until you actually get on your feet.

  25. Your post will give an idea for the entrepreneurs to have an right choice to go head.

  26. Dear All,

    Remember the facts. Investors and Entrepreneurs are always conservative in their own ways. Both of them are not at all innovators, they know nothing about innovation and want to own and control the IP. In the financial world – we do not count IP as an asset on balance sheet and investors want to take advantage of this fact calling any IP and any entrapreneurial traits as a dime a dozen. You can engineer the success if you know how to fight gang wars while wearing a suite.

    Today’s investing also has no vision due to the decade of habbits that they have nurtured only because of the dot coms. Both have illusions about afcts & do not understand what innovation means, what employment generation means and what is ment by a sustainable business. Every one is looking for the fast four to six years killing making huge bucks or having grat returns & then business going to dogs. Today’s investing has no patience & no vision —- innovation in investing is just totally absent!

    • Very true, thanks for the insightful comment. People are always looking for the magic pill… but at the end of the day, it’s consistent hard work over time that will eventually pay off.

  27. Neil, excellent points that really hit the nail on the head. With your permission, we’d like to re-blog this on the Angelsoft blog to help spread the word, thanks!

  28. It is good to read the points outlined in this article from a fresh different perspective.

    We highly recommend a “mirror article” by Paul Graham, titled “What Startups Are Really Like”. It has become a classic by now, so if you just google the title, you will easily find it.

  29. Spicejet Booking :

    Investors get paid back first in the case of a sale, so spend wisely!

  30. Ugly businesses are indeed sexy. They are mediocre in terms of popularity but bring in the cash!

  31. Michelle Maddy :

    Hi Niel,

    Thank you for the great article. Many entrepreneurs need to look at things with integrity and from others’ perspectives.

    I am seeking angel investors for lucrative real estate ventures of income properties that will also help people who are struggling. Interested in funding?

  32. I love your point about ugly businesses being sexy.

    It’s true that a lot of entrepreneurs want to re-invent the wheel by building the next Facebook, Twitter, Foursquare, etc when more “boring” or “regular” business models would be safer bets.

    Overnight Internet successes blind us. We only hear about the success stories when the low-key companies are often more succesful. Great post, thanks.

  33. the biggest thing i have noticed about a good entrepreneur is that he will always have a positive attitude in little things that he does.. so a suggestion for NEil..
    ” Take your potential entrepreneur to a theme park or may be some adventure park.. and observe him with different ride’s… you can learn a lot.. when guys start acting like kids…”

  34. Neil,

    I started following your blog a year ago when I got back in the blogging game. I feel bad for not leaving more comments, but I wanted to take a moment and show my appreciation for the quality time you put into writing great content. Keep up the good work and I look forward to reading your upcoming posts!

  35. To embellish a startup is maybe the most dangerous thing I have seen in many projects. Is the start of a big lie that could end in total bankruptcy, like the sistemic disease that once in a while explodes in our current economic model. Excellent article Neil.

  36. Incredible, I took a lot out of it. Such a Wealth of Knowledge in my own backyard. A few weeks ago.. I thought, I have two young successful cousins that work for themselves. I’ve got Ambition, Faith, and the will to succeed, Why? do I need a “JOB” to make money! I don’t. I’ve started to network & work smarter.. Thanks Neil! Ill be back for more…

  37. “Don’t account on the revenue until it hits your bank account.”

    So true: personal experience, I had this client I was working with and I didn’t want to take on the account, but he was a friend of a friend.

    I set a goal that I was going to buy some new cloths with the revenue, so I just focused on the goal.

    Did the job, all finished, ready to go – then I found this clothing sale with 50% off, bonus.

    The the account fell through and the revenue didn’t materialize and I had spent the money already.

    Its the sort of thing that you will only do once.

  38. Most important thing for investor is profit and positive and protective side of their investment, i’ll agree with your points, we have to do which is best for investors.

  39. True points and especially about entrepreneurs falsifying claims or over promoting, it is good to be confident and you should exude confidence but never risk credibility with false statements or trying to sell something you haven’t used or believe in.

    As far as income reports/statements, this is exactly why I always report my blog earnings to my readers from the month previous after I can truly tally it all up, I never state or guesstimate what my blog might earn, it just fluctuates far too much in this business.

  40. Great post Neil. I have a question though…how do you find the startups you invest in? Are people introducing you to these entrepreneurs? Are you finding them through social media? Are they reaching out to you?

    As an entrepreneur myself with my own startup it would be interesting to know how we could go about getting more exposure to potential investors.

    Thank you

    Fredrick Nijm

  41. I agree with the “Ugly Businesses are sexy” topic very much. I could never see myself trying to create the next Facebook, or Viral thing. But there are soo many Ugly businesses that can print cash that if you’re one of the entrepreneurs that aren’t a dime a dozen that you’ll be printing cash one day too.

  42. I have a presentation that I am presently working on, and I have been looking for such information. Neil you are best Dude!!

  43. hahaha, it sounds a bit funny that Ugly businesses are sexy, but believe me dude, i impressed by your sense of thinking,
    Great tips, thanks

  44. Mr Nail i’m recently complete My Master in Business . i See you Profile and How you see this info in real market
    90% entrepreneurial Business Get closed in less then one year
    40 % Ent. Business are not workable after one year
    60% have no right way to start a business in our country.
    please guide me .

  45. But with using other people’s money comes a bigger responsibility. You have to take of that money because you will have to return every penny in case something doesn’t work.

  46. I want to use affiliate marketing but don’t want to use commision junction. What is the best software to use to run an in-house affiliate marketing program.Thanks

  47. This is new to me for an entrepreneur to be close minded, I thought s/he should be open minded. But anyway, that’s certainly it is. Advice taken. Thank you.

  48. Its not close mindedness as much as it is fear. I already know I would never be able to deal with the stress of investing in something that I do not have complete control over, and might even lose faith in the instance it runs into a rough patch. But I guess taking risks is a part of the game and that’s something I’m going to have to come to terms with. (Just not yet :P)

  49. Very interesting arguments

  50. Really really good writer ;)

  51. Great illustrations, Neil. I’d like to add a few things. When being an entrepreneur the best thing is to have the mind as a soak: ready and open to absorb everything that could be of help for one’s business. Be ready to think outside the box, letting ideas run and make connections.

    • Thanks,

      Leaving your mind open to information and inspiration is very beneficial. I enjoy the additional insight. It might helps others to be more receptive to new ideas and lessons.

  52. A Person is always very careful about his/her first time investment, because he/she has less business skill.

  53. Telefon Domina :

    Interesting point of view and I agree with most of what you say.

  54. hey neil,
    i actually believe in it, “The best way to keep your investors happy is to be transparent” it was a great article.
    really enjoyed it a lot.
    Thanks.

    Matt

  55. But with using other people’s money comes a bigger responsibility. You have to take of that money because you will have to return every penny in case something doesn’t work.

  56. Hey this is really the incredible post! It’s not that much easy to be a serious blogger as your article says. But you are the best. You have written awesome stuff.

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