Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Startups

5

Develop Your Deal Flow

Sourcing and Identifying High-Potential Opportunities

IN CHAPTER 3, I talked about angel investing as a numbers game, and that to make the Law of Large Numbers work in your favor you need to invest in many different startups. Just as critical, however, is that the startups in which you invest must have a decent chance of being successful. Since most startups will not be successful, the trick to making this work is the Law of Large Numbers—Part II.

The way that the world's finest universities turn out the brightest, most successful graduates is that they start by enrolling the brightest and most successful applicants. Yale, Harvard, Stanford, and their ilk do their best to get a large number of the country's top students to apply for entrance. They send admissions representatives to every major high school; they use the SAT mailing list to recruit top scorers; they prevail on their alumni to host regional parties to attract local student leaders. In 2013, those three schools alone had 75,000 applicants. Having welcomed all those applications with open arms, the schools then proceed to winnow their applicant pool to the 6 to 7 percent they eventually accept.

As an angel investor you will do the same thing, but you must be even more ruthless than the Ivy-est of the Ivies. For every investment I make this year, there had better be 40 serious, passionate entrepreneurs sitting on my doorstep, of whom I will only invest in one. That means I need to be three times ...