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

6

Bet the Jockey, Not the Horse

Evaluating the Entrepreneur and Picking the Right One to Back

TECHNIQUES OF EVALUATING companies for their potential as investments have been studied and practiced by some of the business world's most brilliant minds, from Graham and Dodd (authors of the classic book on investment analysis) to Warren Buffett. Still, investment analysis remains more art than science—and nowhere is this more true than in the field of startup investing, where clues to identifying tomorrow's superstars are particularly elusive.

The number one thing I look at when making a startup investment is the quality of the entrepreneur. In this, I—and a majority of professional angel investors—follow the old adage: “Bet the jockey, not the horse.” There are countless examples in which a great entrepreneur has taken a moderately good idea and ridden it to outstanding success—but very few in which a mediocre entrepreneur has turned a great idea into a smash hit. A great entrepreneur—especially one backed by an outstanding team—can tweak, improve, and refocus a business idea as needed, while a mediocre entrepreneur is likely to ruin the promise of a brilliant business concept.

If I have to choose between a great business idea and a great entrepreneur, I'll take the entrepreneur every time.

Some early-stage investors consider technology the key to all web-based businesses, and set their store by hacker culture which places primary importance on the founder's technical skill. Others, ...