Do More Faster India, 2nd Edition

Chapter 58Beware of Angel Investors Who Aren’t

David Cohen

David is the cofounder and Managing Partner of Techstars.

I have been involved in several angel groups and most of them have sucked. The reason is simple—most of the members of most angel groups are not actually angel investors. They’re often there for what I call gig-flow. They’re looking for startups that they can jump on board with, either as an employee or a consultant. Or they are there to meet rich people, drink wine, and eat tiny sandwiches. They’re often there to preside over cute little startups that ask them for money. As a special bonus, they get to have a good laugh afterward.

Do I sound jaded? I draw on direct experience. When I first started angel investing, I quite naturally joined the local angel group in my city. I’d estimate that 95% of the members of the group had done at most one angel investment in their entire lives and many had never done any. I quickly figured out that I could generate much more interesting deal flow by getting to know other real angel investors and by creating my own independent brand and visibility. It turns out that strong entrepreneurs are pretty good at finding people who actually make angel investments. And it seems to me that people who don’t actually make angel investments, but tell the world they do, aren’t really serious about it.

Adverse selection was plainly evident to me in the angel group meetings I attended because the companies that were pitching typically had ...