The Importance of Volume as an Angel Investor
Volume plays a large role in being a successful Angel investor. Now, we aren’t encouraging anyone to ‘spray and pray’ with their Angel investments in hopes of picking more winners than losers. We can virtually guarantee this won’t increase your success as an Angel investor.
That being said, Angel investing is a numbers game. You obviously want to focus on finding the companies that go on to become unicorns, which, according to AngelList Data, could be expected to be only 1 of 40 on the platform (or 2.5%).
This is where volume comes in.
If you view 40 deals per year, only ONE of those, statistically, might become a unicorn. What are the chances you invest in the one right deal out of those 40 (unless, of course, you invest in all 40 of them)? Lower even still.
Lets bring that number up. If you view 200 deals per month, you will have a higher chance of coming across more of the right deals that may become unicorns. While this is good in theory - more deal flow, higher chance of seeing and picking the big winners, it can be a huge time commitment to thoroughly analyze all the deals that come across your plate monthly. Especially in the case of busy professionals, or those who are just looking to spend less time combing deals and more time doing the things they love.
To actually succeed as an angel investor, you not only need to see the right deals, but also invest in those deals. Again, we’re not advocating a ‘spray and pray’ approach, but making sure to place enough bets to gain the advantage of the power law curve (we’ll cover this in a future post). Essentially, though, the majority of your returns (in dollar terms) will be skewed toward a few big winners. There will also, of course, be a volume of failures and - in the middle somewhere - a bunch of deals that return their investment or slightly more/less.
The fact is (back to 1 in 40 deals likely becoming a massive success) that if you only back 1 deal a year, you have a very low likelihood of backing that 1 deal that will become a unicorn. Maybe you get lucky and you pick the right one, but more likely that won’t happen. So you’re better off splitting your annual commitment to startups into more deals and play the power law in your favor.
Volume and educating angel investors
First and foremost, we firmly believe (as do many active angels, VCs and strategic investors) that you should have a thesis. This thesis should frame how you view the landscape of future business winners, including industries, geographies, macro factors and more. For instance, you might be bullish fintech in the U.S. or you might be bullish recruiting and talent services in India. There are so many ways you could view creation and maintenance of your thesis that only you can decide where you land. Of course, your thesis can (and should) be subject to change based on factors in the market from time to time. Regardless of your actual thesis, you should invest based on that thesis. This will help you both search for deal flow, review deals and make commitments.
Now, once you have a thesis (or even more than one), you need to get deal flow so that you can seek ‘on thesis’ deals to invest in. This is where AngelList comes in. Joining syndicates (especially those that have ‘on thesis’ deal flow) will get you access to deals to review. Even if you don’t invest, getting a volume of deals to review will help you learn an immense amount. Structures, caps, management teams (good from bad), co-investors, signal, traction and more will become part of your regular lexicon. As you see more deals, and even compare notes with other angels you’ll meet, you will get more adept and comfortable at making commitments to deals.
Smarter angels and volume
As you become more adept at reviewing and more confident in assessing, you’ll note that most deals may not pass your filters. Some will, and that is where you’ll commit your money. But lets say you have $25,000 per year to invest. Do you invest all of that in one deal, or do you invest $5,000 in each of 5 deals or $2,500 in each of 10 or $1,000 in each of 25? Likely, you’ll land on some mix of the above, based on your deal flow volume (reviewed), commitment and conviction in deals. Back to the power law again, though… if most of your returns will come from very few winners (or 1 of 40), then it would be awesome if you could put your full $25,000 annual allocation on that 1 company and disregard the rest. That will never happen. So you need to more intelligently allocate your ‘bets’ so that you have a better shot at placing some of your investment dollars into that outsized winner and some into ‘smaller winners’ and, of course, the unfortunate truth that some will end up in outright losers. Here again, though, the best way to ‘win’ is to both see more volume, and make enough smart investments to improve your odds.
AngelList investors and syndicates
AngelList is a great platform for volume-seeking angel investors. Joining several syndicates will get you exposure to a wide array and high volume of deals. That’s both great news, and bad news. It’s great news because the more volume you see and filter, the better you’ll get at picking winners… especially if you monitor companies after you review them and watch to see which succeed (mark-ups, liquidity events) and which fail (down-rounds, acqui-hires and shut-downs). It’s bad news because once you start seeing more than a couple of deals a day from the many great syndicate leads on AngelList, you quickly start seeing more deals than you can keep up with and you’re right back to the possibility of missing great deals (with unicorn potential). Some AngelList investors we’ve spoken to admit that they just don’t have the time (along with their full time profession, family, social and community lives) to dive through 5 or 10 or more detailed deal notes each day, running detailed filters to their theses to make commitments. Many of those investors end up overwhelmed and their investment activity on AngelList becomes paralyzed.
ListBurner
Enter ListBurner - consolidating up to 20 deals received daily from top AngelList syndicates and providing subscribers with a daily brief, listing the deal, syndicate, and select key information to help investors save time and get straight to the syndicates and deals they most want to invest in. ListBurner was launched to help AngelList investors see and review more deals, so they can dig deeper (into the deal lead notes) on only those deals they’re most interested in. By improving your efficiency and seeing more deals, your learning curve can become shorter and the likelihood that you will see a deal that is likely to become an outsized winner will be increased. Smarter and more efficient investors can become better investors.
Volume for syndicate leads
For syndicate leads, volume is just as important, albeit in a different way. Although some syndicates may focus on getting fewer, highly active, big check investors in their syndicate, if or when those bigger players don’t commit to deals, it is beneficial to have a large number of syndicate members providing more opportunities to fill a syndicate deal quickly.
Additionally, exposing a syndicate’s deal flow to more investors increases the likelihood that the syndicate will grow by adding new members coming to the platform.
Now, syndicate leads have a few ways of growing their syndicate: through natural discovery on the AngelList syndicate page, co-syndicating with other syndicates, or other forms of marketing such as direct messaging through either linked-in or AngelList.
With ListBurner, AngelList syndicate leads now have the advantage of a daily email being circulated to AngelList investors that can include the syndicate deals and deliver them to a wider audience of confirmed AngelList member investors.
ListBurner was created to help both AngelList investors and syndicate leads.
Our subscriber daily digest emails help AngelList investors see more deals without spending more of their time to analyze each one for investment. By reading ListBurner emails daily, subscribers can see up to 20 deal summaries and dive into those detailed lead notes for the deals they are most interested in.
We also help investors gain access to more syndicates that they have not yet joined by seeing a brief synopsis the deal flow from those syndicates. AngelList investors can then join syndicates directly from the links on the ListBurner emails.
ListBurner emails help syndicate leads by driving more traffic to their syndicates and deals, both from new syndicate backers and current syndicate backers that may have missed the deal because they simply didn’t have the time to get the detail from the lead notes.
The bottom line
Whether you’re an AngelList investor or a syndicate lead, ListBurner is helping you make better and more efficient use of this one-of-a-kind platform. Our goal is to help AngelList investors succeed by seeing and efficiently analyzing more deal flow while helping syndicate leads surface their deals to more on-platform angels who might want to invest.