Earlier this month, Reshma was invited to speak to Harvard Business Angels London group about the top 10 lessons learned from early-stage investment over the recent 10 years. Afterwards, several folks came up wanting the list, so we figured let’s post it up for everyone’s benefit. Reshma’s own alma maters INSEAD and Wharton run similar forums, so if you’re an entrepreneur these are brilliant places to pitch, get feedback, and meet some great Angels!
Portolio versus Scatter investing
It is your money and you can choose to scatter it aimlessly. But if you want to treat it with respect and aim for a return, you must build a Portfolio approach to investing. And this is very much the opposite of investing in your friend/daughter/son/cousin’s business as one-offs!
Law of numbers is more critical to your success the earlier stage you invest. The greater the volume, the greater the optionality to follow-on. A greater number of bets also give you the freedom to back the hugely ambitious long shots.
Strategy and Construction of portfolio matters. Strategy isn’t just for your professional endeavours. You need to allocate a specific pool of money to early stage, determine your scope to do follow-ons or not, have an average cheque size and ownership targets.
Sectors and Founders
Back founders you respect and feel you can work with and sectors you understand or feel passionate about. You can’t just back “the nice guy”. Often the founders who challenge you the most are the ones where we’ve seen the greatest success.
The companies where we’ve had the most internal debate or which have been the most obvious no-brainers have been successes. Anything run of the mill has only ever been just that.
Success
Rank, rank, rank your portfolio. Give support to those where your input makes a difference and step back from those where it doesn’t. If you keep banging your
head against a stone wall, let it go….. let it die or let it fly! Minimize the ego and accept that some companies will succeed without listening to you
Measure performance. This is just as important for investors as it is for startups.
Party rounds mostly suck. You do need a real lead, someone who cares in the good times and the bad and can represent the investors and also roll up their sleeves to do the hard work with management.
There’s a strong correlation between the quality of the syndicate and results. There is a flight to quality.
There’s also a strong correlation between crappy terms and crappy investors. You don’t have to be desperately founder friendly but do need to be founder fair.
Don’t starve companies of capital. Each round can easily accommodate 30% more money at a slightly higher valuation. It’s better to own a bit less than be greedy and starve companies of critical early capital.
If you are an early-stage founder looking for investment then get in touch with us via our website.