This document provides advice for new angel investors. It recommends adopting a "barbell strategy" of maintaining a diversified portfolio with most funds in safe investments and a small percentage in highly risky startup investments. It also advises building a large portfolio of 20-50 startup investments to balance risk, focusing on deals that could provide "power-law returns" of 100x gains. The document emphasizes the importance of developing expertise, reputation, and brand to attract high-quality founders and deals.

1. HOW TO BE AN
ANGEL INVESTOR
Advice for your first year as an angel investor.
This presentation, and other free resources for angel investors,
is available at www.adviceforangels.com

2. Goal for this presentation: Pay it forward
(many people helped me avoid early mistakes).

3. This is not investment advice.
Consult a lawyer, accountant, or financial advisor before thinking about anything in this presentation.

4. EXPERIENCE
• Advisor
Advised BranchOut, Hired, + others
(2008-2012)
• Founding Team of
Involver
(Acquired by Oracle, Summer 2012)
• Angel Investor
First investment in November 2012

5. SUMMARY
• Barbell Strategy
Don't commit more than you can afford to lose.
• Large Portfolio
Commit to doing many investments.
• Power-law returns
Make sure every deal has large potential upside.
• Branding
Know why a great entrepreneur would take your money over someone
else.
• Reputation
Focus on improving your reputation at almost any cost.

6. Before making any investment, know
what your goals are and what your plan
to achieve them is.

7. BARBELL STRATEGY
• Most of your money should be in very safe places,
a small percentage should be subject to large risk.
• You can not reasonably defend having >10% of your net
worth dedicated to angel investing
• Pick an amount you feel comfortable losing entirely and
budget that as your angel investment fund
• Assume these investments will take 10+ years to
become liquid (you can not sell your shares at will, you
have to wait for acquisition or IPO)
Read more about the Barbell Strategy

8. LARGE PORTFOLIO
• These are highly risky investments, any of which could
easily go to zero
• Diversify across many (20-50+) good companies in order
to balance your risk
• Each of those companies must meet a high quality bar -
avoid any deal without very large potential upside.
Here’s a strategy for maintaining a high quality bar: look for high quality co-investors,
invest in companies where you know the space well, and have a high degree of
confidence that the team is going to execute and succeed.
• Don’t try to time the market, maintain a similar pace of
investments over several years

9. A NOTE ON INVESTMENT
SIZE • AngelList has investments with minimums as low as $1k; most
serious seed startups have $10-25k minimums
• Early on, make the same size investment in each company
• This suggests that you need at least 20-40k of investment
capital set aside for Syndicates; and 400k-1m for direct
investment
• If possible, save 1-2x for follow-on (click the highlight for a
definition) — maintaining or growing your ownership in winners
is the best way to maximize returns
• Early on, follow on when a new, experienced investor leads a
new round in the company at a higher valuation

10. A NOTE ON INVESTMENT
SIZE
• Power-law returns aren’t intuitive — all of your gains will be
concentrated in a very small # of winners
• Three out of YC’s 717 companies make up 78% of
the portfolio's value
• A $10k seed investment in Uber would be worth
about $20 million dollars today
! Your job is to invest in the one or two deals that
will generate all of your returns.

11. FINDING THE BEST
DEALS • Try lots of sources of deal flow:
• Cold-call investors you know and ask for help, AngelList,
Startup Events, Accelerators, Demo Days
• Be curious about what companies are impacting
people’s lives, study what’s working and what’s missing
• Invest in areas you understand well or get help from people who
understand the area well
• Be aware that many of the best ideas look bad early-on:
• Consensus ideas are priced for low returns
• All good ideas initially look trivial or impossible

12. BE CONTRARIAN (AND
BE RIGHT)
INVESTING
WITH THE
CROWD
INVESTING
AGAINST THE
CROWD
SUCCESS
FUL
STRATEGIES
Small Returns
(the safe part of the barbell)
Big Returns
(the risky part of the barbell)
UNSUCCE
SSFUL
STRATEGIES
Small Losses Small Losses

13. ALL NEW IDEAS LOOK
BAD
ENTRPRENEUR HAS A
PSYCHOLOGICA
L INSIGHT
ENTRPRENEUR HAS A
TECHNICAL
INSIGHT
THAT INSIGHT IS
MEANIN
GFUL
Looks Trivial
(until we all start using it)
Looks Impossible
(until someone does it)
THAT INSIGHT IS
NOT
MEANIN
GFUL
Is Trivial Is Impossible
(at least for this team)

14. Getting into deals:
brand and reputation.

15. BRAND
• Deals may be competitive — why would a founder take your
money over a different investor?
• Find ways to reliably add value (be an expert on a particular skill
and advise/help the team with that)
• Build your brand by sharing your insights freely (e.g. blog, tweet,
speak at conferences, help VCs, mentor at accelerators)
• The quality of the founders who cold call you for advice is a
good test of the quality of your brand
• Building a brand is easier in a niche (industry or location) —
develop an investment thesis

16. REPUTATION
• Your reputation dictates your access to competitive investments
• Illiquid investments are long commitments, founders want to
pick investors who will add the most value
• Invest in good companies and add value for your founders; they
will recommend you to others
• How you act when you’re going to lose money is a good
indicator of your reputation

17. Chris Dixon on developing a brand and reputation as an angel.

18. RECAP
• Have clear motives (have a goal, and a plan)
• Understand the implications of power-law returns:
• Find one deal that will make the majority of
your gains
• Build a portfolio of many high-potential
investments
• Add value; earn referrals from your portfolio executives

19. Advice from
Experienced Angels

20. PAUL GRAHAM
“That's how you win: by
investing in the right
startups. That is so much
more important than
anything else that I worry
I'm misleading you by even
talking about other things.”
Read this essay:
• How to be an Angel Investor

21. NAVAL RAVIKANT
“There has to be some reason
why people will take your
money instead of somebody
else’s. Otherwise at the end of
the day, you are commoditized
and you get bid out of the
game.”
Read this:
• How to be an Angel Investor, 2
• The rise of angels

22. SAM ALTMAN
“The real risk is missing out on that one outstanding
investment, not failing to get our money back on all
your other companies.”
“The best angel investors take bets on ideas/founders
that can be really huge and cheerfully lose your money
most of the time.”
“Invest in a reasonable number of companies […] bias
all your efforts towards attracting great founders.”
“Proprietary deal flow and networks are almost over,
you – and your references – are going to have to be
able to explain to a founder how you’re going to help
them.”
Read/Watch these:
• Sam Altman at PreMoney
• Upside Risk
• Venture Funds Fret as YC Soars

23. PETER THIEL
“There is only so much we can do to help the
companies in which we invest. And because
of this, the act of making the investment
(rather than the ability to fix things later)
remains by far the most important thing to
do.”
“[My biggest loss was not also investing in
the B round of Facebook,] whenever a tech
startup has a strong up round led by a top
tier investor, it is generally still undervalued.
The steeper the up round, the greater the
undervaluation.”
Read/Watch these:
• Zero to One (book)
• Peter Thiel AMA
• Tim Ferriss Podcast (go to 9:40 min)

24. CHRIS DIXON
“[Invest in good companies and
work your ass off. The next time
you’re competing for a deal, tell the
founder to call your prior
investments].
Think of it like a video game, where
you do this, and you level up. As
you level up, you can invest in
more companies and [can be more
helpful to them].”
Watch this:
• Chris Dixon on Brand Building

25. JOE LONSDALE
“You are betting on their drive /
determination to succeed. […]
Don’t bet on any team, or any
fund for that matter, that is not
obsessed and determined to
prevail.”
Read this:
• Angel Investing

26. BRAD FELD
“Understand the difference
between 0x and 100x: I’ve had two
of my angel investments return
over 100x each. Since I had a
strategy of investing the same
amount in each company, all I
needed was one 100x to allow me
to have 99 companies completely
flame out and return 0 and I’d still
break even.”
Read this:
• Suggestions for Angel
Investors

27. MARC ANDREESSEN
“4000 startups a year are founded … 15 of those
will generate 95% of all the economic returns”
“if you are doing it right, you are continuously
investing in things that are non-consensus at the
time of investment. And let me translate ‘non-consensus':
in sort of practical terms, it translates
to crazy.”
“We are looking for a magic combination of
courage and genius .… Courage [“not giving up
in the face of adversity”] is the one people can
learn.”
Read this:
• 12 things I learned from…

28. MAX LEVCHIN
“For HVF, cutting only ‘big’ checks
leads to more rigorous, more
exciting investments.
Removing the option of mitigating
risk by reducing check size means
the only way to discern between
investments is to thoroughly
understand [them].”
Read this:
• Big Checks

29. MORE COMING SOON…
I will update this deck with
new quotes frequently. I’ll
also post video interviews
and other resources on the
AdviceForAngels website.
If you want to be notified of
updates, interviews or
other resources:
Signup for the
Newsletter Here

30. ANGEL INVESTING
LIBRARY
• How to be an angel investor
• Part 1 - Graham
• Part 2 - Ravikant
• Part 3 – Willis
• AdviceForAngels.com
• AngelList Investing Guidelines
• Zero to One (Thiel)
• Angel Investing 101 (Singh)
• Angel Investing (Lonsdale)
• Intro to Angel Investing (Teten)
• Black Swan Seed Rounds (Altman)
• Why angels lose money…
• Building an Angel Portfolio
• Ten Commandments of Angel
• Angel Investing
• Gust Videos (1, 2, 3, 4)
• Mark Suster (1, 2, 3, 4, 5)
• Angel Resource Institute
• Possible Insight (data driven angel analysis)
• AngelConf Videos (no longer available - does this exist anywhere?)
• Angel in Groups
• SecondMarket Guide to Angel Investing
• Startup Investing Trends
• Analyze Startups Like a VC
• Video: The Art of Angel Investing
• There is no angel bubble
• This Week in Startups with Naval Ravikant, Gil Penchina
• Unconventional Investing Rules (Kraus)
• Video: Becoming an Angel Investor (Conway and Maples)
• 25iq “Things I’ve Learned” series (Griffin)
• Angel Investing (book)