Do Not Invest without a Financial Thesis!
And more advice from Joanne Wilson, leading angel investor with over 120 portfolio companies, blogger, and podcaster focusing on female founders, minorities and female trailblazers.
1. Do not invest without having a thesis!
Have a thesis. It's important to be consistent with the things that you invest in, and that is part of my financial thesis. The problem with not being consistent is what you think is going to be successful ends up not being successful. And, the one that you think will be just okay is the one that hits it out of the ballpark. If you are consistent with how much money you put into these companies including what type of valuation and what percentage you want to own, then you are essentially mitigating your risk. All VC firms have a financial thesis.
For my first investment, I had no thesis. I had no idea that I was going to spend the majority of the next decade angel investing and managing that capital. I put a large amount of money in a company because I believed in it and fortunately, it was a success. After I realized that investing was where I would spend the majority of my time, I decided that I needed a financial thesis. I can't just shoot dollars into the wind based on how I feel that day. It is also helpful to have a guideline of what you are willing to take a look at and what you are not. It is important to know what you want to do, when you want to enter a company, what percentage you want to own, and how much you are willing to put into each company at every capital raise. Except for that first investment, I have been consistent across the board.
2. Don't invest too quickly.
When you start investing, don't jump. Take your time and spend a good year or six months getting a feel for what is on the other side of the table. I believe at the beginning it is such a privilege to talk to super smart founders and entrepreneurs and everyone seems brilliant. After you spend a lot of time meeting with founders and listening to their visions, you start to see the red flags. It could be a fear that you don't think this person is capable of being able to raise money again, or they are not listening to me, or they are replicating an idea that I have seen that just went public. Listen and poke holes.
3. Don't be a generalist.
When I started, it was very easy to be a generalist because technology was touching every vertical. Now I think it has become much harder. You need to be more focused on a particular vertical. If you are looking at wellness and healthcare, then take a deep dive there. I wouldn't suggest you dabble in cryptocurrencies, for example. It is important to understand how an industry works. I started doing this almost 15 years ago, so I was very interested from a curiosity standpoint how different verticals could change with technology but it has become harder to be a generalist. If I came to the party today and never had invested before, I would probably spend all my time in biotech because to me that is going to be the clear disruptor in the next ten years on many levels because it doesn't take 30 years to get to market anymore.
4. Don't be impressed with the investors on the cap table.
Don't be impressed with the people on the cap table. You should be investing in what you think is right. I was in a deal where everyone around the table was more impressive than the other, and it turned out to be a disaster. I am much more interested in investors that are under the radar that nobody knows and are doing very interesting things because they see things that many others do not.
