Advice on angel investing from a guy who has funded 900 companies

By Danielle Abril, published on Atlanta Business Chronicle (The Business Journals).

Dave McClure, cofounder of Silicon Valley investment firm 500 Startups, has learned the tricks of the trade of investing in startups after shelling out funds for more than 900 companies in more than 40 countries.

"Startups are a very challenging thing," he said recently at the National Angel Summit in Dallas. "Know that most things are going to fail."

While he spoke to a mixed audience that included entrepreneurs, investors and advocates, he catered his message to those interested in angel investing.

Here are some of his tips:

On getting started
  • Your ability to detect if companies will be successful early on is limited. He highly suggests you diversify in at least 10 to 20 investments, arguably more.
  • He wouldn't advise you to invest (ever) if you think you're going to make a lot of money.
  • Make lots of little bets and spread that over time.
  • In your first 5-10 deals, co-invest with other experienced investors and let them handle documents.

When to invest and in whom
  • Invest in things you know and like. Play to your strengths and skill set. Where can you add value? Stay within that expertise.
  • Wait until companies have an initial prototype, have shown that they have the potential to be profitable and have the ability to scale. That's the best time to invest.
  • Don't bias yourselves to the person (or team), look at the products and data. Don't overemphasize the people or idea too much.
  • Make additional investments or double down when users are scaling, revenue is scaling, unit economics are improving, other experienced investors are putting in more money and when founders aren't asking for money. A founder asking for money is usually a bad sign.
  • Don't get bogged down in legal work. Get the deals done.

After you've made an investment
  • Don't expect to become the entrepreneur's boss. Entrepreneurs usually don't listen to people. Trust them to do their job. Remember, you invested with the understanding the project was likely to fail.
  • Write about your thesis, ideas and companies. It's the simplest commercial you can do, and there are so many opportunities for your voice to be heard. There is an incredible opportunity for women VCs and those who share their thoughts.
  • Ask for monthly updates and make companies include their revenue.
  • Ask for a monthly net burn number regularly. If the total can't sustain the business for six months, you should worry.
  • Plan for at least a five-year period, if not longer, to get capital back from investments.

Source: Atlanta Business Chronicle

Contact Us

  • Our addresses:
    Marketing Eye3423 Piedmont Rd., NE Atlanta, GA30305
  • Atlanta: 404-626-8070
  • Seattle: 206-369-1950
  • New York: 347-410-2666
Contact Form

Connect with Us

Latest Marketing Eye Tweets

  • What would you do if you could make the big decisions on solving world poverty? What solution, radical or not, woul…

  • Cool factor of the day is when two girls were getting dressed in the bathrooms of a hotel and they were going to a…

  • Very funny... this guy sat down on the table next to me with his lady friend at a restaurant... hears my Australian…

  • Top 5 Multitasking Methods

  • The untethered soul of your business

  • Gosh! That’s not petty cash for anyone! He must love his Politics!

  • Westworld’s James Marsden at Cecconi’s in LA sat 10 feet from our table. He smiled the whole time at his group of guests. Love happy people!

  • Saturday seriousness at @andazweho waiting for my lunch date to collect me #chilly #Ceconi’s

  • Thank you @andazweho for your kindness, hospitality and continuous happy dispositions. #jimmychoo #interiors #hotels

  • What happened next broke my heart. They set up different alliances and wrote more than 20 slanderous comments about…

  • What do you do when an employee tells other staff members that they have an ice problem and bashed a woman on the w…

  • RT @Oprah: Maria has been my friend since we were both young reporters in Baltimore. Her wisdom and open heart is what the world needs more…

  • RT @marketingeyeaus: “Let’s create the kind of world we want to live in” #richardbranson So true. What are you doing to create the world yo…

  • RT @marketingeyeaus: Women at the table next to me this morning were talking about other women. There were 4 of them. It was nasty gossip,…

  • RT @SpiritPoet: "If you own this story you get to write the ending." ― Brené Brown