Everyone, including angels, makes mistakes. It is an essential part of the learning process. However, we don't have time to quickly go through all the errors to gain all the experience needed; therefore, we need to learn from the mistakes of others. I made many or all of the angel errors I described below. They are the fruit of my investor life and also of my angel research. If mistakes don't kill you, they can make you stronger and wiser.
1. No time to dedicate to deal-flow and due diligence.
Great opportunities are hard to find. Typically, amateur angels work in parallel occupations, and they find themselves without enough time to identify and listen to the hundreds of pitches required to select the best opportunities. Usually, having no time to dedicate to scouting means a poor deal flow. If you lack enough resources to have a decent range of options, your choice will be limited to what you have, and from an insufficient pool of opportunities, you can't expect a great outcome. That's why investing through a group led by a professional dedicating full-time to scouting the best startups and running proper and fast due diligence can be a huge help. Nevertheless, angels should save some time to scout and screen on their own as part of the angel investor experience.
From an insufficient pool of opportunities, you can't expect a great outcome.
2. Bad access to good opportunities.
It is expected that amateur angels don't have the chance to have access to the best deals due to their inexperience in finding suitable sources of deal flow. This does not necessarily mean that they won't have access to these opportunities, but usually, it's considerably more challenging. Professional angels do it by creating protocols and agreements, generating regular information channels with accelerators, incubators, and other sources of deal-flow. They are the first to be notified of the best opportunities, and they invest in them before their visibility is increased.
Business angels are generally successful people in their entrepreneurial life or corporate careers. Their success gives them an extra dose of confidence and optimism they tend to extend outside their usual activity. Business angels may think their knowledge and experience is enough to solve major startup entrepreneurial problems. However, research shows that venture investors are overconfident and that overconfidence negatively affects the accuracy of investment decisions.
Overoptimism implies simplifying reality, deciding with less information and impeding the perception of potential opportunities and pitfalls. The severe danger occurs when successful people who have not been through serious mistakes begin angel investing alone. Higher the previous success, higher the optimism and overconfidence. Their success in one area tends to make them confident to approach other areas. Unfortunately, the normal is not that everything always runs perfectly, and that includes startup business. Failure for those that invest as an amateur is the most probable event.
5. Respect the startup timing.
We all know that timing in the business world is critical, but some angels may think that timing is not a problem in the startup world. Entrepreneurs are always available, always there. Their passion and dedication to what they do, make them resilient. There is also the confusion that is searching and validating does not need money, and when it comes to serious business, entrepreneurs will knock angel's door again. It will not occur. I'm not suggesting that angels invest blindly without looking in detail at the opportunities and the entrepreneurs behind them or avoid due diligence. Saying no is also a possibility, and there is nothing worse than delaying bad news. Some angels take more than five or six months to decide or communicate it. Some others make the investment decision but delay the money transfer. These acts are very disrespectful to the entrepreneurs and the startups and generate a bad reputation in the angel industry. Some of these problems may occur particularly with public co-investment, and that's the main reason why entrepreneurs avoid the bureaucracy of public co-investments. Delays kill the energy of startup teams that have tremendous pressure to deliver extensive work in a short period. Angels can't be disconnected and unaccountable to understand the importance of startup timing. Even a small amount of money at the right time makes all the difference in the entrepreneurial journey.
Saying no is also a possibility, and there is nothing worse than delaying bad news.
6. Respect the entrepreneur and the entrepreneurship.
I've seen a few business angels on my entrepreneurial journey keen to show other entrepreneurs their expertise in a particular subject and face them with their blind spots within their knowledge. Unfortunately, this behaviour can be perceived as arrogant and have a negative connotation regarding mentorship. Understanding new phenomena in industry, or even the most disruptive processes, is not always accessible to the brightest minds who have the success, the practice and the understanding of incumbent industries. It is often the disruptive and even the naive ideas of entrepreneurs that build the new paradigms. Business angels do not always have the capacity or the humility (especially if they are very successful or experienced in a sector) to understand those specific new ideas coming from people that have not yet proven to deserve the opportunity to be tested. Being innovative doesn't necessarily mean being flawed. Sometimes it is required to give a podium to the irreverence. Excessive conviction and over assurance in a topic should not be superimposed on the curious and genuine thrive of going further. That's why sometimes business angels should be followers and put themselves in a position of listening and learning. That's the best way to help the entrepreneur and co-create value.