Angel Investing 201: So You Want To Become an Angel Investor?

As part of our Founders + Funders SF 2019 summit, held in partnership with Seneca VC, we brought together an exciting group of startup founders and investors for a day of learning, networking and growth.

Brianne Kimmel, Founder & Managing Partner at Work Life, led a fireside discussion with Phin Barnes, Partner at First Round Capital. They chatted about everything from building a track record as an angel, scouting programs, getting into later stage deals, building a personal brand and more.

Introduction to Brianne (Moderator): Prior to investing, I was at Zendesk – I started out in product management and it was my first time doing SaaS, and I fell in love with both self-serve and enterprise go-to-market. I’d built a program called Zendesk for Startups, and many of the larger and more mature companies are now giving free software to early-stage companies, which is something I’m very passionate about. And it’s been great to see the number of different SaaS companies that, as they start to mature, actually start to layer in those free services for early-stage companies.

While I was at Zendesk, I started doing angel investing on the side – evenings and weekends, catching up with friends and people that I knew were starting companies. Over time, I started to build a small track record, and at some point transitioned to full time, both independently writing my own checks and also partnering with my friends at Village Global.

It’s great to see the movement that’s currently happening with empowering early stage entrepreneurs and people who are active in the ecosystem with the ability to start to deploy capital in very small but meaningful ways. I love thinking about the future of cities and the way people live and work. Most recently, I’ve invested in a couple of low-code, no-code companies, and I’m an investor in a company called VoiceFlow, which allows anyone to build an Alexa Skill voice app with no code. I’m also an investor in Webflow, which is very similar, but helping companies and individual people build websites. I’ve also done a number of productivity tools, Humble Dot, which is one that does data-driven management.

Introduction to Phin: Hi. I started my career as a creative director at a basketball company called AND1. I had no idea what a startup was when I joined but wanted to play basketball at lunch. I got to join them out of college, and watched it go through a great ride from $12 million revenue up to over $400. I saw how business really works, from conceptualization of a product by understanding a customer all the way through to manufacturing and putting it in the store.

I left that business and started a fitness video game company. We put a virtual personal trainer on Xbox and PlayStation. When that journey didn’t work out, I did some stuff with MTV, and then went to business school. And then, truthfully, absent a good idea of my own I decided to join First Round. Started to hang out with the partners and tried to understand what they were looking for in companies, such that I could leave and start a business of my own or join one of the ones that they’d already funded. It turned out that First Round itself was very much a startup.

So I was able to both build a brand and think about VC as a product, and the entrepreneur as our customer, and be a part of crafting the First Round product itself. And at the same time I started making some investment. It turns out when you when time with entrepreneurs and are generally helpful, even if you don’t want to make investments, they introduce you to their friends who are starting companies and then you end up making investments by default. I got hooked on investing. I moved to San Francisco from New York in 2014, and now I’m one of the partners at First Round that that leads our San Francisco office.

You’ve been on both the operating side, moved into investing, and you spend a lot of time with early-stage entrepreneurs who likely ask for your perspective on what makes a good angel. What are some things you typically say to entrepreneurs? And what are lessons that we can carry into building a track record as an angel?

Think of what you do as an angel as delivering a product or service to the founders that you’re going to partner with, and being very, very clear about exactly what that is. Probably the the best in class example is Y Combinator, where it’s very, very clear when you come to YC exactly what you get. They write it out. The terms are pretty standard.

You have an ability to make a choice as an entrepreneur. Is that product worth that price? Entrepreneurs should be thinking about buying a product with their equity, and as an angel the reality is that you’re on the sell side of the equation, you’re not on the buy side. So having a sell side attitude and going to that entrepreneur and explaining exactly what they get when they partner with you, what they can expect, and then making sure that you deliver on it, I think, is the number one thing.

One of the interesting things we’ve talked about is oftentimes when you think of angel investing, you imagine that it’s very, very early stage – maybe pre-product, pre-traction. What I’m seeing as an angel investor today is there’s actually a great opportunity for someone who has a strong operating background, someone who is currently a CEO of a relevant company, there are ways to add a lot of value to companies that are even later stage. I’m hearing from more entrepreneurs, “I’m raising a series A, series B. I have room for three or four angels.” They want to know who those three or four people that could add an incredible amount of value, either from their network, or from access to customers if they’re more on the B2B side, or someone who could potentially be an advisor to me as a Series A, Series B entrepreneur?

Entrepreneurs who want to build a dream team and giving them an allocation of their next round is a great way to build that relationship. Do you have any thoughts on ways for people to develop that offering, or build out that product?

You want to figure out how to spend your time as an angel. The biggest thing you’re investing is your time. The money you invest in each individual entrepreneur is unlikely to pay back. You hope that over time 1 to 10 of them payback, but what you’re really investing, in the immediate sense, is your time. Deciding how you want to spend that time with the founder, and understanding if you really enjoy the pre-product market fit journey and the early customer is one.

There were other people like Brennan O’Donnell. He’s the CRO at Air Table. He was previously at Survey Monkey. You see these people, they speak at conferences, and you think someday you’d love to work with them.

So I assembled a dream team of these people that my portfolio companies would really love to meet. These are also people that are very time-poor, and want to spend time with startups. It’s bringing together these two worlds of people who want to advise startups, but they want to do it in a thoughtful way.

Then, those who want access to these rockstar people, but are potentially time-poor and looking for meaningful interaction – you need to build a program around them to make it happen.

This was interesting insight where I was like, “I know that I can’t do this alone and I’m also fairly early to investing. So how do I build a program where both sides of the marketplace are getting value out of this program?” And it’s long-term beneficial in terms of just building a track record.

To that point, the biggest thing you can do if you want to become an angel is start telling people that you’re an angel investor and be willing to write checks. It doesn’t have to be $50,000, it could be $5,000 thousand, and you can start the practice of angel investing, you can start talking about it, you’ll find other people that are doing it.

Find someone that you like, know, and trust and make an investment with them, and then continue to talk about the company with them over time. You start to build out both your network of other angel investors, new opportunities to invest, and you’ll build up your skills because as the company is progressing and you’re having a conversation with someone. You have a sounding board for the way they’re evaluating the company, and you can build your own practice of judgment around the next deal you want to invest in, and the next one.

The most important thing is just declaring you’re an angel investor, and you’ll find that people will be interested in having you on their cap table because of who you are and what you can bring to them in terms of expertise.

It’s interesting to see the number of programs that have popped up in past 12 months. Where I think AngelList has done a great job with their Spearhead program, which gives active entrepreneurs their own funds and capital to deploy, with the mindset that entrepreneurs have the best access to the next generation of great companies.

How did you come up with the idea for Angel Track? And what are some early pointers you give to someone who hasn’t written a check yet?

Angel Track is a program we run at First Round. Like many things, it started as a small experiment in San Francisco and then grew. Now we’ve had four cohorts go through; currently one active in New York and one in San Francisco.

We try to bring together 15, 17 people who are either at the very beginning of their angel careers – they’ve written two, three, four checks – or people who want to be an angel in the future, and are saying the thing that’s holding them back is a lack of a network and a lack of understanding of the mechanics of how angel investing works, both how you get access to opportunities, how you build up judgment, and how you serve those entrepreneurs after you invest.

What we’ve been able to do through our network is bring in great angels that we work with at First Round who we often see on cap tables, that we know and trust and have them speak and teach very specific elements of how they think about the practice of angel investing. Because we have this group together, we then moderate a conversation amongst that group about how they think about the concept that they just saw. Over time, what’s really evolved is this interesting community now of about 70 people, and all the cohorts are communicating on a single listserv, sharing ideas, sharing companies, and talking to each other about new investment opportunities.

And how do you think about personal brand? Whether that’s having an area of expertise or areas that you’re really excited about. How do you balance personal brand plus the firm’s brand as well?

At First Round, we have a very much First Round-first brand. The goal of all the partners is to make sure that we always work at a place where the letters after the @ in our email address are much more important than the letters before the @. That speaks to the way we think about the institution.

As an angel, it’s little different because you don’t have that institution. When you think about personal brand, it goes back to the product you’re trying to create. If you wanted to do an exercise to come up with what your personal brand, you can assume that an entrepreneur that you want to work with is going to have a lot of options. At some point, they’re going to ask themselves the question, “Why should I work with Brianne over somebody else?” What would be your answer? What is the answer that you want that entrepreneur to get from other people that you worked with? How do you wrap your brand persona around those values such that that brand starts to get out in the market?

Over time as there are more and more angels entering the ecosystem, it’s great to see so much opportunity to develop expertise in a number of different ways. I’ve seen people go very deep on a specific sector or type of company. I’ve also seen the opposite where people will stay fairly broad, and say, “I’m willing to look at any type of company, but I’m most helpful with product. Or I’m most helpful with pricing and packaging.” Whatever your natural inclination is like, these are things that you’ve done before that you’re really good at, or it’s an area that’s your life’s work.

You can very creatively build your own personal narrative around that, and you can talk about things in a way where you attract the right types of portfolio companies. That’s one of the most interesting things I’ve seen – once you start talking about something, those companies will find you.

That’s right. It’s all about being top-of-mind in a certain area. I know an angel who decided that what he cared about was human augmentation – that could be physical augmentation, or it could be software helping you with productivity, etc. But what started happening as any time someone saw something that was human augmentation we would call him and say, “Hey. We have this thing. What do you think?” He became instantly top-of-mind in this very specific category, and that’s a great branding strategy for him.

I’m laughing because I’ve listen to his podcast before, and it’s something that’s so specific you’r like, “It has to be him. Who else is that vocal about human augmentation?”

There’s nobody else. That’s the point.

How do you think about like content, and podcasts, and some of the things that you talk about more externally?

For us, the decision we made around content and most of the things that we do at First Round is we try to decide what the most important, actionable, and tactical information for entrepreneurs. The more we can do to make that available to everyone in the ecosystem, the more inclusive the ecosystem can become over time.

When you look at what we do with the First Round review, that’s all about long-form articles with people describing in great detail exactly how they do something. Hopefully what we’re sharing there are best practices such that anyone can go from zero knowledge to best practice, and reduce a tremendous amount of friction in the process of building a company.

If you look at what we did with Dorm Room Fund, we saw that what was happening in the market was entrepreneurship starting at college campuses. Those students are being told to drop out, and give up school and start a company. When we started thinking about that, we thought one, for many people, going to college is the opportunity of a lifetime, and we’re telling them to drop out for something that’s speculative. That’s crazy. The people who are most attached to school are the people who had the hardest time getting in, which is first-generation students, etc. So how could we make information available to those students? Make access to a small amount of capital, but a large amount of actionable, tactical information such that they could build better companies together.

That community approach is something we’ve taken very seriously and tried to deliver to help entrepreneurs.

You’ve really delivered on the community component. You’ll have people who’ve come through one program, and then they end up getting into another program. I imagine there are operators who work for a First Round portfolio company, they then are really high potential, really engaged with the ecosystem. They then become part of Angel Track. And then from Angel Track, they’re likely angel investing. Have you seen any of them spin out and start a company? Or what do they do next?

With our community efforts, we think of how we touch the market, and we think about entrepreneurs.

We also have an expert network of over 500 people who’ve raised their hand and said we’d like to help First Round companies. Those people oftentimes will also raise their hands and say, “By the way, I’m starting a company. I believe in the way you approach entrepreneurship. We’d love to work with you.” We’ve seen lots of people come to Angel Track out of the First Round community.

We’ve also seen people from Angel Track refer companies that we’ve then invested in, that have become part of the First Round community. Now we’re co-investing with people in the Angel Track platform.

The funny thing about VC is, we all look for software-enabled, network effect businesses that can scale, and then we all run our businesses as no software, anti-network effect businesses that can’t scale and are artisan. Right? It doesn’t make any sense. So we thought, “How can we add some network effect to the business?” And community has really been the answer to that.

Do you use a personal CRM? How do you keep track of all of these interactions?

Yeah. We use Salesforce, which is very expensive, and we had to do a custom implementation. There’s probably a better solution out there. If you know any, let me know. But right now we’re on Salesforce.

That’s something I’ve been thinking about a lot – there’s a wave of lot of angel investors who are looking for ways to build alumni networks. Basically leaning into whatever company they were most recently at, staying actively engaged with all of them, and hosting dinners and keeping in touch with every single person they know.

One of the interesting things you’ll find is when you first start angel investing or when you first even start advising startups, you want to deliver on helpfulness and you want to deliver on being responsive. You quickly realize – like a lot of these efforts – it doesn’t scale. That’s where prioritization comes into play.

But you also have to have low ego and know that the very best answer to most questions that an entrepreneur has are not going to come from you, they’re going to come from another entrepreneur. If you can just connect them directly, it’s a far more effective use of everybody’s time than you trying to come up with that answer.

Yeah, but think you also have to have low ego and know that the very best answer to most question that an entrepreneur has are not going to come from you, they’re going to come from another entrepreneur. And so if you can just connect them directly, it’s a far more effective use of everybody’s time than you trying to come up with that answer.

I think it definitely changed. Angel investing, as an ecosystem, has become much more sophisticated. And so I think you have people that still approach the craft that way, but you also have people that are getting into later-stage companies, which can be a way to build personal brand. If you’re an investor in Stripe, then all of a sudden everyone knows who you are. And you can invest in lots of small companies, regardless of when you got into Stripe. But I think the ecosystem has changed a lot with the scouts, and the money coming in that way.

So people are no longer investing just personal capital, but they’re investing other people’s capital. And then I also just– the amount of capital broadly across the ecosystem from various small funds, all the way down to individual angels, means that entrepreneurs have just much more choice. And so angels have to figure out how to slot into the capital stock in a very different way than they used to.

Let’s talk about misconceptions around angel investing.

When you think of angel investing, what’s the full spectrum? Early on it was that the idea of an angel was someone that would give you capital. It was pre-traction, pre-products, I believe in you as a person, or I know you personally. Do you think that’s changed over the past few years?

People are no longer investing just personal capital, but they’re investing other people’s capital. The amount of capital broadly across the ecosystem – from various small funds, all the way down to individual angels – means that entrepreneurs have many more choice. Angels have to figure out how to slot into the capital stock in a very different way than they used to.

That makes sense. In terms of scout programs, I feel like most multi-stage, primarily Series A funds has some variation of a scout program. Oftentimes, when you talk to scouts, it’s a great way to get started. Are there any cons to the model? What are some things that scouts should think about in terms of building a track record, and how they view that relationship?

There are a lot of benefits for the scout. The question is what’s the benefit for the entrepreneur? Scouts are called scouts because they deliver scouting reports. And they deliver those scouting reports to the people who give them the money. As an entrepreneur when you take scout money, you’re also signing up for your company information to go back to the source of that capital.

The only place where scouts really get into trouble is when it’s not clear to the entrepreneur exactly what the relationship is between the scout and the entrepreneur, and therefore the entrepreneur and the fund that is backing that scout. As long as that’s clear, and the entrepreneur can make good decisions – the consenting adult theory – a scout is great, and it allows many, many more people to build up track records and potentially choose their life’s work as an investor rather than an entrepreneur. Sort of the blue lightsaber for the red. And if more people can do that ,it’s a good thing.

So the only challenge with scouts is the clarity of communication and the obligation that they create.

That’s one interesting point. More broadly, one thing that’s really important as an angel is, because you’re building a track record for yourself as an individual, then your reputation is the number one thing you need to be mindful of. Quick decision-making, honesty and transparency are important to entrepreneurs, and if you’re a scout and you signal that too late, it can be viewed as a little bit even deceptive.

Upfront it’s really helpful to say – even in the first conversation – where the money’s coming from. Some entrepreneurs even ask, “You know exactly where is it coming from?” Entrepreneurs can potentially feel burned by scouts, or it feels a little bit deceptive if that information comes a little bit later.

Absolutely. You have to be transparent. The best practice now is I can invest $25K of my own money. I can double that investment with the scout fund if you’d like, and leave it up to the entrepreneur.

Do you feel like in terms of that relationship, is it helpful for a founder to get access to certain funds? Do you feel most scouts or programs are separate? Are there any benefits for entrepreneurs with those types of programs?


Okay. In terms of building a later-stage track record, it’s one interesting strategy for angel investors who want to land in a VC fund or they’re angel investing with a very specific intent of getting into venture. What are some interesting ways to add value and get into later stage deals?

Recruiting is a huge one, that’s always something that especially important to later-stage companies. Helping certain senior people structure net-new things that the company is doing. New product launches, new divisions within the company is critical. Entering a new geography.

The way to get into later-stage is networking up to senior leaders who will be involved in the financing of the business over time. In terms of building that into a track record which attracts VC interest, your entry point is what a VC should care about. 

If you invested in Airbnb, and Stripe, and all these companies in their series D and beyond, and you want to become a GP at First Round, we don’t think that that’s very valuable. Those are sort of obvious– maybe you have connections and networks, but everybody knew that those were great companies at the time you invested. We’d much rather have the person who invested before it was obvious. Whereas if you want to get a job at a growth fund, that could be an amazing thing because growth is about winning those opportunities that are very obvious to everybody and differentiating yourself in that way.

You should think about your activity as an angel and how it maps to the type of investing work you want to do, if that’s what you believe your life’s calling is. And make sure that you’re doing something that’s relevant in the angel work that you’re doing.

In terms of some areas that First Round’s really excited about, what would be a request for startups? Are there certain sectors or types of companies that you are proactively looking for?

I feel we’re in like a junk food moment for social media right now. I remember when everyone looked around and thought everyone’s overweight, and we have diabetes everywhere. And we pointed at McDonald’s, and we said it’s your fault. And then McDonald’s said we have salads. Facebook is very much in that same position right. And just like nobody wanted to buy salads from McDonald’s, I’m not sure anybody wants to buy privacy from Facebook. So what are the sweet greens, farm-to-table movements, etc. of social media? Where will they emerge? And how will that play out? And how can we partner with those entrepreneurs as investors?

AUDIENCE QUESTION:  What are the kinds of value-add that non-technical angels can offer?

Brianne: I think non-technicals add an incredible amount of value. I think of the companies that you’ll meet, especially pre-seed, seed-stage entrepreneurs. Oftentimes they’re coming from a highly technical background – the majority of companies I see are Stanford, Harvard, MIT CS majors who are working on their first startup. The biggest questions they have are around sales, marketing customer success, building scalable programs that work for early-stage companies. It really depends on your operating experience and network, and the value that you personally want to add. Great entrepreneurs figure out ways to plug in your offering and balance that with other angels on the cap table.

Phin: The thing to remember is a startup is a race against time, and what you’re trying to do is optimize learning per dollar spent across that race. If you’re nontechnical or technical, it doesn’t matter. If you’re very good at framing, “Okay. What is your hypothesis? How are you going to test it? How do we optimize that test to make sure you maximize learning?” Then you’ll be incredibly value-add as an angel.

AUDIENCE QUESTION: When do I approach an Angel? Is the idea stage okay?

Phin: Access to high-quality capital at the right time is the challenge. The trap people fall into is they don’t do the work before raising. So they raise money when the resources that capital allows you to have access to are not the limiting factor of their business. You end up in a situation where the experiments you’re running, and the hypotheses you’re testing are the wrong ones, and you’re wasting money. You could have tested them for free, not given up your equity, and learned a lot more, or achieved a higher valuation, then raised money at a time when access to capital was actually your constraint, and it opens up your business and your opportunity.

Brianne: To Phin’s point, early stage startups are on a race against time. Be very mindful and due diligence against angels, because there are lot of people in the ecosystem who want to break into angel investing is a real thing, and there’s a reason for that.

Make sure you’re spending time with credible angels. Diligence your angels the same way that you would other investors. That way you make sure you’re adding valuable people to the cap table. Don’t be afraid to make asks upfront. I spend a lot of time with companies before ever writing a check, and part of that is just relationship fit. Does the entrepreneur want to work with me? Is my network valuable? Are there ways that I can immediately add value? And if not, then I’ll introduce them to other angels that can add a lot of value a lot faster.



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