Thursday, March 21, 2013

The Work-Work Balance (Angel Investing, 2)

The first question every prospective angel (and all my relatives) ask me is "What do you do all day?"

It's sort of a funny question. For any job more varied than working on an assembly line, the answer is either going to be pretty long or pretty vague. Usually I go with vague. Today I'm going with long.

Venture capitalists

  • Find companies that need capital,
  • Figure out whether they should invest,
  • Convince those companies they should take investment from them,
  • Negotiate terms, create syndicates of investors, and invest,
  • Help build the company,
  • Manage and protect their investment,
  • Manage and protect their portfolio, and
  • Exit--sell or shut down companies.
Institutional VCs also spend a good deal of their time getting investors for their own funds and then keeping them informed, but we're not institutional VCs, so we don't have to worry about that.

I have 23 companies currently in my portfolio. I invest in four or five new companies a year. I sit on five boards that each meet monthly or every other month, so one board meeting a week. I talk to another six company founders every week or every other week. I talk to an additional five company CEOs at least once a month. The others are further along and I talk to them once a quarter or so. On average each of my companies has a follow-on financing every 12 months so I evaluate a follow-on opportunity twice a month.

Given all that, here's how I spend my time:
  • Two days a week generating deal flow,
  • One day a week filtering deals that I see,
  • One day a week doing due diligence/negotiating terms/reading contracts/building syndicates on deals I like,
  • One day a week at or preparing for a board meeting,
  • One day a week talking to other portfolio founders/CEOs to see how they're doing,
  • One day a week looking at material/giving advice/making introductions for the other portfolio CEOs,
  • One day a week networking with other VCs/corporate types/other innovation professionals and answering random email,
  • One day a week keeping on top of industry developments and emerging technologies,
  • Half a day a week looking at follow-on opportunities,
  • Half a day a week making sure the i's are dotted and t's are crossed.
That's ten days a week. That's why I haven't answered your email.

Ok, maybe that's what I should do. Here's more like what I actually do:
  • One day a week trying to make sure people don't forget I exist: blogging, emailing people I haven't seen in a while, tweeting, coding stuff I think is interesting and putting it on the web,
  • A few hours a night trying to figure out what the hell is going on and trying to continue learning new things: reading everything I can get my hands on,
  • One day a week going to board meetings and talking to my other portfolio companies,
  • Half a day a week filtering the inbound deal flow,
  • One day a week looking at companies I think are especially interesting,
  • Half a day a week evaluating follow-ons, reading legal docs, keeping track of the portfolio as a whole,
  • One day a week meeting new people--entrepreneurs, people in the industries I'm interested in, other investors, random people friends say I should talk to, etc.,
  • One day a week prepping for, teaching, or doing follow-up for my course on entrepreneurship at Columbia.
That's six days. And that list is still a bit aspirational. I never get everything done. Tradeoffs.

Institutional VCs have to make tradeoffs too. For them a little bit of the stuff in the first list can be delegated (making sure the Is are dotted and Ts are crossed, some of the initial filtering of deals, some of the due diligence, a little bit of the helping portfolio companies.) And some of the stuff is made easier when you work in a team (filtering deals, evaluating follow-on opportunities, keeping on top of industry developments, networking.) But there's a reason most of the best VC firms--and all of the best early-stage VC firms--are partner-based, not hierarchical: almost all of these activities for any given investee or prospective investee need to take place inside the same brain if the process is going to be high function.

Angel investors don't have the advantage of delegating. And working in a team is usually pretty ad-hoc (unless you're part of an angel group, which then adds some overhead of its own) so trade-offs become more important. Angels (and super-angels and very small seed funds) choose different trade-offs. Some focus entirely on generating deal-flow but making sure someone else leads the deal: they do less evaluating and more networking. Some focus on adding a ton of value by knowing the industry they invest in extremely well: they do less deal generation (deals in their field show up on their doorstep) and more helping. But most fall somewhere in the middle.

I've made tradeoffs: I try to know the industries I invest in and so do more work on understanding specific sectors and a bit less work on generating deal-flow; I tend to invest as early as possible, so do more work trying to understand the founders and less work trying to understand what the company has done to date; I try to co-invest with people I trust so do more work talking to other investors and less negotiating terms and iterating legal docs; I'm an engineer so I spend more time building tools to do my work so I can spend less time doing the work; I'm not much of a schmoozer so I need to earn my keep by sitting on boards and helping founders. Luckily, this then cuts back on the time I need to spend networking.

Even so, it's pretty all-consuming. But if you hope to build a portfolio that gives you a reasonable chance of making money, all of the tasks in the first list are needed. How you spend your time getting those tasks done depends on your personality and your expertise. Figuring out what tradeoffs work for you is probably the most critical decision you can make.

*****

Next: Positioning How to be Different When What you Sell is a Commodity

Previous posts in this series
  1. Intro: Why I'm Not an Angel

2 comments:

nikiscevak said...

Fantastic stuff Jerry and just a quick note to say keep up the high quality on this strand of posts. Loving it.

Li Jiang said...

Very funny and entertaining. Keep writing!