A key difference between Angel and VC investors

on March 23, 2016 | in Ideas

You might think Angel and Professional investing in startups would be nearly identical, but they are not.  They are complimentary, but follow two quite distinct styles, serve different purposes, and differ in their structure and scale.

The biggest difference in that professional investors are paid to make investments, and thus work at that process all year long.  For most Angels, no one at home gets mad with them if they don’t make any investments this month, or next month… this year, or next year.

Professional startup investors review thousands of startup profiles per year, year after year.  That process not only helps find startups to invest in, but also provides an incredible deep understanding of what types of startups are starting up, how the startup market is changing, and after a few years, provides a view into what ideas have been tried and have failed repeatedly.

This massive view of dealflow is what separates the professionals from the amateurs.

Not the number of investments an investor makes nor the size of those investments, but simply the effort of seeing thousands of deals per year and the pattern matching which follows from seeing so many repeat ideas, and so many dead startups.

Case in point, a Toniic investor sent an email today with the outline of a new insect-as-food company.  He was excited.  That excitement is contagious.  It was there in the crowd in 2012 at an early insect-as-food company pitch.  However, that excitement is far less relevant after seeing a dozen insect-as-food companies since 2012, after talking face-to-face and Skype-to-Skype with many of them, and that excitement turns into skepticism after the post mortem call with that 2012 insect-as-food startup in 2015.

Perhaps this is a cause of the underlying lament of Angels, that they simply don’t see enough deals to know what questions to ask in due diligence, and thus rely more on luck than skill to find their winners?

Or perhaps this leg up by professionals is a cause in the arrogance commonplace in venture capital, where seen it, hated it is too often the quick response, overlooking innovation when it comes packaged in a repeat wrapper.

Either way, learning more of the patterns and anti-patterns which lead to success and failure for startups is immensely helpful when your job is to invest in startups.  And having thousands to pick from instead of dozens doesn’t hurt either.