In the first Angel Talks episode, Sergey Belyaev and Ivan Lomakin enquired how an angel can get access to the best deals. Investor Vladimir Gidirim shared some insights from his experience of venture deals and recalled important facts from his twenty-year career in the accounting firms of the Big Four.

Vladimir Gidimir started working on the projects as a specialist who helps startups in business development and building management structure. The founders liked working with him and offered to become an investor. It was a good deal that ended in a successful exit. He became interested in the topic and began to study more deeply the mechanics of angel investing. For six years he has been actively involved in this by investing in American startups.

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What is the best deal?

Only 5% of investments at the early stages will be successful, it means, that means they will bring at least a tenfold return on the amount and pay off the entire portfolio. To make a profit, you need to invest in at least 30–40 companies, otherwise, purely statistically, you will not be able to find the very winners in them. An aspiring angel with a portfolio of three projects is almost guaranteed to lose all the money.

On the market of venture investments, successful VC earns 22–27% a year. It is a high yield in comparison to the stock market, where the average income is up to 10%. Often it can be negative.

Not all venture funds have such a yield. Top-investors earn more because they have access to the best deals. beginners get startups with significantly lower chances for success, and the overall income of their portfolio won’t be more than 10%.
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What is the investor’s problem?

Well, it may seem simple, just announce “I am an investor!” and instantly there will be someone to offer you a great startup to invest in. People will be an avalanche to your email. However, most likely, that there will be no interesting variants in this pale of snow. There quite a few unicorns and investors chase them.

You can instantly see the tip of the iceberg called “Problems”. If a startup has troubles with pitch or they haven’t found their product-market fit, then it is easy to discover without communicating with a team. It’s even worth it when the pitch is decent and the product is of a great need to the market but the team isn’t capable of building a strong company.

The correct question is how to get access to the best teams? In the early stages, time, observation and experience are needed. The investor needs to find a needle in a haystack. Carefully review all the presentations that are sent to him and see among them worthy of attention. For the scale: a colleague of mine recently shared the numbers: over the past year, he watched 2,300 presentations and invested in two startups.

Here we must remember: no one knows how to foresee the future. When Peter Thiel gave Zuckerberg half a million, Facebook was far from the first social network and had no clear advantages. Google has the exact same story: it was only one of the dozens of search engines on the market.

Investors in these companies did not see the future of young founders, they took a chance and won. This is not exactly a roulette, as investors had some of the information to assess the risks. But not completely, and the element of luck in these success stories is very high.

7 criteria

You can increase your chances to get into the successful deals by correctly evaluating the teams.

1. Be an expert in a specific domain base. The startup selection criteria will be lower if you don’t have special knowledge, understanding of trends and ability to evaluate the founder’s professional skills.

2. Watch people. How founders are able to cooperate with each other. Can you call them a dream team? Does the team acquire all the necessary competences? The good old “Three No” rule is still working.

3. I can see people with business acumen straightaway. If I see such a person and there is no technical co-founder with him, it is a red flag. Who is this founder, that couldn’t attract a tech-geek into the team? Where are his leadership qualities?

4. Be interesting to the cool founders. Great projects always have a range of investors to choose. If there is no competition for the startup, then it’s a bad startup. If you have what to offer, except for money, then you have the better position. Industry expertise and connections, relevant experience with similar projects, networking with funds, all these things are in the founder’s wishlist.

5. Have access to the right location. All the best deals are concluded in the USA and you have to be there and to build your networking there to find good startups. I’m talking not only about the Valley, as there are many technological hubs in the US. Boston, as MIT is near enough, New York with an amazing entrepreneurship culture, Ostin. Everything an angel needs can be found in these cities.
   
   Nowadays, many communicate via video chats but this is a bad option for building a network. There is nothing cooler than personal presence at thematic events and in the environment. But when the network has already been created, contacts are established, you can talk online. Or fly in for a day, as many investors do. You can try your luck in Moscow, hang out around Skolkovo, IIDF, the HSE accelerator. But this is not the scale of projects as in the United States. You have to go there for good deals.

6. Use Angels List and other crowd investing platforms like Founders Club. It is a good way to make the right investments without being in the US. Of course, you can’t see founders on the platform and you can’t comprehensively evaluate the team. However, it is a good way to make the first steps in angel investing. Thanks to crowdfunding you can get access to startups on the latest stages, and in such a way, significantly lower your risks. Startups’ death rate is significantly lower in the later stages.

7. Be an adviser. If you help startups and you do that on a gratis basis, then you gain reputation and it attracts good founders to you. Yep, it’s a marathon. You have to help a lot but this is a working strategy. There is a wonderful book on this topic, highly recommended.

8. Make friends with investors from the later stages. This is the way to gey into the number of investors of a good deal, even with a small paycheck. If you specialize in a specific sector and you have the expertise, you are welcome to come.

More insights in Angel-to-Angel format, you can find on Startup Kotiki channel, as all episodes of Angel Talks will be available there.

And here is the full interview with Vladimir: