Why Early Stage Involvement Is Critical for Success

What I Have Learned in 24 Years of Angel Investing

“What do you see as the responsibilities of a Chief Operating Officer?” he asked.

“A COO’s mission is to execute on the company’s strategy,” I replied.

This was a high-level question.

I gave a high-level answer.

We then slowly moved our discussion to some useful advice. The kind he could act on when he got back to his office.

But this got me thinking.

What did he take away from the conversation? Was the advice I gave him the right advice at the time? Was this the question he should have asked? Or were there some other more pressing issues he is addressing which we should have discussed?

This is an early stage company.

I invested in this company, and I am an advisor. The entrepreneur and his partner are good at asking for help. I say this because they call me for help. Leaders who aren’t good at this never call.

But first-time entrepreneurs, like first-time anythings, don’t know what they don’t know. It’s not that they don’t want help, they don’t know what help they need or when to even ask for help.

Then I asked myself this question, “How did I advise the entrepreneurs who were successful?”

I gave micro advice not macro advice.

When I began as an angel investor, I was 40. Kathy, my wife, told me in no uncertain terms that I needed to get an office. A home office was not an alternative for me. She said, “From 9 to 5, this whole house is my office, not yours. Find your own office.”

So when I invested in my first deal, that company’s office was also my office. As they grew and moved, I went with them. It was the most cost-effective way for me to maintain an office.

Every day, I was there.

I was around the company. I was the investor, not the operator, but being there allowed me to have my finger on the pulse of this new company. I knew the issues they were addressing real time. This led to more timely and meaningful interactions with the entrepreneur. I think of this as micro advice.

The advice was better because the questions were better. When I was in the office every day, I got into coffee room conversations with the leaders and early employees. I was better informed about the people, the environment, and the constraints. Even the speed of the business. There is no way the entrepreneur could communicate all these variables in a single meeting.

Here is a graph of my involvement in a startup investment.

I was heavily involved for the first six to twelve months. Then I moved to regularly scheduled weekly meetings and then monthly meetings. Eventually, I moved to quarterly board meetings.

(Note: The graph changed radically depending on the experience and working relationship with the entrepreneur. But in the majority of my successful investments, this graph held true.)

This worked.

Being in the same office was valuable for the entrepreneur and for me. We built a great working relationship, and I helped address problems when they showed themselves. Sometimes I even pointed out hidden issues which might kill him if unaddressed.

It also helped me know when to stop putting good money after bad. The closer I was to the business, the easier it was to decide the answer to this most difficult question for all investors.

This level of investor involvement worked for us. I believe it worked because I learned over 24 years of investing that it takes every bit of experience available, every day, to get a startup out of the ground as efficiently as possible.

 

I am currently preparing a talk for the Atlanta Technology Angels. I’ll deliver it on April 16th at 5:30 p.m. at the Atlanta Tech Village. The title I’ve been assigned is “Paparelli’s Seven Criteria for an Angel Investment.”

If you are interested in attending this session, here are some things to consider. It is free to ATA members. There is a discounted rate for entrepreneurs. Nonmembers pay $35. If you want to attend, complete this form. I’ll pass it on to the ATA education department, and they will contact you.

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