Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Startups Hardcover – April 28, 2014

Books like this are my favorite kind of book, and it's not just because I've been following David S. Rose on Quora for several years now (and much of the value of Quora lies in the active participation of him and people like him).Angel Investing shares a quality with books like Blue Ocean Strategy, The Business Model Generator, and the books by Jim Collins (Built To Last, Good To Great, How The Mighty Fall) -- you're tempted to put it down for awhile, and come back and finish it later, because you're getting ideas from it that you can't wait to try out. Or information that you want to follow up on and look into further, like, right away. Or a new way of doing some analyses that you have something in mind to which it has to be applied.You can get much of what David has to say in this book from following him on Quora, but while much of that will make sense, not all of it really will. You get it that the guy knows what he's talking about, you come to trust him, over time he becomes the guy you'd ask if you have a question about it, and you'd probably have more confidence in whatever answer he gives you more than any other answer you'd get from anyone else. But it's still like walking into a favorite class in the middle of a lecture, unprepared -- you know you're learning something you want to know more about, so you should stick around; but at the same time you're aware that you're missing things because you came late and you haven't done the homework.This book is the homework. It covers the basics, the terminology, the structure, a from-the-ground-up guide to how angel investing all works. I finally discovered what, exactly, that Holy Grail called a 'term sheet' was. (As I write this, he's running a live session on Quora that I am checking from time to time in another open tab, and I'm a little surprised how many of the questions people are throwing at him are answered in the book.)Key takeaways (for me, anyway, and I was reading from the viewpoint of an entrepreneur/founder, not an aspiring angel investor; although I'd like to think that that's a possibility at some point in the future . . .)-- It's not for everyone. As an investor, you need to come in with enough money that you'll have staying power -- I wouldn't try it with less than $100,000. It's a 'hits business', like producing records or making movies. Half of your investments are going to lose; indeed, be wiped out completely, and you're looking for the one investment you make that scores a 'hit' and covers the losers in addition to making you a large profit. It's not gambling: over time, the odds are in your favor if you do it right, but if you make only a single investment, chances are, it's not going to be very profitable if at all, and you'll likely lose it completely. You don't have to be so wealthy that $100,000 is 'throw-away' money, money you can take a flyer with or afford to lose, but I wouldn't try it with less and frankly, I'd want to go in with more.-- It's not for everyone, part II: As an entrepreneur, what you want to do has to work within your angels' agenda, priorities and values. For example, I'm into hotels: many angels prefer tech ventures and for those, hotels as an investment won't fit in -- not much chance of a 10x return, and no exit until about 20 years or so, if ever. (And frankly, if I had a good one, I wouldn't want to sell it.) But there are angel groups out there that do real estate ventures and 'Main Street' businesses, so there's hope for me yet.-- Speaking of your angels' agenda, priorities and values: it's very much an individual choice -- and sometimes, those choices show up in investment strategies, even by groups. There are groups - and individuals - who focus on sustainable, social and impact investing (Mr. Rose is occasionally open to these himself, and dedicates a chapter to explaining the difference between the last two). There are groups - and individuals - that specialize in minority-owned ventures, women-owned ventures, LGBT-owned ventures. I myself once looked into setting up an incubator in the small, eastern North Carolina city in which I attended high school; to this day, badly in need of some diversification in its economy. Who knows, there might already be such a group committed to ventures to be headquartered in a specific location; especially if such a venture will bring lots of money into that community, or create lots of good jobs? There are personal, moral and ethical considerations: Mr. Rose does not like making investments where the CEO is a college dropout, success stories like Bill Gates and Mark Zuckerburg notwithstanding, and for many of the same reasons I have for wishing I'd have found a way to stay with it. (I dropped out of North Carolina State University; but it was so long ago, and I've since gotten a comm-tech degree elsewhere, maybe the relevance would be limited if ever we did have an opportunity to do business, and there's hope for me yet.) I once met a guy with a venture capital firm, but his firm wanted nothing to do with any business that dealt with end-users: only B2B markets. I myself would be lacking in enthusiasm for anything that relied too heavily on government funding (I don't necessarily consider government contracts or grants 'safe' investments), or required lots of minimum-wage help like a Wal-Mart or a fast food joint, and I wouldn't touch anything that is too 'sales'-intensive, or relies upon what I consider to be exploitative marketing techniques (i.e., 'Yes, sign me up for a subscription at $19.99 per month' in small, low contrast text, next to a checkbox checked by default). Even if I were confident it would make money on it, I don't need the kind of money that comes from doing morally questionable stuff like that.-- Accordingly, because of the screening process and the necessary selectivity by angel investors and groups, only 4% of proposals that they get survive screening and are actually funded, yet this figure could conceivably go as high as 10% if the right founders could only be matched up with the right investor or group. While a Gust.com logo appears prominently on the cover, and there are several references to Gust on the inside, this book cannot by any means be dismissed as merely a promotional piece for Gust: a platform like that can be invaluable in matching them. (Besides, the other information provided is much more comprehensive, too much so to sustain such an accusation.)-- Sometimes, a happily-ever-after scenario happens; but unless that's possible and expected (perhaps, in real estate ventures and 'Main Street' businesses), angel investors -- even though it's critical that they think long-term -- like to know how and where it's going to end, and that they're okay with that. Having money tied up in something forever doesn't do much for liquidity, or plans for reinvestment: they want to keep it down to six years give or take. 'Exits' will not likely come in the form of an IPO. Often, when it happens at all, it's going to come about in the form of a buyout or merger. If this book seems to be missing one thing, I would have liked to see more exit scenarios, and more details on each. (Maybe the problem is that there is only a limited number of positive exit scenarios.)-- The process is more involved, and done with more scrutiny and discernment on both sides (if done correctly), than you see on Shark Tank. Any TV program, even reality TV, will have just enough truth to float the bull----, but even the producers of Shark Tank admit that there's a lot more screening of every deal that shows up than actually shows up in the episode; and that once the deal is 'won', the contracting process afterward is a lot more involved.-- Angels invest in companies, not ideas. If I approach them with a plan for a bus company (that I'm actually planning) that'll give Greyhound a run for it and maybe tear them a few new holes (that Greyhound has spent the last twenty years leaving open in lots of places on its own, anyway, even without my help); any angel group I approach is going to want me to show up at the very least with a fleet of taxis (which I have a company that has already completed the city licensing process for), and maybe one or two of the new coaches that I'm going to want (which perhaps I'm already keeping busy with charter and tour business). On the other hand, if you have an idea for a bullet train line that'll outrun a 737 between New York and L. A., it might help if your name is Elon Musk - and you might also want to bring a checkbook just about that size, because you'll be expected to put in quite a few bucks on your own. At least be able to show something already in place, that's producing something by way of measurable results.-- To take it a step further, angels invest in people, not companies. Like any Landmark Forum graduate knows almost instinctively and will tell you, without integrity, nothing works. Don't be shy about walking away from a situation -- whether an investor or a founder -- that you have a bad vibe about. There are a lot of predators out there, and little pinholes in your integrity let all the air out every bit as badly as large intentional ruptures in it do. An angel can always find a similar venture with someone else from whom he doesn't get a bad vibe. A founder is better off not launching than she would be with a launch backed by people who, after she puts her own life savings into it and works her heart out at it for a couple of years, is just going to find a way to steal it from her just as success comes into sight. If you and I have an absolutely trusting relationship that each of us is absolutely committed to living up to whatever may come, we can involve ourselves in pretty complex business arrangements with one another with a minimum of written agreements, and amicably work out any problems that come up along the way. Without that trust in place, no contract in the world, no matter how detailed, is safe.-- Ability to execute is critical as well. This one is a no-brainer. Someone who can execute well can make a mediocre idea work better than expected, a screwup can screw up even a great idea. Ability to make things happen is fundamental to any business: in a startup, nothing is going to happen until it's made to happen. In an ongoing venture, this ability is essential to overcoming any problems that come up. When a business is circling the drain into bankruptcy, ability to execute is the last thing to go -- when it's gone, so is that company. Plan on bringing a resume showing at least some experience, if not specific subject matter expertise.-- Perhaps I should find a way to partner with someone who specializes in this sort of thing. Angels don't like intermediaries who have to get a cut. A source of hesitation and constraint for me is a feeling that, I can raise funding, or I can operate hotels. It would be nice if I could be really good at both, but in the meanwhile having someone on board who's familiar with that end of it (preferably, someone who already has some access to capital at the ready - an in-house lead investor) might be something to think about. And I was quite shocked how much my own company -- a hotel management company aiming to develop new hotels -- fits the model David described of a VC firm (however one that specializes in hotel ventures): a general partner that deploys funding (read that: writes checks and spends money) and handles management, and limited partners who make the investment, reap much of the return and share the rewards. There's nothing wrong with that: actually, there's an opportunity in it -- if you're going to be a VC firm, be a VC firm. It's something to look into further. I should follow up on some of the resources cited in the book. There are lots of those. I need to spend some time copying some of those longer URLs in my address bar.Anyone who wishes to raise capital should read Angel Investing before embarking on raising capital, because it fills a couple of important voids.Here's one: We all have a pretty good idea how IPOs work, some of us better than others. (And, we see, they've become rare and are becoming rarer, even as angel investor 'exits'.) We all have an idea how VCs work, most of us not as well as others. (These, by the way, are very selective, much more so than many of us realize. If investment banks that underwrite IPOs aren't more selective, it's because most companies, and most founders, know better than to bother showing up unless they're confident that they have a chance.) We all have some idea how investing your own money, and maybe bringing in friends and family financing, would work. Angel investing sits in between the friends and family and the VC level: for most of us, it's the missing rung on the ladder. It's how you start small, and move to the next level up. It's where most of the opportunities are. It's how you can do it even if, like me, you weren't born with a silver spoon in your mouth.I have a friend, now retired and living in Texas, who used to own a financial services firm in Connecticut. He did stocks, he did investments, he did insurance, he did real estate brokerage, he had both residential and commercial property, he was a mortgage broker - basically he did everything except run a bank. (Or angel investing or venture capital, except to tell me all about how it's something he wouldn't touch.) He did financial planning and management for well-to-do clients -- and he also did it for anyone else who showed up. Even the sort of low wage earners who are pushing for a $15 per hour minimum wage and will be turning out in droves a year from now to elect Bernie Sanders President. Whatever the need, by whoever showed up with it, he offered a solution; including, in the case of low wage earners, subscription-based one-on-one counseling and coaching by someone in his office on budgeting and saving at thirty-five bucks a month (which even an hourly McDonald's employee could afford with a little effort -- and would discover, quickly paid for itself), and classes on achieving wealth building and finding opportunities (people who never made a lot of money actually reached a point where they could buy homes, and one or two of them even became millionaires, by taking that class and applying the principles he and his people taught there). The services offered were as good as you could ask for if you showed up with a $75,000-plus annual income, with lots of savings and assets, and money to manage and/or invest, like most people you'd think would have any need of services like that, and for them, he had all the trappings: an upscale office, mahogany wood paneling, good furniture. And he had lots of happy customers in that bracket. But the thing that actually impressed me about Richard and his company was that you didn't have to show up with that kind of money and assets already in place in order to benefit from some of the services offered -- and you weren't quickly shown the door if you didn't, as many would expect. Even if you were on unemployment or on welfare when you showed up, it met you at your level and had something to support you in improving your state, if you made the investment, took the time, and did the work.Likewise, Angel Investing meets your company at its level -- even if there's not much to it this year except a one- or two-person shop funded by yourself, or friends and family -- and points the way for it to get to the next, if you're an entrepreneur. Or, if you're an investor, it lays out the basics of how to get started with maybe $100,000. (And one of the first things you'll notice is, if you don't bring something close to that much, you might better wait, because, like I said, you really need to make several investments at $5000-$25,000 in order to have it work for you.). Wherever you are, it meets you at your level and supplies the missing rung on the ladder.Here's the other: Mr. Rose has actually codified the methodology and the generally-agreed-upon rules for angel investing. He admits, of course, that most of what he's given us, he's gotten from others, but none of the others wrote a book that is this accessible, well-known, and easy to read. (There's some TLDR material in the areas of valuation and forms of equity interest, but you do want to familiarize yourself with it, and later you can come back to it and review it and use it for reference material.) So in effect, he's set the rules -- and made it clear why the rules have to be the way they are, for the protection and good of everyone involved, so that you're okay with them. Learn them, go by them, commit yourself to playing within them and -- whether you're an investor or an entrepreneur -- you should be able to function in the world of angel investing, no matter who you are or the level at which you started, no matter where in the world you are. Even if you're launching a startup in, say, India, or Tanzania; even if no one you're dealing with has ever heard of David S. Rose; know these rules about how the world of angel investing operates, and stay within them; and you should succeed. Or, at the very least, stay out of trouble and keep from eating big losses.The world needs this information, precisely because of that missing-rung-on-the-ladder niche that it fills.

This book is a good introduction to angel investing from the investor's viewpoint. It is admittedly a sales vehicle for Rose's angel investing company Gust. Nevertheless, the book contains many interesting points, which I summarize below. It is my intent that the discussions of the chapters kindle your interest and spur you on to buy the book.Chapter 1. The 25 Percent Annual ReturnThe book begins by stating that savvy accredited investors, with strong knowledge of certain markets, and who invest in 20 - 80 companies at $25K-$35K each, staying invested for 5-10 years, could see a return of 25% per annum. The chapter cautions investors to limit angel investing exposure to 10% of their overall portfolio.Chapter 2. Plus, It's Really Fun!This chapter discusses the non-financial rewards of being an angel.Chapter 3. The Portfolio Theory of Angel InvestingThis chapter advocates investing in at least 20 companies to reduce risk through diversification.Chapter 4. The Financial Life of a StartupThis chapter follows the typical funding of startups, from founder's money at $25K-50K, to friends and family at $25K-150K, to accelerators at $50K, to angels at $150K+, then VC money. A major goal in the process is to find a deal lead who will serve as a mentor during the early stages.Chapter 5. Develop Your Deal FlowThe book discusses places to meet entrepreneurs and other angels: Angel groups; Meetups; Business plan competitions; Conferences, and others.Chapter 6. Bet the Jockey, Not the HorseThe chapter discusses generic criteria to seek in entrepreneurs.Chapter 7. Here Comes the PitchThe chapter discusses generic criteria to seek in concept proposals.Chapter 8. Look Under the Hood and Lead a DealThis chapter covers coordinating due diligence efforts.Chapter 9. Valuations and ExpectationsThe best chapter in the book! Cites actual examples, not just generic criteria.Chapter 10. Investment Rounds and Their FormsThis chapter discusses different equity types in deals: Common stock, Convertible, Preferred, etc.To see the titles of the 10 remaining chapters and the appendixes (with useful resources), you will need to buy the book :-)Overall, I found the book interesting with useful elements I can use in investing and in raising money. The book would be much improved, in my opinion, with a set of guidelines on best practices and lessons learned in the author's experience funding 90 startups. Chapters 6 and 7 do give a few criteria to consider, but they are very generic ("ensure the market size is sufficient," etc.), and lack examples of actual companies with which the author has had experience. Of course, the guidelines would not be a guarantee for success, but at least it could weed out (most) losers. Recommended for savvy accredited investors looking for alternative investments in early-stage companies.

This was a great book for anyone looking to get into angel investing. It gives a lot of great advice from the investor perspective to help find good opportunities and achieve success. It is also good for entrepreneurs as well if they want to better understand the other side. Definitely written by someone with a lot of experience in the field who has a lot of knowledge to share.

I read the book cover to cover. Very informational and entertaining. I learned a great deal about angel investing and how to solicit angel investment, and got a better picture of the overall startup finances.I also read Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist by Brad Feld. A good book to read together with this one. They have different focus, Venture deals by VC to entrepreneurs and Angel investment for angels. They compliment each other and provide a better overall picture. This book is lighter and easier to read.I very much appreciate the ballpark numbers the author has in the books. On the other hand, copy one very useful comment from David M. Freedman in his review of the book: "Some of the statistics Rose cites about ROI come from research by Robert Wiltbank and others who surveyed accredited investors who were members of angel groups. So non-accredited investors' returns were not considered. I dug deeper into these studies, and found that respondents to Wiltbank's surveys were self-selected; we can presume that investors whose returns were poor were less likely to respond to the surveys. Keep these caveats in mind when you read the stats that Rose reports."