Before we dive into our second edition of Angel Insights, the weekly newsletter from our team at VITALIZE Venture Capital, we’ve got a quick announcement.

Our first cohort for VITALIZE Angels is now open for applications!

We launched VITALIZE Angels in September of 2021 and have always had applications open on a rolling basis, but we’re switching to a cohort model to make the experience even better for new members. We’re so excited to finally open the first cohort and have you join us!

Want to succeed as an angel investor?

Of course you do.

This is why it’s valuable to heed the advice of someone who has been investing in startups for a decade.

In this case, our Managing Partner at VITALIZE Venture Capital and an angel investor in 40+ companies, Gale Wilkinson.

Today we’re sharing the five angel investing mistakes Gale recommends you avoid.

Mistake #1: You don’t love the deal but invest anyway

Angels are often looking to invest with the herd. Regardless of who else is investing, it should fit your personal thesis (stage, sector, price, etc.).

Remember, you’ll say no way more often than you’ll say yes (most VCs invest in <1% of deals they see).

Mistake #2: Investing with cap table issues

Angels typically invest at pre-seed or seed, so founders should still own ~80% and ~60% of the business after each of these rounds. Make sure there isn’t more than 5% of “dead equity” on the cap table. If a founder has already done a significant pivot prior to the seed round, early investors on the cap table can create too much drag.

The Cap table is effectively just a mathematical representation of ownership in the company. If too much of the ownership of the company is in the wrong hands at the early stage, this creates financing risk down the road.

You should really want to understand if it's a good investment opportunity because what's likely to happen is that investment dollars have come in to fund a business that has fundamentally changed big time and once you sell a decent amount of equity and if you're not building on what was already done, you're effectively changing the business. Sometimes it does not make sense to go forward with that investment.

Mistake #3: Investing when valuation is too high

Founders should typically sell 15 to 25% of the company at the pre-seed and seed stages.

If this math doesn’t work, it’s likely they aren’t raising enough, and/or the valuation is too high. Either of these issues can make it difficult for a founder to raise their next round of capital, which introduces additional risk.

Mistake #4: Investing in a founder who burns cash too quickly

The best investments are made with founders who can grow revenue quickly in a capital-efficient manner.

Look for right-sized teams, reasonable salaries, and an expected runway of 18+ months. Think critically before investing in companies that want to accelerate too quickly before they achieve PMF.

Mistake #5: You expect to be involved with the business

Angels are typically hands-off unless the founder asks for specific help. Introductions to customers are the number one way that angels can add real value.

Do NOT call the founder with questions.

Do NOT expect special information rights.

Do NOT get in the way.

Thanks for reading today!

What topics would you like us to cover next?

Reply to this email or ping me on Twitter to let me know.

Take care,

Justin