The Purity Of Angel Investing

Though I have made a few angel investments here and there over the years, it has never been my primary approach to investing in startups. I joined a venture capital firm when I was 25 years old and have been working at a venture capital firm ever since. I grew up in the business of investing other people's money and that is how I have gone about investing in startups ever since.

Over the past five years, I have watched The Gotham Gal build a portfolio of angel investments. She has invested in almost fifty companies in the past five years and if you include things like restaurants and retail establishments, that number grows to closer to sixty five. She is investing our capital but these are her investments. 

As I watch her select her investments and then work with them, I am impressed with the purity of intent that comes with being an angel investor. She invests in people she has confidence in and she invests in businesses that make sense to her. When she engages with her investments, she is giving her advice.

Compare and contrast that with a venture capital firm. A venture capital firm is in business to make money for its investors. They must invest in things that they believe will make money and they must be able to rationalize and explain their investments and their investment strategy. A venture capital firm has multiple partners and its investment decisions are based on the consensus of those partners. The advice an entrepreneur gets post investment reflects the inputs of all of the partners of the firm, not just the partner managing the investment.

There are some great strengths that come from the venture capital firm approach. At USV we have benefited greatly from our work to develop an investment thesis and then evolve it over time and be rigorous in our application of it. We also benefit from the collective insights and intelligence of our partnership and broader investment team.

But the more people you put around a table, the harder it is to make really gutsy investments. And the more you stick to your disciplined investment strategy, the more you say no to people and projects you like personally.

When people ask me about the startup investments I am most impressed with, the Mike Markkula investment in Apple and the Andy Bechtolsheim investment in Google are the ones I always talk about. These were people who took out their own checkbook and backed some people with an idea they thought had merit. And they were rewarded handsomely for these investments. They took 100% of the risk and got 100% of the rewards.

Yesterday at lunch my daughter Emily asked what I plan to do when I retire in the next ten or fifteen years. I replied that "I plan to do what Mom does". It looks like a lot of fun and I think I might be pretty good at it. 


Comments (Archived):

  1. Brandon Burns

    “What mom does” sounds like less of a retirement and more like a full time job to me. At least if you do it with as much intensity as she appears to.

    1. fredwilson


  2. Adrian Bye

    yes, you may do ok as an angel investor πŸ™‚

  3. scott crawford

    Sounds like love

  4. Jan Schultink

    I think you can afford to “retire” from pleasing/impressing/delivering-returns-to institutional investors much earlier than 10-15 years from now :-). Maybe there is a future in impact investing, deploying your talent to achieve “returns” in markets that (venture) capitalism wouldn’t necessarily go after. I am guessing you will actually never retire.

  5. William Mougayar

    I’ve come to appreciate Angel investing even more and more. They take the greatest risk, don’t ask too many questions, and are very patient. They are true angels.It takes courage to invest as an angel investor.

    1. pointsnfigures

      Balls on the chopping block courage.

      1. William Mougayar

        You’re so graphical πŸ™‚

      2. Dave Pinsen

        Depends what % of your net worth is at stake, no? Losing 100% of a trivial amount to you isn’t a big deal.

        1. pointsnfigures

          I don’t find that to be the case. If you are a good angel, the steps leading up to investment are the same discipline each time. Any amount of loss stings, though you can weather some better than others.

      3. Donna Brewington White

        Hmm… can’t relate. πŸ˜‰

    2. Kasi Viswanathan Agilandam

      they are the fourth f … first you, friends, family and the fools.

      1. Cynthia Schames

        Absolutely disagree with this. Angels are no fools, though the good ones do rush in where others fear to tread.

        1. Kasi Viswanathan Agilandam

          That is not my statement… it is a standard statement in the funding circle …

          1. Cynthia Schames

            I know, and I hate it. I think it’s insulting to angels.

  6. Jason Crawford

    Interesting how the need to justify one’s decisions to others and the desire for consensus affects a decision-making process. Maybe VC investing : angel investing :: enterprise purchases : consumer purchases?

  7. Lucas Dailey

    I’m really happy to hear that. I think it will be wonderful for everyone involved.

  8. guest

    don’t see the purity bit.intent is to make a great return just like a VC. only difference is angels get to write their own tickets and aren’t beholden to others. philanthropy i see the purity, angel investing not so much

    1. WA

      Unmixed and undiluted with extraneous material…such as in the purpose of what is being done and the passion it is being done with. Sounds like purity actually. Perception…is reality.

      1. fredwilson

        yeah, that’s how i meant it

    2. JamesHRH

      You have a naive view of Big Time Philanthropy.You are hanging with the wrong angels, it would seem.

  9. Jeff Judge

    Hands down my favorite post that you’ve written. Best of luck to you and Joanne with your investments in 2014 and beyond!

    1. pointsnfigures

      she has a nice blog.

      1. LE

        Agree.I’ve always though she should change her “about” to say that she does angel investing even though it’s mentioned on the page elsewhere. I think it needs to be front and center. “Don’t make me think” as the saying goes.Says:Joanne Wilson loves food, books, and music.And that block of text needs to be much larger and include things that are in the first paragraph of the actual about page. I remember how impressed I was (not knowing Joanne) the first time I read that. All I knew was that she was Fred’s wife. And if you don’t click through you don’t come close to knowing all those things (which mean something to me in different ways). (Secondary meaning..)

        1. Donna Brewington White

          She also lists Josh as one of the bloggers in the family.

    2. ShanaC

      she’s one of the most interesting people I know to read about.

  10. Richard

    Do teens still think about retirement? I don’t think this word will exist in a few more generations.

    1. Drew Meyers

      I’m a bit older than a teen, but I don’t think I’ll ever really retire.

      1. JamesHRH

        I made a conscious decision not to retire, in the traditional sense, when I was about 30.i did not see a lot of people who were happily retired. Its a tough trick to pull off (although Fred is clearly on track to do a nice job of it).

    2. Matt Zagaja

      Not a teen but many people in my age bracket do not view retirement as something that will happen for them. Some of it is a dose of reality (i.e. they have large student debt load and can’t save for it) and other parts are a function of not thinking they will need to. Medical technology seems to be advancing to the point that people can perform work at older and older ages. My law school even admits students that are over 65 for free (provided they get good LSAT scores like everyone else). Some of the professors are in their 90s.

  11. markslater

    i think you would be excellent at it.How would you handle your clear desire to be the lead – a position it seems you always seek in your venture career.Angels often take back seats to institutions as a company grows…..this might be a challenge for you as you a clearly one of the best out there at leading…..

  12. JimHirshfield

    Please don’t retire without mentoring dozens more VCs that look at the startup world the way you do.

    1. Donna Brewington White

      He may be able to mentor even more after transitioning. (I refuse to call it retiring.)

      1. ShanaC

        We should possibly get rid of retirement, if only the corporate world was way more flexible.

  13. Pete Griffiths

    I read a piece a year or so ago about angel investing which concluded (after detailed research) that on average it produced superior returns to VC investing – provided that the portfolio is large enough.

    1. LE

      “on average it produced superior returns”Just a guess that the VC investing scales much better than angel investing by the nature of how it’s done, leverage etc.I can make a ton of money buying and selling domain names. I could easily beat any return that you could make doing either angel or vc investing.But there is no easy way to scale that to produce really large numbers overall although the “returns” are off the charts.

      1. Pete Griffiths

        Valid points.Now excuse me. I have to get back to buying and selling domain names.:)

    2. ShanaC

      I wonder how much of this is due to venture capital math.

      1. Pete Griffiths

        What do you mean?

  14. JimHirshfield

    Odd thing in the way you said this is… I’m guessing the Gotham Gal doesn’t consider herself retired. From her writings, sounds like hard, yet rewarding, work.

    1. JamesHRH

      Retired now means working for your own enjoyment.I think Western society has finally realized that a lack of work isn’t heaven, its hell.BTW, b4 people jump in: work without purpose is drudgery, as my Grandma Martin used to say.

      1. JimHirshfield


      2. Leonardo Gjoni

        Beautifully said.

      3. Dave Pinsen

        “Western society” overstates the case. Wealthy Americans enjoy work that lets them ‘self-actualize’. People who have bosses and get paid to do things they don’t enjoy (the majority of workers) often have different views on work. Jobs that have “purpose” can still be drudgery.

        1. JamesHRH

          McJobs, jobs with no purpose, are certain to be drudgery. IF you have a purpose to take a McJob, it has a chance to not be drudgery.The point is to have a purpose and work.

          1. Dave Pinsen

            A hospital orderly is a job with a purpose. It’s still drudgery. Most jobs are. By definition, employers pay people to do stuff they wouldn’t do if they weren’t getting paid for it.

          2. JamesHRH

            Are you saying that there would be no nurses if there was a guaranteed basic income?I think people jobs are structured to have good things and bad things.We are arguing semantics. I have done boring repetitious work (drudgery) but b/c I had a clear purpose, it did not feel that way. That’s what I mean.

          3. Dave Pinsen

            I am not arguing semantics. The difference between writing checks to supplicants who impress you with their business plans and cleaning patients after they’ve projectile vomited on themselves is not one of semantics. Nursing is meaningful, important work, but few would do it for non-relatives if they weren’t getting paid to do so.

          4. Donna Brewington White

            There are parts of my work that I do not enjoy but I still say that I love my work. Because I love what it accomplishes. I do think goal orientation can be a factor in work enjoyment. I admire those people who enjoy the ability to care for their families and derive satisfaction from their work based on this. Attitude has so much to do with it. Anyway, well said, James.

          5. panterosa,

            @daveinhackensack:disqus I am always a fan of your comments – dry, and quickly to the point.You are right in your assertion of drudgery of some jobs. Yet there is great under-matching of people to jobs in the great out there. In fact, there are many people who can be aligned well to jobs which appear unappealing, if only the right person stepped in for the work or was profiled for it to start.Call me stupid, but many people, for whom order and repetition are a very relaxing and rewarding task, are missing out, and so on for other jobs. We don’t tap those matches well. Poor us. Once upon a time there was the Ford factory and the Johnson O’Connor tests as an example.@Donnawhite want to chime in here? You are the matchmaker.

          6. Donna Brewington White

            I just happened upon this comment. I am not an expert on this but I definitely think there is something to what you are saying. Match is a critical factor and there are a number of variables that contribute. And match changes. This is a big topic that for me even has spiritual and philosophical implications. I’m holding back. Partly because I have work to do. Some matching to do, actually. πŸ˜‰

          7. panterosa,

            It’s a great thought piece, and you are well suited to talk about how match changes. Maybe you’ll dive into this in a blog post in 2014!

      4. leapy

        Agreed. I have seen too many people of my father’s generation die within two years of (old-fashioned) retirement.I hope never to retire in that sense. “working for my own enjoyment” sounds like a perfect definition of what I hope for;

      5. Matt Zagaja

        We all want the privilege of being paid to do what we love.

      6. ShanaC

        How many people get to experience this. If you max out on 60k at a job retirement is a confusion

        1. JamesHRH

          I do not know if the percentages are up or down, from say, 30 years ago (my guess is up a little).The point is merely that the retirement ‘dream’ – sitting on your butt doing nothing – has come true for enough people that more people are no longer dreaming that dream.

  15. Hugo Mendes Domingos

    Seen from this perspective, the angel investor almost looks like a king or queen, with the entrepreneurs being the court. The ruler trusts her courtiers and invests in them.

  16. JamesHRH

    MIGHT BE? OMG!You will have 1000 angel investments in 10 years and they will produce 10 unicorns.I bet $1000 with anyone who thinks otherwise.

    1. pointsnfigures

      I doubt he would make 1000 investments. I might be wrong, but that’s a lot to manage.

      1. LE

        Taking money from someone who has given money to 1000 other people (or even 200 for that matter) seems to be just getting money. That’s fine of course.One of the main reasons to hook up with an angel (for many people) is to gain their experience, mentoring, referrals and contacts. If the angel is so busy that they can’t return emails it certainly has much less value.As an aside I know (and helped) a person who was on Shark Tank two times.In the first case their investor was Kevin Harrington. They told me they didn’t get any emails from him for 3 months after the show (or something like that). They ended up signing the final contract and everything worked out (and they have made a ton of money and now that the show was picked up in reruns on CNBC they will do more business every time their episode airs as well). In the second case the investor was Robert Herjavic. He sent a ridiculously long multi page contract (may have been 100 pages even idr exactly..). They rejected the contract and went w/o the investment (which is bad in the sense that you lose the follow up that is done on Shark Tank which is great additional advertising).I suspect that the contract was done that way so Herjavic could back out of the deal (my speculation not what my friend said).

        1. JamesHRH

          I know someone who was on the first season of the CDN edition of Sharks.She left, I believe – she would never say anything obv. – b/c the other Sharks are not real investors. They are celebrities.

          1. LE

            One of the hardest things in business is getting someone to listen to what you have to say.This is in essence the value of contacts. And celebrity.When you are referred to someone they will at least listen to an idea that you have. Your association with an known person will get you attention that you won’t get w/o that association. Attention, that while not insurmountable in other ways, can make or break someone. And of course shows social proof which is important for getting either buyers or other investors to jump on board.To me it’s crystal clear.Anyway the value of that is not the same as any value that an ordinary investor has who isn’t a celebrity in some way.So the celebrity investor is someone who can give a short cut along the lines of “fake it until you make it”. And get people to take notice and ask questions. Puts you on the radar. You are separate from the herd.In that sense it’s like comparing two things that can help a business succeed that are totally different. And either can lead to the promised land.As far as the person that you know that left shark tank (if I understand what you are saying) because “sharks are not real investors” not passing judgement but being on national tv is not about investing.Do you really think Mark Cuban is looking to make small amounts of money in the way he is investing and/or feel good about helping the little guy?I don’t care what he says publicly it’s not about that. Of course he might run across some idea that could be a hit but he needs to invest in low chance ideas just to stay on the show. That’s a cost of doing business as a celebrity. Like a loss leader.So being an “investor” on Shark Tank.[2] It’s about gaining additional celebrity that can help you in other ways. (Maybe just your ego “smoke up the..” or maybe close other deals). [1] Assuming of course you want what that celebrity can buy. (Ok if you don’t. I’d have a hard time not being anonymous but I would probably take any celebrity if offered).[1] Most people don’t care about the other Sharks as much as they do now that they are on TV. Just like people care about Donald Trump way more than whatever he has achieved in business because of the way he has become a celebrity. (Or prior to that the way he mastered publicity). Or Jim Cramer. There are tons of guys who nobody knows who have made way more money than Cramer has back before he quit his firm.[2] I’m always amazed at the people who turn down Shark Tank deals. With few exceptions I think it shows poor business judgement to turn down (if you are a nobody going nowhere) an association that can get you national coverage and make you a known entity even when giving up equity. Even if you are going on Shark Tank just for the publicity and think you already have it made. The spanx lady would have always been successful with her idea but her association with Oprah launched her to much greater success.

      2. Kasi Viswanathan Agilandam

        You are being practical and he is on Christmas and new year celebration high .. πŸ™‚

      3. JamesHRH

        I am 1/3 kidding.I think that Fred is more disciplined by the discipline of VC life than most – he has wide scope & ridiculous DEW Line capabilities.If he set aside $10M to do this from age 55 to age 75, that would be 1000 x $100,000 over 240 months…..OK, 1 a week is a pretty good clip…..but if anybody COULD do it…….

  17. pointsnfigures

    I think you’d be great at it. I enjoy angel investing. Essentially, I have done it my whole life. The first one I made was on myself. I traded my own money and never had a customer, never brokered. It was me against the world. I bought seats at the CME (took equity risk), then ran for and was elected by my peers to the Board(rolled up my sleeves), and helped transform the exchange. We IPO’ed at $35, and hit a high of $714. In 2007, I co-founded in Chicago to alleviate a hole in startup financing we had here. I have made 19 angel investments of different sizes. There are checks I wrote early that I would have never written today after learning. Of the 19 companies, 2 exited, 6 failed, 6 raising next round capital at much higher valuations, and the rest so new it doesn’t matter.When I met your wife, she said something I quote in my slide deck, “It’s all about the rolodex.”. It’s about the network-and you have a tremendous one. I am not sure that what USV does at early stages isn’t a heckuva lot different than superior angels.Successful angel investing (as you certainly know and do by example) is all about bringing value more than money to the table. Sometimes you have to roll up your sleeves and get really involved. You have to create customers for your companies, and create opportunities. If you are just a check writer, you are better off in a fund.Funny thing is, now that I want to raise an early stage VC fund, I am being told that I don’t have any experience or the necessary qualities. If anyone wants to help, I am looking for introductions to fund of fund managers.

    1. Leonardo Gjoni

      I love it when someone says you can’t do something or you’re not capable of it because of whatever reasons. It gives you a reason to work 100x harder and prove every weak minded person wrong.I wonder if Elon Musk had the necessary experience or qualities when he started his companies that will revolutionize the the world.

      1. pointsnfigures

        The problem you run into when you want to raise a fund is network. You can rapidly run out of network. With a business, you can continue to operate the business and try and get traction. I had a friend that had a startup. He started looking for investors, and it didn’t feel right to him, then backed off. he got traction, didn’t need investors and was off to the races.

        1. Leonardo Gjoni

          I agree with you. I’m working on my own start up and I’ve had a few meetings with some Angels that offered money but I didn’t feel they brought anything else besides money. I was wasting so much time looking for introductions to investors that I could have better spent that time working on my start up. I now like the thought of me against the world, because I’m putting all my blood sweat and tears into something I’m passionate about and I plan to go at it by myself and attract investors with traction.Good luck on your seed fund, I’m sure you’ll make it come true if you want it bad enough.

        2. leigh

          I’ve done the money search for a tech start-up in the past — hated the entire process of it. My new business is completely self-funded originally and now through client work. It’s taken us two years to be stable enough to concentrate on our technology platform but screw it. We own 100% of ourselves and have the freedom that brings.I always joke to our staff (who are now 21) that our biggest angel investor was Coca-Cola πŸ™‚

          1. ShanaC

            I wonder what coke would think of that πŸ™‚

          2. leigh

            Well, tongue firmly planted in cheek bc ultimately, what we do with the profits of our company is our prerogative (and it comes from all our clients :).Many people give themselves huge salaries, we don’t do that. Rather, we reinvest in the company building something that will be useful to our own long term growth but will also benefit all those clients in the short term as well.I see it as a win win. πŸ™‚

      2. LE

        I got the idea to start my first business after interviewing out of college with a family friend in an industry that he had been around for perhaps 25 years at the time. He said “You’re smart but I can’t hire you because you don’t know this business”. So I decided to go into it (after spending a day seeing what he had done and asking his manager +-100 questions). When I opened up he said “you won’t do well here there are no tall office buildings in this neighborhood” (which was conventional wisdom for this type of business). But it worked out for me. I sold the business 9 years later (and made enough that I didn’t have to work) and it’s still operating to this day.Now of course you are expecting me to say how he was wrong and I was right.But he was right I was just an outlier and made it work. And found ways to end up with something even when I lacked the experience and had the wrong location.But that’s not typical and when someone tells you that you can’t do something they aren’t talking about potential outliers. They are talking about average and normally. I was also told that I wasn’t Wharton material by a high school teacher (who had went to Penn) but I managed to get in and made Deans list. Once again they weren’t wrong either they were right based on what they knew about the typical student or what was needed to get into that school. I didn’t even come close to having the SAT’s or high school grades that were necessary.This is all overcoming adversity which is much easier if you are always overcoming adversity and take nothing for granted and work all the time.

    2. Eddie Wharton

      I agree that starting a company is quite like an angel investment with a very large exposure for the founder. However, there is no information asymmetry.I’ve heard good things about Hydeparkangels. Good luck raising your VC fund!

      1. pointsnfigures

        Thanks. We aren’t perfect. We try hard. One of the challenges we have is growth. We went from founders, to hiring a managing director, to around 20, to 120 pretty quickly. I helped ND set up their group and they are doing it slightly different-which is totally cool. I believe angel groups ought to take on a personality and culture to be successful.

    3. Kasi Viswanathan Agilandam

      Absolutely …. the first angel is the entrepreneur … next comes the angel-investor.It is always great feeling to be an angel….

    4. ShanaC

      There is a woman who sometimes posts here that is eminently qualified to help. Danya I think – email me πŸ™‚

  18. Elia Freedman

    I am here doing what I am doing because, when I was in college, I went to show a business plan to a college professor who laughed at my plan and then offered me $10,000 to get started. His faith and confidence in me has never been forgotten. I hope to turn the favor some day myself.

    1. LE

      Explain the laughed and then gave you money part. What did they laugh at and why did they then give you money?

      1. Elia Freedman

        He thought my financial numbers were insane — which they were but then every start-ups financials are insane. He offered me money because he believed in me and thought I could use a boost to get it off the ground. Yes, he didn’t believe it would hit the numbers I projected, which it didn’t, but he did feel it could be a viable business.He was/is an angel in truest sense. He wanted nothing in return.

        1. LE

          “He wanted nothing in return”Are you saying he gifted you $10,000?To me when you say “he wanted nothing in return” that’s what that means to me.Not to mention that to your average college professor (stress: average) 10k is not a trivial amount, right?

          1. Elia Freedman

            He was adjunct after a very successful military and managerial career, including very smart stock market investing.

    2. William Mougayar

      What a great story Elia. Heart warming. I recently saw a stat somewhere: 70% of successful entrepreneurs did not have a business plan when they started.

      1. panterosa,

        So curious, where did you see that? So much is derived from that idea around this post.

          1. panterosa,

            Thanks @wmoug:disqus I will look into this.

          2. Sean Hull

            Great talk, thx.

      2. Elia Freedman

        Thanks. I actually wrote a plan but it read more like an academic paper (I was in college) and then had ridiculously high financial numbers that really made little sense.

      3. ShanaC

        I’m not surprised – many companies start out as passion projects

        1. William Mougayar


    3. ShanaC

      you’re probably sooner to there than you think. For many in the tech industry – the qualified investor thing is a very low threshold

      1. Elia Freedman

        Yes, true, although being qualified and having the financial wherewithal are two very different things.

  19. reece

    we wouldn’t be anywhere without the angels who took bets on uslooking forward to you joining their ranks, Fred

  20. Bora Celik

    As a founder who recently closed an angel round, I must say I love angel investors. Our business is considered risky, and many have failed in our industry. So, understandably, lots of VCs decide to “root from the sidelines”.We ended up meeting numerous wonderful angels who have a passion for what we’re doing and made quick decisions (sometimes in 15 minutes) based on team, product, vision and wired the funds as early as the next day. This type of behavior is invaluable to us as entrepreneurs, as we really need to spend time with our product in the early days instead of going on investor tours across the country.I absolutely love our angels for the faith they put in us and we’ll work very hard to make sure they are rewarded for the risk they took.

    1. falicon

      Finding investors (on any level) who have a passion for what you’re doing is the *real* secret. Awesome start – sounds like you’ve got a great story developing!

    1. fredwilson

      i remember that post. its such a great list/advice. joanne does most of those things. she is the quickest yes and no i’ve ever seen. she literally commits or passes in the meeting. it scares me sometimes but i also respect it very much.

      1. bfeld

        That’s the way I do it on the angel front. Game time decision.

      2. falicon

        This is one of the things I respect most about her as an Angel investor though…in the hunt for funding, the second best thing you can get is a quick, quality, no thanks.

      3. leigh

        And the best part is, you’ll have someone who is great at it already to give you her advice as you, you know, ease yourself into it πŸ˜‰ πŸ˜‰

  21. Nick Ambrose

    Excellent article. If I had the resources (and experience) then Angel investing would be top of my list too. As it stands, I am limited to a few small investments on Angel List.It’s not much but I feel even a little bit is still worthwhile

  22. matthughes

    That’s encouraging.It’s good to know how at least some angel investors view the ideas they are supporting.

  23. Richard

    Retirement ends at 21

    1. Kasi Viswanathan Agilandam

      I thought it is 12 now -)

  24. Kasi Viswanathan Agilandam

    Is it not the same way VC world also works? They (investors) invested in you like angel investors do … ??Are not the investors of USV are angel investors when you began your travel as a VC firm called USV? Things might have changed whence you have a proven record …that is the hard part of winning … you have to keep winning with higher %

  25. thomasknoll

    It seems to be getting harder and harder to find the kind of angel you describe these days. Many seem to be more likely to act like a VC and put money down on existing traction, than to make high-risk early bets on people+opportunity+competitive advantage. I’d love to hear who else you look to as a role model for your future life.

  26. jason wright

    who coined the word ‘angel’ for this type of investing?

    1. John Fazzolari

      A quick search seems to show that it was coined during a 1978 study of non-traditional VCs by William Wetzel, a professor at the University of New Hampshire. I believe he may have written extensively on this subject that includes a piece in the Sloan Management Review from 1983 titled, “Angels and Informal Risk Capital”.

  27. John Fazzolari

    Angel investors can really provide so much more than just a rolodex and capital. They can help with hiring non-founder employees, further product development, marketing the initial product to early adopters and follow on VC funding- if necessary of course. These are the things that really get an early stage startup off the ground. Stole that from this 2010 Chris Dixon post on the segmentation of the venture industry:…. As this segmentation continues few investors have the experience to provide this unique combination of money + guidance entrepreneurs are looking for in an angel. Fred would certainly be one of the few.

  28. jason wright

    purity does sound rather angelic :-)i like ‘singularity’.

  29. John Fazzolari

    Chris Dixon wrote a post in 2010 titled: The Segmentation of the Venture Industry that gives a great description of what angels can provide, besides a rolodex and money. I’ve been trying to post a link to it but disqus isn’t letting me for some reason. Regardless, he states that angels can provide guidance on hiring non-founder employees, further product development, marketing the initial product to early adopters and raising follow on VC funding- if necessary of course. As the VC industry continues to mature and this segmentation evolves I think that more entrepreneurs are beginning to realize how important it is to get funding from angels that are “on-brand” with their business + mission.

  30. falicon

    I’ve thought about doing some Angel investing over the past few years as well…because it sure does look like fun (and done right I think it can be both extremely helpful to changing the world AND financially rewarding).I have yet to bite the bullet and actually do any deals (primarily because I need and choose to focus on my own efforts mostly)…but I do keep it in the back of my head as a nice and fun way to ‘retire’ down the road (I would likely work the angle of putting in money AND tech help to get *really* early stage things I believe in off the ground)…some day…some day. πŸ™‚

    1. Donna Brewington White

      What a great combination!

    2. Mark Essel

      50/50 or 25k cash 25k in sweat (250-500hrs of dev) investment 4-8 per year? Similar (long term) thoughts but currently $AAPL is my only investment. Instead of going with a pure index spread as I get older, I’d like to see a healthy chunk of savings go towards personal picks.So far from what I’ve read a steady amount of 50k bets with an option to double down sounds like a discipline that can work. That works out to $2 million for 20 investments. To make that level of investments, I’d like to have a net of $5 million+. Without any large deltas in income, I won’t be there for a while yet.

      1. falicon

        First – happy new year!Second – yeah I haven’t put too much thought into yet, but my initial idea would be that it would be in the 25-50k range per deal…and the level/involvement of tech would completely depend on the company needs (could be actually coding up a v1 or could just be helping on a tech. advisor level to interview and/or bounce tech. issues/challenges off of)…ultimately I think it would really be a ‘per deal’ kind of thing to figure out.I agree that in the investing world I would probably want to spread it out across a handful of companies (vs. dumping it all into my own like I am now)…but I would also prob. start pretty slow and only do a deal or two in the first years as I learn (he says he wen too slow, but I like how Gabriel from did it)

  31. JLM

    .The professionalism of angel investing and the access to a well thought out investment process have elevated “angel investing” to an art form. It is no longer a crap shoot.The fact that GG has had an opportunity to watch you through the years has provided a wealth of process information. The fact that she is betting on the guy in the silks — the jockey — is a refinement that has always been there.As a woman, she has a huge advantage — the emotionally informed set of instincts that only a Mom can possess. She can feel the success beneath the exterior. She has Mom spider sense. All Moms do.Perhaps if you behave yourself, GG will take you on as a junior partner and teach you the business one day. I can see that.Not to big head you — you (like many folks in this salon of extraordinary folks which is Freddie’s Joint) would be good at anything you set your sights on. Even brain surgery.Happy New Year to all — 2014 is going to be YOUR year. I promise that. PERIOD.JLM.

    1. JamesHRH

      Junior partner……love it.I hope heaven becomes a little more like TX in 2014.All the best.

    2. Donna Brewington White

      When I read this comment I couldn’t help wondering whether someone might perceive this as sexist. But I must admit that sometimes my passion for startups does seem somehow connected to my maternal instincts. This is making even more sense to me as I am now parenting a young adult which adds a whole new dimension to the experience. I am no longer his CEO and yet I still foot the bill. I feel like an investor.

      1. JLM

        .Women are simply better mistresses and stewards of the emotional intelligence that is “instinct”.Not to make an excuse for men but it might be arguable that men have had it trained out of them. Too much reliance on data perhaps. Too much head, not enough heart.Maternal instincts are a super power and should be revered and husbanded as such.As to our beloved children, they are the best of each of us with their potential and reality much greater than our own.Investor? Perhaps.Bank? Hell yes.Merry Christmas and Happy New Year.JLM.

        1. sigmaalgebra

          Mothers have to keep baby happy and, thus, knowwhen baby is not happy. That requires that Mombe able to read baby’s emotions and communicateback to baby. Such communications can’t usereason, rationality, rules, regulations, data, etc.So, Mom knows how to communicate with babywith emotions, facial expressions, physical touching(contact comfort), etc. Nearly all baby mammalsvery much want to be next to Mommy (contactcomfort) or at least their litter mates, and mommieswant their babies close. Yes, women are mammals!Baby mammals that didn’t want to be next toMommy, on average, didn’t have many descendentsso that what was left for the gene pool was babymammals that very much did want to be next toMommy.From the crib, girls pay attention to people,especially emotions, their own and those ofothers, and communications via emotions,facial expressions, tone of voice, etc. From thecrib boys pay attention to things. Working withemotions is not effective when working with things.Men do have emotions: E.g., every 4 yearold daughter who has wrapped her father around her little finger and learned how to usefacial expressions and a tear now and thento make sure he never says no to her understandshis emotions even if he does not.Emotions get in the way of ‘men’s work’ withthings, building, fighting, rational thinking,strategy, etc. So, men are taught to ignoreemotions.Now in our present society, “Of course, womenare much more emotional then men; that is thecause of all the problems between men andwomen.”.Draft of part of my ‘Girls 101 for Dummies — Boys’!

        2. ShanaC

          I think you need to talk to my Boyfriend before committing to that – he’s my emotional intelligence steward….

  32. Cynthia Schames

    This is pretty damn awesome news for startups.

  33. droren

    How she measure ROI on these investments? Would you/she invest in the same number of companies in case of limited pile of cash ?

    1. fredwilson

      We have a Google spreadsheet to track them all

  34. Scott Barnett

    This is why I’m so bullish on AngelList… a “purer” source of seed capital than VC’s for sure. Would love to see you setup a syndicate like @bfeld has done so we can get feedback from 2 great people….

    1. pointsnfigures

      Syndicates only work if you are a name investor. Fred could do it, I can’t. Very Bayesian in probability. I have three companies I know of that could use the backing of a good syndicate……

      1. Scott Barnett

        I won’t argue with you, although I’m not sure why that needs to be the case. Do you (or anybody) know how many syndicates are setup on AngelList at this point? I’m not saying that AngelList makes it easier for all startups to get funded, I just think the worthy startups can get money quicker/easier and with more hands-on (and agenda free) mentors this way – which will lead to better outcomes. I would also think that if you are an added-value and hands on angel, you *could* do it.

      2. ShanaC

        Which basically makes name investors vcs

  35. sigmaalgebra

    Suspicions confirmed! Or, what are the root causesof the low VC ROI reported in’Venture Capital Returns’right, at…Angel investing seems able to avoid the root causesand do better. So, let’s look at a big example ofgood investing, another example of good investing,and the root causes of the low VC ROITo me for the past 70+ years, the crown jewels ofgood investing are for US national security, inparticular, by the US DoD and, later, the NSF andlikely by now the NIH. The practical ‘returns’ areeasiest to see from the DoD investments.E.g., at times I’d wondered what would happen if aWWII military met the US military, and in Gulf War Iwas saw: Some bombing, let the ground forces loose,in 100 hours, victory, and all along more USinjuries from R&R, e.g., softball games, than fromenemy action.E.g., someone asked General Schwartzkopf whathappened to those hundreds of thousands of Iraqisoldiers waiting in the desert to attack US groundforces, and Schwartzkopf’s answer was, “They arestill there.”.Praise from an adversary is especially welcome: Inone of the Gulf Wars, there was an Iraqi tank hiddentightly between two buildings; a well aimed USrocket destroyed the tank without hitting either ofthe buildings; and an Iraqi officer was quoted assaying “US military technology is beyond belief.”.He was correct.The main roots of Silicon Valley, including, viaDean Terman, the interests in information technologyat Stanford, were just in US aerospace, i.e., the USDoD and NASA — think microwave, radar, transistors,and integrated circuits, coding theory, etc.As I recall, the Berkeley Software Distribution(BSD), right, with Unix with a little thing calledTCP/IP, was from a group at UC Berkeley funded inpart by the US DoE, which is essentially for USnational security. Now, TCP/IP, let’s see, doesthat amount to anything practical? Hmm …!And Unix? Right, from Bell Labs, in like fingers ina glove with US national security.The top US research universities? Yup, again, withmaybe 60% of their budgets from research grants toSTEM fields mostly for US national security andotherwise for a hope for older Members of Congressto live a little longer! Such research, even withall of its blue sky, far out, ivory tower,make-work, junk-think, busy-work, prof-scam, is byfar the most valuable activity in all ofcivilization. Drain out the bathwater and what’sleft makes Fort Knox look like chump change.But here we have”they [venture firms] must be able to rationalizeand explain their investments and their investmentstrategy.”and”develop an investment thesis and then evolve itover time and be rigorous in our application of it.”From these two, looks like trying to work by lookingat patterns in tea leaves with shoulder to thewheel, ear to the ground, and nose to the grindstoneand nothing like how investing for US nationalsecurity works.Sure, I can guess: The limited partners with theirfiduciary responsibilities and MBA degrees want tohold to the fire the feet of the VC firms so insiston severe discipline. I’ve taught MBA students, andI wouldn’t trust them to pick a good recipe for alemonade stand; with a few more MBAs in the US DoD,Saddam might have won Gulf War I.To me, there are some “themes” and ‘patterns’, butcan see those most clearly in the history ofresearch in the STEM fields. For entrepreneurship,the themes and patterns are more like what would seefrom 1000 people puffing away at a swimming poolfull of WonderBubble, like trying to look for’trends’ in a sample path of Brownian motion (hint:there aren’t any; in fact, Brownian motion is amartingale and a Markov process).What US national security does is essentially (1)see a big problem where the first good or a muchbetter solution will knock the socks off everythingelse and (2) work to get such a solution via leadingedge work in the STEM fields. But for a ‘pattern’or a ‘theme’, looking at stealth, atomic energy,GPS, predator/pray differential games ofanti-aircraft missiles, night vision, spreadspectrum, shift register sequences, computationalfluid dynamics (Navier-Stokes equations), turbo-ramjet engines, control of unstable airplanes, flyingwings, passive sonar, satellite reconnaissance,laser guided munitions, composite airframes,microprocessors, sniper rifles with computertargeting that considers everything including theCoriolis effects, etc., tough to see a ‘pattern’.Instead, each is some leading edge work in the STEMfields to solve an important problem and knock thesocks off anything the other guys have.So, what’s it going to be the next big fighter planefight, dozen F-22s scoring 50 to 0 against the bestof the rest of the world?But after teaching some MBA students, I can’t expectthe MBAs at the limited partners (LPs) to understandsuch things, in spite of the overwhelming examplesfrom US national security for 70+ years. Instead,the MBAs at the LPs seem to want simplistic,empirical patterns that they can get from ‘fitting’to past data; that approach is not promising andfrom the ROI has not been working well. Indeed,what the LPs want want are necessarily exceptionalprojects nearly impossible to predict fromempirical patterns.The US DoD did see a ‘pattern’: My undergraduateschool had a really good math department (when Iarrived at math grad school, I was quite ahead inone course and ready for the final exam in the othertwo) but a good physics department. The physicsdepartment was good in part because the USAF wrotethe department a research contract that read “Tofurther the technology of the infrared”. Smart USAFthat’s done wonders with IR. I.e., did I mentionnight vision? I left out seeing Saddam’s tanks thatat night were still hot from the daylight desert sun– plink, one less tank.Currently in commercial technology there are a few,good empirical patterns: Moore’s law, the Internet,powerful infrastructure software, fast, cheapstorage, mobile devices, a lot of Internet content,but nearly everyone knows about these patterns sothat successful projects will need more, and now weare without good, empirical patterns. Sorry LPs.You might have majored in a STEM field instead of,say history? Uh, your history course, did it dowell covering the history of the STEM fields andtheir applications to national security and theeconomy?A thing about the Bechtolsheim investment, as Iheard the story, he was in a hurry and wrote a checkfor $100,000. So, no committee, themes, or LPs toplease. Instead, Bechtolsheim had been aroundSilicon Valley long enough to recognize a good thingwhen he saw it.Investment by committee? Maybe that will be thefirst time a committee did something good, but I’mnot holding my breath.Committees, rules, patterns, themes, fads, all forCYA, right? One would guess that US nationalsecurity would fall for such CYA nonsense, but tothe great credit of the US DoD, heavily they don’t.Thank you. Thank you. Thank you. Looks like abunch of smart patriots instead of some MBA, CYA,herd forming paper pushers. As we heard in’Jurassic Park’, “They do form herds!”.Since I recently read that the Twitter market capwill be about $40 billion, some things in ventureinvesting and USV investing is brilliant,perceptive, prescient stuff. Congratulations. So,if USV has 20% of Twitter and gets 20% of the gains,then, let’s see,0.20 * 0.20 * 40 * 10**9 = 1,600,000,000or $1.6 billion essentially free and clear for USV?No wonder Fred took a nice holiday vacation!Yes, Twitter is an example of “a large network ofengaged users”, i.e., a huge network effect. Butthe ‘theme’ I see there is some exceptionally goodintuitive insight into human social behavior.

  36. Nick Grossman

    Do you feel like it was easier to make gutsy calls back when USV was just you and Brad?

    1. Eddie Wharton

      Extrapolating, I wonder how strong the correlation is between the size of investment teams and the “gutsy-ness” of their calls (hard to quantify). I also wonder if there is a relationship, more generally, between the size of investment teams (with decision making power) and returns or other performance measures of investors.

    2. fredwilson

      No. We have made some this year like the one Brad just closed. But I also know that we have to work harder to be open to those kinds of investments

  37. William Mougayar

    It seems the Russians have caught the bug too:Russian angel investment grew 4x in 2013…Angel investing is like the “source” for startups. A greater availability of it means more startup experiments that have a chance to make it!

  38. panterosa,

    So curious on the “math” for this in your mind @fredwilson:disqus Heart + Gut = Angel VS Brain + Gut = VC ?Or you have a better synopsis….I have seen GG in action with a business proposition, and her efficiency and directness. She gets it and likes it, she’s in. If not, then it’s “next”! to move at speed of her choice. She knows herself, and her interests and so that makes a lot of sense. Good for her to be that self aware, and with many opportunities. Great job as you say.

  39. Mark Essel

    How does GG evaluate potential investments and how do they find each other? Is there a marketplace for angels and businesses? Mostly curious, as angel investing has intrigued me for some time but I’m not sure when or if there is a good time to begin angel checkin her blog now for relevant tags…ahh also just caught Brad’s helpful guide…mobile browsing in the wee hours of the morning isn’t quite as smooth as a larger screen but it lets me stay in bed till 5:30 πŸ˜€

    1. Cynthia Schames

      @VictusFate:disqus “Is there a marketplace for angels and businesses?” Well, there’s Angellist. There’s also SeedInvest: a newer one that greatly streamlines the process by heavily vetting startups before they can go live on the site, and then letting you complete your actual docs online as well.

  40. Christina Cacioppo

    Looking forward, someday, to 27th Meridian Investments!

    1. fredwilson

      That is there for the taking but it needs to be someone in their 30s

  41. Donna Brewington White

    If AVC changes to AAI I will still continue reading.And that’s not retiring, Fred. No more than GG is strictly a homemaker with a little hobby on the side.

  42. george

    Blessed are those who give and help others! Investing is investing…no matter how you segment it.

  43. Semil Shah

    This is a great post packed with important stuff. I waited a day to comment because I wanted to digest it and find the nuance. Here are my takeaways:1 – As told to me by a successful angel-turned-VC, angel investing is amateur baseball, and VC is professional, the big leagues. That’s not to diminish how hard angel investing is, but investing other’s peoples’ money (and more of it) carries with it far many more responsibilities.2 – A small group of people with the right experience and temperament may indeed make better decisions than an individual (the wisdom of small crowds), but a larger group is more likely to devolve into groupthink or other bad patterns. Of course, as VC funds got bigger, they wanted to have more partners, and well, the rest is history.3 – It’s not discussed often, but true or pure angels are fewer and fewer these days. Much of this activity has professionalized. Some angels want traction, or are actively thinking about return or exit profiles. I can’t imagine the angels in Apple or Google were thinking about that.

    1. JamesHRH

      Semil – I think they both knew that the potential was gigantic. It was a donut shop outcome.

  44. CJ

    I’m shocked that you plan to retire! But when I see what you plan to do, it’s not a retirement, but more an evolution. Kudos.

  45. ceonyc

    Life is good in the land of the one vote fund when you’re backing people… My best performing company in BBV is a founder and an idea, no sketches, no code. It’s as close to angel investing as I can afford right now, so I’ll +1 that idea.

  46. Conrad Ross Schulman

    It’s a lot easier to make the right decision when it’s someone else’s investment because you have a full picture view and aren’t directly attached emotionally/financially. my question is- how will you keep the emotion out of it when your an angel and solo?

    1. fredwilson

      i actually think the opposite is true. that’s the whole point of this post

      1. Conrad Ross Schulman

        ehhh..i like you better when your nicer!

        1. fredwilson

          sometimes i am crankysometimes i am nicejust like i am in the real world

  47. pointsnfigures

    not necessarily true. Money doesn’t grow on trees, and no one likes to lose money. Angels invest because they love the entrepreneur, like the business and think they can add value to get a big return. Courage comes when the business begins operating and everything goes wrong.

  48. William Mougayar

    True they can afford to lose the money investment on a deal by deal basis, but the whole portfolio of investments is expected to generate returns.Each investment decision takes some bravery in judgement. That’s the main thing I was trying to say.

  49. bfeld

    Lots of posts coming. We’ve closed two investments and are working on the third.

  50. Guest

  51. pointsnfigures

    bravery might be the wrong word. taking a calculated risk that others think is crazy might be right.