Angel Insights Blog

By: Marianne Hudson, ACA Executive Director

This post originally appeared on Forbes.com

Dave Berkus is one of the most successful angels I know.  He has made 108 investments in early-stage companies and has an IRR of 97 percent.  Dave is a special case – he is a top speaker, expert in corporate governance, and has a valuation methodology named after him – even so, are there insights smart angels can pick up from this Los Angeles-based investor?

What is it about Dave that makes him that good? More to the point--are there traits we can emulate from successful angels like him?

I recently asked some of the angel investors I most respect – board members of the Angel Capital Association - what they think are the characteristics of the best angels and also got ideas from Roland Schumann III of Sierra Angels.  These angels are successful as investors, with great financial returns and many of them educate other angels to build their success.

Their suggestions may surprise some people.  Sure, the traits include industry expertise and top of the line best investment practices.  But, personality and character traits like sense of humor and fun were mentioned the most often.

When I think about it, this makes sense.  Angels invest their own money and time – if they can’t have fun in the process, why do it at all?

How many of the 30 traits on this list of what makes an angel investor a good angel do you have?

Character

• High integrity and collegiality
• Avoids conflicts of interest and easily follows a code of conduct
• Sense of humor – even in tough times a sense of goodwill trumps everything
• Deep respect for both the entrepreneur and the entrepreneurial journey
• Pushes and challenges entrepreneurs with questions and suggestions, while not introducing an “across the table”, combative dynamic
• Willing to roll up their sleeves or pick up the phone to help the entrepreneur and other investors
• Patience – ability to see the long vision and share the world’s need for right timing
• Strong networker – keeps meeting people to build deal flow and investment partnerships
• Sees the fun of being an angel and enjoys working with entrepreneurs

Investment Process

• Good at reading people and understanding the risks and potential that the individuals and team dynamics bring to the mix
• Does thorough due diligence while making a decision in a timely fashion
• Reliably engages in referrals, screening, due diligence, coaching and board governance, in addition to writing checks
• Uses the due diligence process to help the entrepreneur better understand the competitive arena and market, identifying ways to become a market leader (even before funds are invested)
• Continually educates themselves on investment and sector trends and best practices
• Builds trust with other investors or organizations, leading to syndication and follow-on funding
• Has an investment strategy and understands how many checks they will write (and what size)
• Recognizes when to commit and when to walk away from a deal
• Knows when to get professional support in the deal, particularly working with legal counsel that understands equity financing
• Connects with other angels through angel groups, accredited platforms and/or events for deal flow and learning

Support

• Happy to help with the mundane (new accountant, space, HR platform) as well as the value add (second customer, VC for next round)
• Willing to take a risk on less experienced, but promising entrepreneurs
• Mentors CEOs and/or entrepreneurial team members to help them succeed
• Mentors other angels, taking new angels under their wing to learn best practices
• Serves on company Board of Directors, providing reports to other investors and useful ideas for the company
• Builds Board governance skills
• Coaches and judges entrepreneurs at demo day events and meetings in the startup ecosystem

Expertise

• Knows the sector space cold and can help the entrepreneur navigate straight to the top targets for customers, distributors and other partners
• Can help build a sales program and hire sales people with their eyes closed
• Experience as an entrepreneur, corporate profit and loss responsibility or professional in the startup ecosystem
• Understands where the local startup ecosystem is in its evolution and invests appropriately, never taking an eye off of ROI

Are there angels that have all of these traits? Perhaps, but more importantly the very best angel investors have an awful lot of them.  I know Dave Berkus exudes most of them.