ACA Forbes Column - Insights on Smart Angel Investing

For many angel investors, enabling change to make a positive impact for humankind is a driving force behind investment decisions. Even with the desire to drive this constructive change, it can be challenging for an investor to know where to begin. Deep technology is that space where meaningful change can be made while also positioning for potentially greater returns because of important economic trends in several technology fields, with the understanding that there are significant risks associated with investing in this space.

Who is the American Angel? What makes an angel investor successful? How do they make investment decisions? What are the best strategies and best practices to reap positive returns?

Angels, accelerators and entrepreneurs helped in extraordinary ways to support the startups affected by recent hurricanes. R. Stewart Thompson is bringing 70 employees of Puerto Rican startups to Calgary. Supporters can have a hand in preserving the startup ecosystem in an emerging economy.

Women entrepreneurs have extra hurdles in attracting capital for their businesses, and I think we can all agree that sexual harassment is one hurdle that should never happen. Angel investors of both genders can be part of the solution for providing a level playing field for women entrepreneurs.

Angels need a clear and quick way to screen deals to determine if they are worth more of their time. The beauty of “Awesomeness Screening” is that it brings angels together on their key success factors for companies - and it does so quickly – before they spend additional vetting hours.

Liquidity is the lifeblood of angels. Several angels provide tips for better ensuring returns before, during, and after the investment, and also some alternative ways to go.

Entire development teams, with significant experience (2-3 years+) working together, are leaving giant tech companies to found startups. These teams are typically funded quickly, and their rounds are oversubscribed. So how do angels access these companies and can make a quick, but reasoned decision on the investment opportunity?

On my mission to get smarter and smarter about angel investing, I think it’s important to read as much as I can from leading investors and experts in entrepreneurship. There were some really great articles last year that made a difference to my own investing and thinking about trends and policies. Here are 25 top articles that caught my attention in 2016. I think they’re worth another read, or a first read in case you missed them.

Don’t you just hate it when technical jargon is used and isn’t explained? The term “warrant” is used all the time in angel discussions, but when I talked with several newer angels recently, almost none understood what a warrant really is and they didn’t want to ask for fear of sounding stupid. Their thinking is along the lines of “if I’ve been an angel for a year and heard this term again and again, I must be an idiot if I don’t understand the basics.” I’m here to say that isn’t true.

Marianne Hudson , CONTRIBUTOR I cover angel investing – trends, ideas and how to succeed. Opinions expressed by Forbes Contributors are their own. TWEET THIS This is real money for startups – and better yet, it is totally non-dilutive to angel investor equity! So it is important for qualifying companies to file as early as possible so they don’t miss any quarters of possible benefit. One of the best parts of being an angel investor is supporting companies after you invest. And now angels have a new support tool in our pockets for portfolio companies – a new federal tax benefit that can add up to $250,000 per year for these young businesses. This is real money for startups – and better yet, it is totally non-dilutive to angel investor equity!

Regardless of your political leanings, there is one thing anyone who believes in America can agree on: Job creation is the lifeblood of our economy. Studies from the academics, US Census Bureau and Ewing Marion Kauffman Foundation have found that new businesses account for nearly all net new job growth and close to 20% of gross job creation. Angel investors are behind many of the new businesses that create these jobs, with both financial and intellectual capital.

585,000: the number of links Google provides if you research “startup valuations.” If you dig in you will discover calculators, techniques, methodologies and many opinions. What you won’t find is one approach that works every time. That’s why hearing valuation insights from top angels is incredibly useful. These views help separate the wheat from the chafe, and help us shape our own personalized valuation process.

Angel investors are constantly seeking new tools, strategies and approaches to invest wisely. After all, picking winners isn’t easy. Angel portfolio research shows a better than 50% probability that an angel investment will result in a loss. Obviously this is moderated by some big key wins that make up the difference. However, the spiky win-loss ratios that angels experience aren’t surprising since angels invest so early in startups. This makes it extremely challenging to mitigate market, product and team risks. That’s why angels rely on things like pre money valuations as part of their decision-making on investment opportunities.

Many angels think about building great returns from our investments, but how many have thought through the strategies and techniques to ensure most of those returns actually get to our children, grandchildren and preferred charities? So many angels have goals to share our wealth, and a recent event, Celebrating Women Angels opened my eyes to some helpful ways to think about estate planning for angel investments to meet those goals. In addition, estate planning can be used to share the knowledge and joy of angel investing with your children.

Angel investing is not just about funding startups. It’s about experienced entrepreneurs providing hands-on assistance and expert advice to help new companies grow. This combination can lead to financial and other personal rewards. Readers have seen me repeat this, but now there’s academic data to prove just how much value angels can add.

Angels love the thrill of the hunt. We like learning how entrepreneurs are going to change the world or which is the new Unicorn that will go public and bring a 100X return. Perhaps this is why many stories about early-stage investing focus on the first part of angel investing – finding good deals, negotiating good terms, and due diligence.

If you’ve acquired some wealth in your life, you may have heard the buzz around angel investing and considered the idea of being an angel investor. Not only is it a blast to help innovative entrepreneurs, it also offers a chance to make superior financial returns. Even so, perhaps directly investing in and mentoring startups still sounds scary. You may wonder: How do people really get started as angels? And how do you know it is right for you?

Angel investing is risky. This is a mantra my readers have heard me repeat time and again. I’m game for doing everything possible to mitigate risks and increase success. It’s also why, although I don’t have a PhD in finance, I’ve made it a priority to understand the fundamentals of capitalization tables, known as “cap tables.”

On May 16, 2016 the flood gates opened. That is when all American citizens were allowed a direct pathway to seed stage investing through a new type of security, technically called “Regulation Crowdfunding.”

Most angels and investors are quite comfortable using metrics to measure return on investment, or rebalance their portfolios. By the same token, angels need to teach the CEOs of their portfolio companies to use metrics to measure whether their companies are achieving their growth goals.

As angel investors we always seek ways to improve our investment odds. Through the years I’ve uncovered one sure bet: Invest in companies that bring value to strategic buyers so that the price of the acquisition increases.

Angels have many factors to consider when reviewing investment opportunities. Here’s another one that not many angels think about: which type of startup entity is better for your taxes? Should you insist on a C Corporation startup, with the potential for the Qualified Small Business Stock (QSBS) perk of no federal tax on your investment gains? Or, should you hedge your bets and invest in a startup formed as a Limited Liability Company (LLC), which offers more flexibility, ensures you pay only a single tax, and also is the structure that many acquirers prefer?

From years of working with angels, I can tell you that no two are the same. But if you could choose three words that would apply across the board to every accredited angel investor, what would they be?

It’s the 9th inning. The bases are loaded. You have the game winning run on third. As an angel investor who is leading a deal, this is how it feels when you’ve done everything needed to close the round. The investors are on board. The terms are negotiated. So what could go wrong? What gets a player thrown out at home plate?

Is the company you are investing in, or contemplating investing in, headed toward bankruptcy – or toward growth and profitability? Is it one of the walking dead – or on the verge of thriving?

One of the best ways to learn about angel investing is to listen to legendary investors speak about their experiences. Kay Koplovitz is one of those business and investor leaders. She comes to angel investing with an amazing entrepreneurial background, having founded USA Network and the Syfy Channel, among other businesses.

Angel investors have many techniques for selecting the most promising startups to invest in. But sometimes, we still get caught on a sinking ship. When that happens, it’s important to take action quickly. That’s why I was intrigued when I read Alejandro Cremades’ book, The Art of Startup Fundraising, which recently became a #1 Best Seller on Amazon (Venture Capital section). While this book is a great roadmap for entrepreneurs to understand what is required to achieve “fundable status,” I found some great guidance in it for investors.

On May 16 when new “Regulation Crowdfunding” takes effect, all American citizens will receive a gift that angel investors have enjoyed for years—they can buy stock in startups. But behind all of the excitement are a few surprises both investors and the companies raising money might not realize. These curveballs may mean that equity crowdfunding, won’t deliver the financial impact that Congress intended for startups when it passed the JOBS Act four years ago.

Super angel Basil Peters, thinks that only about 25 percent of startup companies that could be sold end up being sold successfully. Why does his anecdotal view hold weight? His company, Strategic Exits Corp, specializes in optimum exit transactions for angel-backed companies. Many angels consider him to be the go-to guy in North America for strategies and processes to help portfolio companies achieve “early exits.”

Early stage investors have to believe in possibility. But I’ve wondered for some time: Is the focus on finding magical unicorns blinding VCs and angels from seeing the better bets sitting right in front of them? In our quest for the Hope Diamond, are we forgetting to value and appreciate the quiet, persistent determination and skills required to persevere in the face of inconceivable challenges – entrepreneurs building strong companies that deliver good returns for angels?

Angel investing is about a lot of things: supporting startups, building companies, and, of course, creating a return for investors when they exit the investment. There are three basic types of exits of angel-backed companies. The positive exit results from a startup acquisition or IPO; the negative exit happens when a company goes out of business; and then there’s the dreaded “stall,” where your money is stuck in limbo for the foreseeable future. In this case, the company has been in business for a while and has reached cash flow break-even, but isn’t growing or moving toward a positive exit. After several years it’s apparent that something needs to be done if investors want liquidity, but what?

The other day I was listening to an entrepreneur pitch his company to a group of potential investors and it hit me how great it is to be an angel investor. I’m admittedly biased, but I think being an angel investor is one of the best things high net worth investors can do. Supporting great entrepreneurs is a real kick – and it can bring significant financial returns.

Can the company you are considering investing in scale and get to a good exit? How is it going to make money, really? These are some of the most important questions every angel investor needs good answers for from the entrepreneur. Successfully evaluating a startup business model can make the difference between success and failure of your investment.

Fact: A study found that angels who spent more than 20 hours on due diligence experienced 5 times higher returns than those who spent less time. Equally important, they also reduced their losses by about one-third.

Every angel investor wants positive exits. Although great exits can take years to come to fruition, angels are willing to put in the time and effort to see the journey through. In the world of angel investing, oftentimes a “good year” equates to realizing one exit. When you can multiply that success by a few more exits, you’ve got a great year. But the real icing on the cake? When those multiple exits are quick exits.

Scorecards are ubiquitous in baseball, helping coaches, players and fans understand the factors that led to a victory or defeat. It turns out that scorecards come in pretty handy for startup business investing, too.

Entrepreneurial finance has changed more in the last five years than the previous 100. The evolution is coming so quickly these days that it almost feels like the opening credits of the Big Bang Theory television show. It may be, though, that 2016 speeds up the changes an innovations. I can’t think of a more exciting era for angel investors.

It’s a question angel investors have wondered about every year: How much will they be taxed for their successful investments? Since 2009 it’s been unclear if there would be a 50 or 100 percent exclusion or something in between. Each year between Christmas and New Year’s Eve, Congress provided the answer, which meant in most years the exclusions didn’t help spur extra investments in small businesses throughout the year.

One of the key rules in business is to develop performance measures to understand your progress and learn from successes and failures. Most angel investors insist that the entrepreneurs they invest in have a vibrant set of metrics from the get-go. Isn’t it funny that most of us angels don’t demand the same standards of ourselves? Why don’t more angels create metrics on their own investing?

Angel investors learn one important lesson early on— deals are everywhere and where you choose to hunt depends on one’s experience, connections and preferences. If you were hoping for a magic bullet answer directing you to the next Facebook, welcome to angel investing where the path to success is never one size fits all. Even so, experienced angels do refine their deal sourcing approaches over time and others can gain insights from the most common places they search.

An essential part of angel investing is setting and agreeing to the terms of the deal. Many angels recognize the importance of deal terms, but often wonder which components of the term sheet to prioritize. I’ll reveal the answer, but first some background about term sheets.

Every great journey has its ups, downs and blind spots. Angel investing is one of those. Based on personal experience, I can assure you that no matter how much or for how long you study angel investing, once you put your own money on the line you will be surprised by how the process really works.

Misstatements about early-stage investing have been proliferated for far too long. Unchecked, they take on a life of their own and create confusion that can hurt entrepreneurs and the startup economy. Here’s an example: a recent article by Forbes contributor Dileep Rao suggesting that Minnesota and other states dump angel tax credits essentially because they don’t have robust Venture Capital communities or billion-dollar entrepreneurs. While I think well-crafted angel tax credits are effective in increasing angel investment in good companies and there is data to back that up –my purpose here is to address myopic views about venture capital, angel investors, entrepreneurs and unicorns that are much bigger than the tax credit issue.

Dave Berkus has been angel investing for more than 20 years – before the term “angel” was popularly known. This super angel has a wealth of stories from his angel portfolio of 137 companies. And his insights come from a combination of successes, failures and missed opportunities.

Being an angel investor has a certain cache. You’re sought after by entrepreneurs and assess the value of their ideas. You choose whether or not to invest. And when things go well, you make money and you’re part of getting a business off the ground. In this light, who wouldn’t want to be an angel investor?

Let’s face it: one of the biggest issues for many angels face is building liquidity into their portfolios. Any time new ideas and alternatives come to build returns they are worth a good look.

Entrepreneurs are fascinating people. We are all interested in how their minds work, how they make decisions, and most of all, how they succeed. As angel investors, we have a vested interest in learning the path to entrepreneurial success. If we can understand it, our odds of selecting winning entrepreneurs and supporting their startup success expands exponentially.

If you’re an angel investor and aren’t yet well-versed in syndication, now is the time to take notice. The changing math required to fund promising companies explains why: the median deal size for angel groups in 2014 was $800,000 (according to the Halo Report) and the average angel group invested $250,000 (per the Angel Capital Association). Finding ways to plug this $550,000 funding gap explains why a new Halo Report also reported that about 70 percent of angel group deals in the last five quarters were syndicated between multiple angel groups and other investors such as individual angels, venture capitalists, family offices and private equity. These facts represent a shift in angel investing. Syndication is the solution funding high growth companies.

Angel investors seem to be getting younger and younger. This new wave of 20 to 39 year old angels is proving to be a passionate and forward-seeking group within the angel investing community. Some are new in their careers and others are in their prime, but all have plenty of years ahead to grow and follow their angel investing passions.

I love it when there is real data to learn from in angel investing. True financial return data of angel investors is rare, so I was intrigued when I saw a report by global angel group Go Beyond Investing with real data and analysis on the returns experience of each of its member angels.

Despite the devastation Hurricane Katrina caused 10 years ago, the huge disaster that hit New Orleans brought a silver lining. With a giant microscope on the area, young people were drawn to New Orleans and the surrounding region to help.

A new buzzword in entrepreneurship and equity investing is “inclusiveness.” It is gaining traction with Venture Capitalists and angels alike, who see that building the diversity of the investor community and the entrepreneurs they invest in is not only a good societal goal, but it is also a way to build great deal flow, make better investment decisions, and grow returns.

More and more, the term “crowdfunding” is being used for a dizzying variety of business funding options. The term seems to be used for everything from Kickstarter community projects to real estate projects to advertising startup deals to accredited investors to investing in tech companies that are ready to go public.

Convertible notes can add flexibility for many angels, as I wrote last week. I really like how Angela Jackson thinks about these deal terms for first investments in startups, but it also got me wondering: are angels still debating notes and priced rounds? I did a quick poll of angels, and boy did I get an earful. It’s safe to say the debate is on! Last week more than 100 members of the Angel Capital Association (ACA) responded to the survey. While not a scientific sample, it provides solid market representation since respondents were angels from across the US and Canada and invest in similar sectors and stages as the full ACA membership. Here’s what I found out:

Some might say angel investors and venture capitalists have had a rocky history. Not too long ago, it was common for VCs to look askance at angels—at best ignoring them, at worst disdaining them. Over the past decade, I’ve seen those perceptions change. Today, most VCs recognize the value angels can bring to a deal, giving birth to a whole new way to work together.

Angels are increasingly doing convertible debt deals. While not all angels are well-versed in this funding mechanism (or just plain don’t like it), this deal structure is popular on the West Coast and catching on with entrepreneurs and angels who want more options for funding promising startup companies.

Becoming a new angel investor is a Catch-22. You need experience to be a good angel investor, but you can’t gain the experience until you actually invest.

When Brian Cohen met the person who would later be the founder of Pinterest, it wasn’t long before Cohen knew he needed to be his angel investor. Eventually, Pinterest was born and after discussing the investment with his daughter, Cohen realized it had reached a wide audience quickly. “She said, ‘My friends are using it all the time.’ BINGO. That was at the very early stages. The viral effect took place so fast.”

In addition to IPOs, supporting the sale of a portfolio company is how angels make returns and perpetuate the investing cycle. Many angels will be surprised to learn that they might have an active role in mergers and acquisitions (M&A) for their portfolio companies. The truth is that when angels get involved on company boards or have a C-level position in the company, a role in M&A is a possibility.

Every angel portfolio needs some real gems to provide an overall return. Selecting which companies to add to your angel portfolio sometimes feels like hunting for an elusive pearl among thousands of oysters. So many look the same from the outside. Are there telltale signs that point to which oyster contains the pearl without having to pry open every one?

Angel investing as an asset class is continuing to grow and many accredited investors want to learn how they can best get involved. When I’m asked that question I have one simple answer—start with a local angel group. There is no better way to simplify the complexities of angel investing than by working alongside like-minded angels.

I read with interest the 2015 Kauffman Foundation Index on Startup Activity, the largest index tracking entrepreneurship across the United States. I love when these reports dispute common assumptions with actual data. Long-term declines in entrepreneurship? This surprises many angel investors who believe that startup growth has been on a constant upward trajectory.

If angel investing is your passion, you’re in it long term; and getting a good rate of return ensures you can continue investing for years. That’s why developing a strong angel portfolio is so important. Finding the right companies, figuring out how many to invest in and which types of deals to focus on is the magic formula angels are after.

FOLLOW I cover angel investing – trends, ideas and how to succeed. full bio → Opinions expressed by Forbes Contributors are their own. Comment Now Following Comments EY​Voice: Video: Force Multipliers For Women Entrepreneurs EY Contributor EY Edit Post ENTREPRENEURS 6/05/2015 @ 10:11AM 263 views Why Location Matters For Startup Valuations Comment Now Following Comments We’ve seen many headlines: Investors fund Silicon Valley startup at $10 million pre-money valuation. That’s why it takes some entrepreneurs by surprise when they learn that investors in Little Rock won’t invest in a similar local startup at Silicon Valley prices. 

I work with many angel investors and know that most hope and believe that their support helps the companies they invest in. Now they have proof. Two studies show real evidence that startups backed by strong angels really do better than their counterparts that fail to get such funding.

Don’t be surprised to see substantially more companies using Regulation A to sell securities through public solicitation of investors beginning June 19, when the SEC’s new “Regulation A+” rules take effect. Why? The new “Reg A+” provides a new option for “mini-IPOs,” allowing companies to raise up to $50 million from investors in unregistered public offerings. Angels benefit it two ways. This is another opportunity to invest or it can help their portfolio companies secure the funding needed to take them to the next level.

Have you ever noticed that sometimes people learn best when they hear how they should not do something? The hit television show What Not to Wear is very effective in demonstrating wardrobe mistakes to avoid.

Imagine your investments generate both financial returns and measurable social and/or environmental impact. That’s the premise behind “impact investing,” an area that’s quickly gaining traction among angel investors.

The word “crowdfunding” gets thrown around these days like a baseball on opening day. Regardless of its many nuanced pedestrian uses, angel investors and others need be clear about two things: how to apply crowdfunding to their investment strategies and understanding emerging crowdfunding trends.

As one of the most popular programs on television, “Shark Tank” is helping the public hear the term “angel investor ” and grasp what they do. The TV sharks have likely invested in and coached many entrepreneurs, and helped increase their success. However, although there are similarities between angel investors and the TV sharks, I see many differences.

Some startups seeking angel investments have an extra advantage – they’ve already received money from the federal government and started developing their products before angel money is needed. Funds from Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) grants are especially interesting because they do not dilute ownership by founders or investors, and they work in concert with angel funds to build startups’ success. Additional funds for product development combined with zero dilution is an angel investor’s dream for better and faster returns.

Can you imagine having three successful exits in a week? It happened to Dušan Stojanovic and this is a story worth dissecting. He is founder and director of True Global Ventures and was named EBAN’s European Angel of the Year 2013, in part because of those exits in 2012. What can angels learn from Stojanovic’s strategies? One fact is without controversy: he adheres religiously to a strict investing plan.

Before investing in a startup, the first question many angels ask is: what is the company worth? Determining the valuation of a company before it has revenues is actually pretty difficult. Unlike valuing companies with revenues, assets and longer track records there is no agreed upon standards for startups.

Many have the impression that most angel investing happens in Silicon Valley, Boston and New York. I’m here to tell you that angel investing is thriving in many other places across the country. Case in point: angels in so called “flyover states” without a tradition of venture capital or cities with populations of 100,000. These locations are creative angel epicenters that are doing special things to be successful.

James Geshwiler contributed to this post. His webinar, Driving Investor Returns, inspired this article. Every angel wants to hit the home run – to find startups that will bring huge returns. However, we know angel investing is risky and that the majority of investments will not pan out. That’s why it’s critical for angels to think not just about hitting home runs but how to win the game, honing their skills in identifying high potential companies and developing strategies that build high returns.

Have you heard of Lean LaunchPad? It is a new tool being taught at more than 200 universities to help startups really hone their business plans and may one day help avoid wasting investors’ money. It’s a game-changing concept that angels should know about now, even though it is new to the investor part of the startup scene.

Some amazing companies like Airbnb, Dropbox and SendGrid got their start in business accelerators. Even better, they brought great returns and a fun ride to their investors. So what are the best ways for angels to leverage and support accelerators so they can find great startups like these?

Two industry powerhouses – America Online Co-Founder Steve Case and former Hewlett-Packard CEO Carly Fiorina – made a splash recently when they led a report,“Can Startups Save the American Dream?”

Although we often talk about angel investors as a monolithic group of people, in reality angels fall into many categories and practice the art of angel investing in many ways. An angel can choose how he or she collaborates with entrepreneurs and other investors in a variety of ways that fit their experience, wealth, interests and time availability.

One of the biggest debates in the angel industry is how much due diligence investors should do before they invest. From “rank and file” angels to rock star investors like Ron Conway or Mark Cuban, opinions differ vastly from literally doing none to conducting formal processes that take months. So how do you decide what the right amount is for you? And what are the factors you really need to check out?

Angel investing and the startup economy has been through so many exciting changes in the last few years. I’ve been thinking about that as the new year begins and my organization celebrates ten years of supporting angel investors. This exercise has me convinced–2015 could be one of the most important years ever for angel investing.

“Every time a bell rings, an angel gets his wings.” We all remember this saying from “It’s a Wonderful Life.” It’s a powerful image for how we earn just rewards when we apprentice well and learn how to help each other. Like the mythical angel in the movie, angel investors need to put in their time and seek out proper training to become full-fledged, high impact angels—especially when sitting on a startup board of directors. Having the right angel on a board can be the difference between a startup’s success and failure, and by extension, the success or failure of an angel investment.

We’re all aware of the amazing research and technologies that universities are doing to improve people’s lives. What makes many angels excited is that these new innovations can lead to great companies – if universities can connect with the right startup entrepreneurs.

While many people consider government rules and regulations boring, angel investors should be aware that the Securities and Exchange Commission (SEC) is considering potential changes that could prevent many angels from investing. Even worse, it could reduce capital for startup companies that create jobs and spawn innovation.

The success of every startup company depends on the CEO. I can’t count the number of times I’ve heard top angels say, I’ll take an A+ founder with a B+ technology over the reverse—and they mean it. Without great leadership, companies struggle to sell products and tank as a result. Even though it is the most critical part of evaluating investment opportunities, vetting leadership is often more art than science, leaving many angels to rely on gut instinct in determining a good CEO. That’s where Tony Shipley, founder of Queen City Angels in Cincinnati comes in. Shipley doesn’t believe in leaving CEO selection to chance. He has culled his experience in evaluating CEOs from more than a decade of investing—including the painful lessons learned from deals gone bad with the wrong CEOs.

Thursday, November 20 the important role angel investors play in helping startups grow is being celebrated as part of the first ever Global Business Angels Day, part of Global Entrepreneurship Week. Angels are often a hidden hero of the startup and innovation economy – so it is important to unveil and celebrate the important contributions angels make.

Is there ever an upside when a risky startup investment evaporates right before your eyes? Absolutely! The US government provides a tidy benefit to angel investors who take on the risk and economic impact of these investments. The trick is to know how to recoup some of your losses to reduce your tax bill. There are also tax strategies that help angel investors keep more of their earnings when they have winning exits. This is critical knowledge to have because it keeps us angels in the investment game so we can fuel new startups and the economy.

We all proudly read the news about the work veterans do protecting our country. However, what often doesn’t make the news is the impact these heroes have on the business world. Check out these statistics which belie their contributions to the startup ecosystem as the nation celebrates National Veterans Small Business Week and Veteran’s Day:

Some well-known investors – namely Benchmark partner Bill Gurley and Andreessen Horowitz co-founder Marc Andreessen – have recently sounded the alarm about a tech bubble. The fear is that huge valuations and quick cash burns by tech startups are out of control and will derail the startup market. While the claims make great headlines, the angel investors I talk to don’t see it quite that way.

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%. 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?

Like Michael Jordan and Babe Ruth, super angels are the best of the best, the superstars who set the standards for others.

In the last decade, I’ve had the pleasure of watching the ranks of women angels more than double. The growth of women in the field is great because it’s having a ripple effect – in terms of more individual investors, more angel dollars and more support of entrepreneurs. Women angel investors are also earning serious cred from other investors.

Angel investing includes a lot of very smart people. But it’s also very complicated. That’s why the wisest angel investors are always on the lookout for smart ways to avoid doing stupid things. And there are many people who are new to the field and need knowledge fast. That’s why I’m pleased to see new articles, books, and Internet resources to complement what angels learn through networking and on-the-job training.

It’s been one year since the Securities and Exchange Commission issued rules allowing entrepreneurs to publicly advertise private investment deals. So what’s the impact? Has lifting the ban on “general solicitation” significantly changed the landscape for startups and investors? What do investors need to know in this new world?

For angels trying to find the perfect company to invest in, I have good news and bad news. First the bad news: there is no perfect company to invest in. All have risks. Now the good news: you can mitigate that risk by asking the right questions and digging for good answers.

Angel investor and entrepreneur relationships are similar to a marriage – both benefit when each relies on and supports the other. Wouldn’t it make sense if this business marriage began with an agreement that supported both parties and focused on aligning goals instead of an adversarial “pre-nup?”

With angel investing being so risky, eventually most smart angels wonder – is there a way to increase my odds for good returns? And how else do I make investing a good experience for me?

Consider the temptation. The young entrepreneur is charismatic and smart. The new product is very cool. And the technology behind it is ground breaking. With all that, investing in this company seems like a slam dunk.

Is it rude to think about how to leave someone the first time you meet him? Perhaps. But in the risky world of angel investing, top angels think about the exit the first time they meet the entrepreneur.