Lessons from Y Combinator's AngelConf

Yesterday I had the pleasure of attending AngelConf at Y Combinator. It was a great event - if you couldn't attend, I highly recommend taking the time to watch (or at least listen to) the Justin.TV video. My comments on what I found to be the key points and issues raised at the conference (and how they relate to the startup world in Austin):

• Angel investing is a full time job if done in a financially rational manner.
• Some angels are perfectly content to knowingly act irrationally. Hey, it's their money.
  
• Since angel investing is a hits-based business, deal volume matters. A portfolio approach is a requirement - the more deals the better. Getting great terms is less important than getting into great deals.
• Getting into good angel deals is competitive. Only Angels who provide value - expertise or contacts - get to invest in the hot prospects. Naturally, this takes a lot of work.
• Interestingly, since the most successful and prolific angels approach investing as a numbers game, negotiating terms is not very important. The process boils down to this: Find smart people that you like and trust working on big problems and give them money at fair terms quickly. Help them. Repeat. Repeat. Repeat. Nobody wants to do bad deals, but arguing over details is counterproductive. Again, the idea is not to make every deal a winner, but to make sure that some of your deals make it really big.
  
• Good deals are very hard to recognize - that's why you need to do a lot of them. As soon as they are recognizable, VC's get into the game. You have to place your bets before that happens.
• I don't think this works outside of Silicon Valley. There just aren't enough companies to develop a meaningful portfolio unless you're at ground zero. That doesn't mean angels outside of the Valley are wasting their time, but they are not likely acting in a financially rational way - they could make more money with less risk elsewhere.
• If we want to see the same sort of explosive growth out of Austin companies that we do from Silicon Valley startups, we need more active, risk-tolerant angels looking at the region. That means we need more hyper-growth potential startups. Startups need investors who need startups who... It's a tough feedback cycle to start, which is why I'm keeping my fingers crossed for Capital Factory. Austin will never be Silicon Valley, but I'd sure like to see it get a good shove in that direction.
  

I've purposely not commented on the non-financial motivations for angel investing. That's a personal matter that will be different for every investor. There is a definite pay-it-forward element in the Silicon Valley angel community that was well communicated, even celebrated, at AngelConf. I don't want to discount that, as it's tremendously valuable.

It was a great event. I hope to attend next year as well.

UPDATE: Paul Graham has posted a great article on angel investing.