I am an investor in 9 companies: How and why I started angel investing

A lesser known fact about me is that I have invested in 9 companies. It’s something I’ve not written about yet (other than a quick mention on my https://joel.ishttps://joel.is/now page). So here we are.

The first investment I made was in Kate Kendall and CloudPeeps. I became an advisor to CloudPeeps fairly organically, having known Kate for many years in the industry. Being an advisor, I had a chance to chat regularly and get to know Kate. I loved the product and her approach, especially the culture and community she was carefully crafting.

Then in December 2014, I got some liquidity by selling a small number of Buffer shares in a funding round, and so I was in a position where I could invest. The timing was perfect, as CloudPeeps were fundraising and I had been advising and making introductions to help with that.

I invested $10k in CloudPeeps, and since then have gone on to invest in 8 more companies.

How I think about the financial risk and opportunity of angel investing

It’s now over 3 years since I made my first investment in a startup company, and I’m yet to see any kind of return what-so-ever. I think it’s worth noting that investing in early stage companies is one of the riskiest forms of investment that you could make.

When I took liquidity in our Series A funding, I knew that I had the option to make some investments. I didn’t know much at all about investing my money. I never had a large amount of savings growing up and so it was never something I needed to know about. When I got the liquidity, I gradually educated myself about the various types of investments I could make, and I also started making my first investments in startups.

I think about ways to invest on a spectrum:

Low-medium risk: 401k / bonds

Medium-high risk: stock market

Very high risk: cryptocurrency / startup investment

While cryptocurrency has massive volatility, what makes investing in startups even more risky is that the investment is totally non-liquid. You can’t take your money out by choice at any time, you are tied to the trajectory of the company and the decisions of the founders.

It’s a well known fact that most new companies fail. Investing at the very early stages of a company, is certainly high risk high reward. It’s most likely that the company fails, but if it succeeds then the return could be high, because the investment will have been made when the company is very small.

I made a decision that I need to be comfortable losing all the money I invest into startups. This shaped my investment methodology. I am using other investment methods to try to grow my wealth. Angel investing is as much for personal fulfillment and what I want to contribute, as it is a way for me to make large financial returns.

Making investments for my own personal fulfillment

Since the earlier days of being an entrepreneur, I always had a dream that I’d like to one day help others through both advice and investment. One of the mindsets that has helped me to work through some of the tougher moments has been knowing that I can help other founders with those very issues.

I’ve also learned over time that helping others is one of the things that brings me the most happiness. I saw investing in startups as a new way to help others, with not just the financial investment but by being available as an advisor to portfolio companies.

And through my investments I am able to be involved in the early stages of companies again, something which I love. Buffer is now 7.5 years old, 70+ people and doing over $17m per year in revenue. It’s a very exciting time for us, but definitely a little different from the earliest stages.

Trying to make a small positive impact with my investments

Something I’m passionate about with Buffer and as a personal philosophy, is to try to make positive changes in the industry through the work I do. With Buffer, this is through the product and the way we operate the company. We believe that we have the opportunity and the potential to push forward how companies are run for the better.

One key example of this within Buffer is remote working. We have a fully distributed team, and this means that everyone in the company has much more freedom than they would in an ordinary organization. Team members can move for their own fulfillment or for the needs they have. Some team members have been able to travel a lot, others have had the comfort in being able to move across the country or the world for their spouse’s career. And some are able to work in their home country, where they would otherwise need to move away to make a better salary for their family.

Other examples of our efforts to contribute to a better future are through our transparency (making all of our finances, salaries and more transparent), and we also recently made our first charitable contributions as a company.

I’ve also been inspired by Clif Bar and Patagonia, whose founders have shared the idea that when we make an investment in something, be it with our time or with funds, we should challenge ourselves to think beyond desiring a financial return on investment.

At the end of the year I want to look at our balance sheet and see that we were good stewards of our business—a company that we are preparing for a long-term future. We choose how we define shareholder value, and we include product integrity, our people, the community, and the earth in the balance sheets. - Gary Erickson, Clif Bar

The return on an investment can be in the form of a resulting meaningful contribution to society or a community, through the investment helping to solve inequality, or by helping to solve environmental issues.

By making investments in startups, I am able to make a small impact on other companies too. I can help founders think through less usual and more impactful ways of running their company. I can be an investor who advocates for companies not just generating a financial return but also doing good in the world.

Helping founders achieve freedom and a maintain healthy mental wellbeing

Something I believe is not talked about or written about enough, is the toll that building a company can take on you as an individual. I’ve been through some very dark periods with Buffer, and I’ve hit some real lows along the way. I’ve been lucky to have a very caring team and family, and to be in a position where I was able to get help too. Working through challenges in this way has allowed me to have a much more balanced and healthy mindset to growing Buffer.

Unfortunately, I believe that as much as investors often try to be advocates of founders speaking up and sharing their challenges, often they are an additional burden in difficult times. Many investors don’t take a long-term approach that allows them to believe that helping a founder through hard times will ultimately give the best return.

All too often, I’ve also seen founders become constrained and lose freedom as their companies grow. They may have grown their company to several million dollars a year in revenue, and created fulfilling jobs for dozens of people, but they are overworked, and when they reach life milestones such as having a child, struggle to have time or take money out of the business to afford a better home.

I believe founders deserve better, and investors should support freedom and making a financial return along the way. I am a big proponent on founders maintaining freedom for themselves and their team, and taking a longer term sustainable approach to startup liquidity, instead of sacrificing health, finances and relationships for some hypothetical future exit.

With Buffer, I’ve been lucky to see a few different sides of startup investment. We have both angel investors and venture capital firms who have invested in Buffer, and I’ve seen a variety of styles with which people choose to operate. By being an investor, I can be a voice at the table of companies, to push for care around these issues and to provide balance compared to more traditional approaches. I’ve decided that beyond obvious bad behavior, I will always be on the founders’ side.

My process for making investments

Some angel investors have had a large exit with a previous startup, or had some other event which has put them in a position of a lot of wealth. I haven’t sold Buffer, and have no plans to anytime soon. By selling a portion of my shares, I’ve been able to get some liquidity, however I don’t have the level of wealth that other angel investors may have. In addition, since I am still running Buffer full-time, I also don’t have a lot of time to put into my angel investing activities.

Therefore, my process for making angel investments is more hobby than professional, and one optimized for the little time I have to invest. One way I have made things easier for myself is that I have, so far, always invested $10k. This is a hard and fast rule I have given to myself and communicate with companies I am in discussions with.

I am aware from my own experiences, that $10k doesn’t go too far for a startup and that it may not be desirable to have a small investor take up another slot on the cap table. I have found that with the ups and downs I’ve been through, many founders are excited to have me on board and get the additional advice beyond my investment. I feel lucky to be able to invest in the companies that will have me, and I will not be disappointed if I am turned down for being too small of an investor.

While I don’t have a lot of time to do extensive analysis, or treat my investments as a professional endeavor, I enjoy talking with founders and helping to solve problems. I therefore make time to be able to get on a call, or answer emails for founders.

Another decision which I’ve so far made, is that I will generally always do follow-on investment, when I can. If I can afford it, I will double down my investment when I get a chance in future rounds. My thought process on this is that since most companies fail, the ones that go on to raise more funding are more likely to be gaining success (this is definitely not a completely water-tight correlation, but I think it works well enough). This allows me to maintain my equity stake in a company as it raises more funding and I would otherwise be diluted.

My startup investment portfolio and timeline

I made my first angel investment in December 2014, and my last one in August 2016. Here’s the full timeline and my portfolio:

I invested $10k in all of these companies except for a couple which were in Euros and Pounds, where I invested a little more to make it 10k in the corresponding currency.

You may notice that I made all my investments in a 1.5 year period, and I’ve not made any in the last 1.5 years. There are a few key reasons for this. In Summer 2016, we had cashflow issues at Buffer, and as part of working through it I voluntarily reduced my salary by 40% until early 2017. This was a key reason I stopped making further investments.

In 2017, we had a number of big changes at Buffer, including my co-founder and our CTO leaving the company. I got heads down to help the company through the transition and I also made a decision to invest $250k of my own money into buying Buffer stock and providing liquidity to a couple of former team members. This has put my angel investing activities on hold for the time being.

Looking ahead

Although I have been in a holding pattern in terms of making further startup investments, I’ve very much enjoyed being an active angel investor so far. It’s been fun to be an active part of the founders’ journeys. I have so much more to learn to become a better startup investor and advisor, and I’m excited to continue this journey further. One of the key things I’ve taken away from this process is that if you don’t know much about something, one of the best ways to learn is to dive in and start doing it.

I have been lucky to have success with some of my other types of investments, and Buffer is doing great right now, so I think I will soon consider becoming more active in advising and making further startup investments.

Photo credit: Vitaly