One would think that the most difficult decision would be whether to invest in a particular company or not, but surprisingly, this isn’t true. When a founder pitches to you, the decision is either a yes or a no. You don’t invest too much time in thinking about most companies, and it’s quite easy to say no to most pitches.
Even when you do say yes, when you get blown away by the business plan or how smart the entrepreneur is, it’s quite easy to make that commitment and sign that first check. Over time, this gets easier, because you do it oftener, and hopefully you start developing a good sense of what your sweet spot is.
Interestingly, a much harder call is to decide when to pull the plug on a company which is not going anywhere. This can be really hard, because you’ve invested so much money and time in that particular company. You had hoped that the company would be successful, which is why you put in your money in the first place. You most probably have developed a soft corner for the entrepreneur, and then when you find the company’s not doing as well as expected, it becomes extremely hard to decide what to do!
When the company is floundering, the founder is going to ask you for more money so he can turn the company around. Do you give it more money to keep it afloat? or do you pull the plug and decide not to invest anymore, and let the founder figure out the next step for himself.
Sometimes, this is an easy decision to make, because the founder himself has decided to commit suicide. He has not bothered to keep you updated , or he’s ignored whatever advice you gave him. In which case, you really don’t need to think twice, but what about the times when he has been diligent, done everything you said, communicated, been extremely hardworking, has taken time and trouble to build up a great team, but in spite of all his efforts, for some reason the company hits sort of a block and doesn’t do it very well. Do you continue to support him? Do you continue putting more money because he’s a good guy and you hope that he’ll be able to pivot and find success, or do you say, well, you know, I can’t afford to put any more money in this company because it’s not going anywhere. This can really be a hard call.
Interestingly, I think the second hardest decision is to deciding whether to put in more money in the next round, when the company is doing well. You’ve invested as an angel investor in the seed round, the company’s doing extremely well, growing exponentially, and now wants to raise another round. They come back to you, and they say, would you like to participate? Now, this is a company you’ve seen grow, has been doing successfully, you obviously have high regards for the founder, and now that the big boys — the VCs — are willing to put in money, you’re hoping that this company will go places and make you rich. Then you have to decide, do I put in more money?
Of course, the valuation is now completely different because you’re going to get a much smaller share of the company for the same amount of money which you put, let’s say, one year or three years ago. This is when it becomes a hard call. I don’t think there are any easy answers for some of these things. It’s just that we need to understand that these are hard decisions which angels need to make, so that it’s not just, should I invest or not — it’s often the follow on decisions which are much harder to answer !
