Wednesday, May 06, 2015

USF Redefines Success In Angel Investing

I was privileged to attend a talk tonight at USF's School of Management campus in downtown San Francisco.  My own USF MBA has proven totally worthless but sometimes these talks are entertaining, and they always offer free food.  That's the only value I will ever obtain from my education.  I went to hear USF Prof. Vijay Mehrotra describe his "Confessions of Angel Investing."  He had five main lessons to share.  Here they are, verbatim.

1.  Invest in entrepreneurs who are sufficiently obsessed with their business success.
2.  Invest in those companies and founders who have a strong idea of who their customers are, and why they do (or do not) spend money.
3.  Invest in companies that have some kind of unfair advantage.
4.  Invest in and with people where your value to one another goes beyond money.
5.  Invest only with people who you deeply trust and share your values.

Those five lessons reflect a lot of the wisdom on display at countless tech conferences and VC panels I've attended since 2011.  I totally agree with Prof. Mehrotra that worthwhile startups should make the world a better place and that exceptional customer knowledge is tough to obtain.  His qualitative insights into the value of experience should include the one thing that I have come to understand as crucial for a successful startup.  That one thing is the presence of a serial entrepreneur on the team.

Serial entrepreneurs bring obsession as a habit because they've done it all before.  They have exceptional customer knowledge from launching and growing several startups in the same vertical.  The seasoned executive brings that "unfair advantage" of anticipating routine problems that rookie entrepreneurs don't see coming.  The remaining Big Data challenge is to somehow collate the quantitative results of serial entrepreneurs running startups.

Prof. Mehrotra shared some stories of acquaintances who succumbed to ethical lapses in their lines of work.  Even experienced angel investors can miss red flags in the character traits of founders.  I would add that due diligence requirements increase with the cash commitments startups need as they mature.  A few background checks on the founding team are cheap to perform.  Checking for fraud can save a lot of invested capital from entering the valley of death.

The good professor asked his audience to write down what "success" meant to each of us.  I did not have to think at all about what I needed to write, and I'll share it now.

- Living with honor and integrity
- Having a small number of high-quality friends worthy of trust
- Achieving maximum possible self-actualization
- Sharing love and wisdom with others, especially the close circle of friends
- Having a clear understanding of one's place in the world

You may recognize some of these concepts from ancient Stoic philosophy.  Marcus Aurelius' Meditations helped me understand why these things are important.  Immanuel Kant's Categorical Imperative reminds me to always act in ways that support these beliefs.  Notice that I didn't mention money or worldly power in my success definition.  Those things should follow naturally once the above qualities are evident.

I left the lecture early due to a schedule conflict, so I missed the other experienced investor following Prof. Mehrotra.  I would like the angel investing community to take serial entrepreneurs and ethics more seriously.  Long years of varied experiences build the kind of intuition that serves executive judgment well.  Success should follow naturally.