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  • Writer's pictureLeo Wang

Lesson 2 in Angel Investing: Team

Original Chinese Version on July 5, 2013: HERE

Numerous investors may agree with this seemingly cliché statement, but during the execution of project investment, they often focus on the project itself rather than the entrepreneur. However, every successful venture inevitably goes through what’s called a life-and-death trial. Each valley is a test for the entrepreneur and the investor; every peak is also a test, challenging the entrepreneur’s understanding of success and whether they get carried away, and testing whether the investor will continue to support the team instead of cashing out at the peak.

Of course, the failure rate in angel investing is much higher than the success rate, with the majority of projects resulting in total loss. Thus, the desire to cash out during those minor peaks is understandable—to give some return to the fund or to secure a stage of performance to reinforce the confidence to continue angel investing, or because the fund’s investment period has ended, and capital needs to be returned to the shareholders (LPs).

However, if only 5% of angel investments achieve significant success, and another 10% achieve moderate success, this means that the entire fund’s return depends on this 15%, with the other 85% lost. The stakeholders who stick it out to the end with these 15% can earn the highest return; those who exit early might miss out on potential 100x or 1000x returns, such as IDG did with Tencent, selling their shares to MIH of South Africa, who remain Tencent’s largest shareholder.

My experience is that entrepreneurs who can repeatedly lift their company from the depths are the ones who can withstand tests, and they deserve more resources and patience. They may be among the 15% who succeed, and with continued investor support and the right circumstances, they could be among the 5%.

Investors are just that, with their attention spread; it’s the entrepreneurs who are truly committed to growing their business. Once we choose to trust, we should trust fully and not let changes in “timing” and “opportunity” cause us to doubt “harmony.” I believe that as long as there’s “harmony,” “timing” and “opportunity” will eventually come, because they are cyclical, but “harmony” is truly rare.

So how do we assess “harmony”? Many professional investors not only invest in acquaintances but also in “strangers,” especially today, with the internet enabling a flood of projects to reach investors through websites, social media, and emails. Judging the “entrepreneurial quality” of these strangers is a significant challenge for angel investors.

Most investors approach “stranger” projects like this:

  1. Decide whether to interview based on the referrer’s weight—if a significant connection recommends the project, a meeting is at least warranted, as documents can’t show everything, especially the “harmony” part.

  2. If there’s no referrer, investors look at the “project summary” and “team profile” for decision-making cues. If the summary is compelling, an interview is likely; if the summary is average, but the team profile seems impressive, they might still get an interview.

  3. During the interview, investors want to feel the “aura” of the entrepreneur, an energy that convinces them this person can succeed. It’s hard to quantify this aura—it’s not just about prestigious degrees or quitting a high-profile job; many grassroots individuals also have a strong presence.

Investing is just the first step of a long journey. No project develops ideally as first imagined—the world changes, society changes, policies change, teams change, everything changes. In addition to assessing the entrepreneurial team’s aura, I’m keen to understand their adaptability and problem-solving abilities. This can be initially judged before investing and will be fully demonstrated throughout the collaboration after investing. For those truly resilient entrepreneurs, I have the utmost respect and will offer full support, accompanying them to the end, because I know they are the ones who will bring the greatest returns.

On the investment path, I constantly remind myself: actions are made by people, and “harmony” is most valuable.

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