SXSW Report: The Dos and Don'ts of Angel Investing

(L-R): Angel investor Rick Timmins, entrepreneur Jason Cohen, and Wild Basin Investments LLC managing director Rosa McCormick discuss some of their rules and guidelines for angel investing at a SXSW Interactive panel.

Reggie Ugwe

Hundreds of orange-lanyard-clad attendees filled the grand ballroom of the Hilton in Downtown Austin mid-afternoon Friday, eschewing the formality of the official opening remarks taking place concurrently just across the street. On the agenda for this panel: Investment funding and how to secure it, a can’t-miss topic even for a rainy afternoon.

Rosa McCormick, managing director of Wild Basin Investments LLC, led the panel titled “Getting Started with Angel Investing” along with co-panelists Jason Cohen, an entrepreneur and angel investor, and Rick Timmins, a former business manager-turned-angel-investor. The panel catered to both investors and those looking for investment.

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“This is a field where you’re probably going to lose more than you’re going to win,” cautioned McCormick early on. For angel investors and others looking to try their hand at investing in start-ups part-time, McCormick advocated a “5-10 percent rule,” meaning only five to 10 percent of a person’s financial portfolio should be committed to angel investments at any given time.

Timmins, who said he has invested in 21 companies over the past four years, said the three key questions he asks while evaluating a company are: How good is the team? What is the plan for getting to the first paying customer? And how disruptive is the technology itself? Of the three, he said the first is by far the most important.

“I don’t care how strong the idea is or how big the market,” Timmins said. “In this game, everything can change in an instant. If I have any doubts about the team, specifically the CEO, then I won’t invest.”

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Cohen agreed, adding that a strong entrepreneurial team is also a complete one.

“A developer without a marketer, or a marketer without a developer, and it’s just not going to work,” he said.

And what about the pay out? In response to a question from the audience, all three panelists were quick to caution against becoming an angel investor for the sake of earning a quick check.

“If you’re going to invest in a company, you better be sure that you’re bringing something to the table and that you’re on-board for the long-term,” said Cohen. “And even then, you’re not always going to get that 20x or 50x payout. You should ask yourself, ‘Am I OK with this if it’s only a 3x payout?”

Timmins, who described Angel Investing as a “six to 10 year game,” concurred, although he did note the rare exception.

“I’ve only had one exit so far and it was at seven-times my investment after just 22 months,” he said. “It was with a serial entrepreneur and before I could shake his hand after the sale, he stopped me and said ‘Rick, I’ve got an even better idea.’”

Timmins said he gave the man his funding.