I recently attended as a speaker on a panel talk with HustleFund on “How to Decide If Passive Or Active Angel Investing Is Best For you”. Active Investing is generally akin to running a fund and/or sourcing your own deal flow in what we call outbound while passive is frequently responding and investing to incoming deal flow.

But the caveat here is achieving a successful passive strategy requires picking up the low hanging fruit and then some. The process can be automated but initiating those processes requires upfront work and given there is no right way to get deal flow and the medium continues to evolve, there will always be a need to build some active strategies in to the mix. In order to become “passive” successfully you need to build up the right “channels” that meet your criteria and identify to your thesis and continue to actively help founders or add value to co-investors such that the flywheel continues to meet your goals.

Let’s define what my inbound success criteria is – similar to HustleFund’s hilariously early investments, I lean heavily on investing in pre-seed and seed stage deals aiming to hit 10-20 deals a year with a minimum 1k check size annually. In order to land success early stage, you would need to try at 100+ investments to hit a probabilistic ratio to land 100x bets. Learn more on portfolio construction here. In addition, a significant portion of my investments are QSBS qualified or invested through my AltoIRA alternative asset Roth IRA, accounts to maximize investing with no tax on gains if the sole purpose is to continue investing, via early acquisitions or liquidity. As long as the investing accounts are partitioned off, you can repurpose any proceeds for future investments.

Given the best deals are oversubscribed*, in order to win this strategy, you need to start active-passive and shift passive-active. That’s a mouthful so what do I mean? To start “active-passive” means finding “channels” where you can get deal flow and then find co-investors who are already participating in those deals or “channels”. I’m in well over 21 syndicates on Angellist. A lot has been said about the signal vs noise ratio on joining syndicates on Angellist but given the enormous existing network of investors, if we believe the best investors remove friction on wiring checks quickly, it will continue to attract the best syndicate leads and consequently deal flow.

As you amass enough syndicates with high quality and volume of deals, you can advance from discovery to your selection process. We’ll skip selection for another writeup but it’s critical to have an investment thesis. Investing by nature is opportunistic so it requires having a view of the world where the future state has products and services that will be infinitely more valuable that are under appreciated or simply do not exist.

You can have multiple thesis but in order to be an effective passive-active investor, you believe something of the world AND can provide value given your unique brand & skills. However, here is a cheat code. You can greatly increase your value by making your existing network active.

I recall the excitement when I first reached out to a founder based in Egypt who had a strong product design background and wanted help with his GTM and fundraising process. I felt helpless. It took me years to realize actively helping meant putting in the effort to reach out to my own network and paying attention to a diverse set of operators and investors who can and are willing to help. Through my experiences, here is what I believe to be true of the future state of the world.

Investing in private companies is becoming more mainstream over the next decade and new risk profiles will underwrite a new class of emerging investors. How we raise funds, who we raise from are becoming universal and accessible and the tools and services unlocking the formation of internet-enabled businesses is ripe for disruption. Technological advancements in fundraising and utility in web3, ease of distribution through new media and the creator economy and trends in AI, no code and low cost infrastructure capture a significant mindshare in my investing decisions.

As an active operator and engineer I spend majority of my working week building 0 to 1 net new products that further enable developers to create multi-million dollar ventures. In addition, as an engineer working in venture-backed technology companies for over a decade, I’m continually exposed
to products that form a vast majority of successful SaaS b2b2 technology companies.

There isn’t a single way to source deal flow and there certainly isn’t a single way to add value. Here are few steps I’ve taken to expand deal flow.

• Joined well known angel networks HustleFund, Gaingels with diverse investors and build relationships complementary to your own brand/skills sets.

• Joined Alumni networks dated back from high school, Slack channels from past jobs, web3 DAOs I’ve actively participated in, and any online communities I could think of. If you’re an active web3 developer you can also get access to exclusive communities of builder and hackathon networks.

• Find operators who run Syndicates you’ve worked with or have come to learn that match your investing thesis through podcasts, newsletters, and events.

• Leverage twitter to meet interesting new investors from your initial group.

• Upcoming startup founder networks where operators are looking to build something i.e. OnDeck, Pioneer, raise funds i.e. YC list, RaiseSeed, where builders are building profitable companies ie. Acquire.com, IndieHackers, or launching new products

In addition to joining, I would recommend reaching out and lending a hand simply by asking syndicate leads on how you can help them with the skills you currently possess.** Key is to join for quality as quantity will come with time and repetition.

You can pair these inbounds with any distribution channels you create through blogging, podcasts and dinners with operators. Simply letting people know you are investing in your social media profiles will get you access to deal flow.

While founders have a vast network of founders who have already started companies, a huge percent are new founders who do not have existing networks. And professional investors including emerging managers and large scale venture capitalists have built up the largest deal source simply being around for a long time. And often that deal source won’t fit their criteria. I’ve seen a significant portion of new investors that are simply building co-investor relationships and gaining an allocation.

The easiest way to be helpful is to create a collection of angels in your network that can help with jobs you aren’t an expert on and assist with, advise or help vet candidates that can help with a given task.

If we’ve already connected online, feel free to join my network on Brdg

*some links include affiliate links because I share what I use and I use what I believe in. ¯_(ツ)_/¯
*it is preferred to do this in an async manner via a personal website or a 1 pager you can forward

It’s been over 2 years since I started angel investing and while I’ve always had a deep knack and enjoyment from trying new products and betting they will exist for the forceable future, being a successful investor is so much more than ‘build something people want’. I figured if I’m good at picking products that people enjoy using and using myself that also can reach profitability, how they reach profitability matters as much if not more.

The contrary in itself isn’t true either. I’ve seen plenty of products that have become dominant forces in their verticals that are not loved by their users. Ultimately it all comes down to capital efficiency; how much is a product or service worth and what does it cost to build and distribute it. Macro economics such as the cost of capital largely impacted by interest rates, barriers to entry constructed through regulation all play a major role to what is the underlying unit economics.

All companies that go public when aren’t doing well can be acquired at an attractive rate via private equity. It’s an interesting thought exercise as there is no set valuation and returns are simply the delta between the price equity ratio of the market values and your value of that share at a point in time as well as the entry and exit points during the lifecycle of that company. This is why its’ said, it’s often not enough to be right, others have to be very wrong as when the price is baked into the market price there is no delta.

So what factors demolish your chances of winning even if the company does do well? Luckily there are only two that matter and they’re both in the

Not all startups are created equal. Paul Graham defines a venture or entity that has the potential to grow fast. Often, people conflate the term to mean something that raises capital for growth. And if it doesn't, it's bootstrapped.

Most often, people use the term startup to define a trade with the hope of building a venture that can potentially grow through raising external capital. And given today's fund structures external capital is seeking a 100x return as there are plenty of options to invest under the lower risk asset returns (i.e real estate, public stock, commodities)

Why does this matter? Because raising funds inevitably reduces your optionality. You're looking to build something that can scale where the product or service can be replicated at no or low marginal cost; and software provides the highest leverage leading to startups being software or software enabled companies.

Given the majority of products lean on software as an enabler, early teams predominantly have a higher breakdown of technical roles. So having a technical role or being closer on a technical spectrum is a favorable skill. Note, people often misconstrue being technical as writing code but its a much larger spectrum.

Here is a breakdown of some hybrid skills that be valuable to any team particularly at the earliest stages.

- Being a product manager with data analysis skills and setting up product events in app or write relational queries to build meaningful KPI dashboards is an easier and valuable skill to master. i.e Segment, Metabase, Zapier, Airtable.