The Tools of Angel Investing

Part of the annoying thing about angel investing is that you’re ostensibly investing in CUTTING EDGE FUTURE STARTUPS who are about to BRING THE FUTURE TO YOUR FACE and in order to do this you have to go through some of the worst software and processes on the goddamn planet: banks, and laws.

Some cool stuff remains, though.

Money

EUROPEANS AVERT YOUR EYES FOR THIS SECTION

Thank god we got all the Eurovestors to skip this section, because it’s going to be a disaster of our own American™ making.

Our banking system is trash. I don’t have to tell you this; everyone knows it. But it’s particularly bad if you want to do things with the money at your bank. (Don’t worry; if you don’t want to do anything with your money, banks are still bad.)

I have burned through so many banks over the years. First, you start with one of the Big Four banks, because that’s what you bank with and you figure hey, I have money here, let’s send it to someone. There’s your first mistake: it seems banks employ scores of teams specifically to prevent you from sending wires or ACHs. (This was facetious when typed, but honestly… probably not wrong, considering the fraud they incur from this broken system.)

Some banks will bury transfers behind administrative debris: first you have to create a Company record, then a Person, then you have to add their bank details with pasting disabled in your browser because they assume typing 9+17+17 numbers by hand is going to be less error prone than pasting it directly from your wire instructions.

You’ll also see process limitations: sometimes you can only send three wires a month, or only receive three wires a month. Or maybe they’ll cap transfers at $1,000. Or I’ve had one bank straight up not allow me to send transfers at all unless I call in and repeat the numbers by voice to my banker.

I had many other points to add here, but this is not designed to be an anti-bank screed (you’d be here reading for forever). Suffice to say, American banks don’t want you to move your money.

Eventually I just realized it’s best to actually go with a bank that is designed to transfer your money. I ended up going with Wise (normal link and referral link if you want some fee-free transfers or something). Wise was built specifically to transfer money quickly and cheaply globally, and it turns out they’re pretty good at it. Their security is quite good (but not overbearing), they let you upload a PDF of wire instructions and parse the account numbers and amount for you, and generally it works great as a sort of “slush fund”, where you just use it as a holding account before sending out or receiving it elsewhere. They also have a kind of sudo mode like we built at GitHub where you’re not constantly getting hammered by 2fa requests.

Other possibilities: Mercury normal link and referral link, and Rho.

Legal entities

One of the things you can play around with as an angel is how you invest in companies, legally. There’s a few different approaches:

• Invest as yourself, under your own name (easiest)
• Invest as your trust (easiest for estate planning)
• Invest as an LLC

I’ve done all of them (and then some), for varying reasons. The first two are fairly straightforward: I’ll cover the latter briefly.

One thing I loathe as being a more serious angel is that you get lumped in with all the other angels who might invest in one or two companies a presidential term but still call themselves an “angel”. You see a lot of funding rounds of “We raised from Sequoia, Hustle Fund, and a bunch of angels!” It’s that “a bunch of angels” which is kinda shrug.

Something I’ve done in the last few years is incorporate Tifo as an LLC, in an aim to group my investments somewhere between traditional venture fund and occasional angel. It’s nice to have a separate brand you can expand over time. For incorporating I just used Doola, which I’m not a huge fan of but it exists as an option. If I did it again I’d probably just use Stripe Atlas for the LLC- I’ve incorporated a c corp with them a number of times over the years and it’s just not trashy like Doola and all the other registrars are. There are some concerns with investing out of an LLC if you want QSBS treatment; give it a research prior to jumping into things.

One other more advanced approach you can take: I also have a trust for Tifo which specifically invests out of my Roth IRA. My dad, of course, thinks this is a terrible idea, but it’s not a meaningful amount of money, and it’s something I can afford to risk. The benefit of this is twofold: any gains you make are tax-free, and it also involves far less reporting overhead (to the point where it’s actually pretty alarming how much you just… don’t have to report to the IRS; makes life much simpler). My Roth investments are primarily short-to-medium term bets in later stage companies, with the hope to compound faster and with (slightly) less risk than a pre-seed company I might normally invest in.

There are some real concerns with this approach, though: QSBS treatment might save you a lot of taxes, anyway, so that underlines another motivation to look towards later-stage (ie, non-qualifying) companies for this. You also do have some reporting and bookkeeping concerns — it’s not just totally the Wild West here. And there are some critical laws around self-dealing which is a huge no-no.

It’s also a pain in the ass to do right now. You want a “checkbook IRA”, which allows you to write checks for qualifying investments as you see fit. Best I’ve spotted is Rocket Dollar, who tries their best to break their platform every couple of days (it’s currently not allowing sign-ins for the last week because… reasons?) But at the end of the day it does let me make these Roth investments, and hopefully in another decade I’ll have billions of dollars in it like some other truly evil people in the Valley.

Portfolio tracking

Once you shoot a wire over to a company, you really should track its performance over time. I just launched Signed for this reason. No, I’m not going to make a harder sell here. If you’re interested in seeing more, go check it out; it’s fucking awesome.

Meeting notes

The other thing I wish I did more religiously during my first few years of investing was taking a lot more notes during pitches, during 1:1s with portfolio companies, and keeping track of things better. I’ve used various CRMs for this over the years — now I used Signed, of course — but the point is to use something. The more founders you meet, the harder it is to pull these conversations to front-of-mind years after you made your initial investment. There’s too many beers in life to keep track of them all in your head.

Turns out I suck at taking notes, though, both in school and also as an investor. I also feel like a dick, typing away as I go, instead of actively listening. I’m not the first investor by any stretch to suggest Granola, but it really is the best at this point- let it transcribe your call, it’ll mix it with your own notes you want to focus on, and then you can dump the transcript into Signed or your CRM or however you want to do it going forward. Did not think I’d ever be a “notes” guy, but here we are.

So that’s what I’m using currently. Probably will change by tomorrow, though, given how fast things are moving these days. (And if you’re building those new things… hit me up.)