Angel Investing: the cheat code to finding the best jobs (at any stage of your career)
Start investing early since it's more accessible now than ever
Hot, pre-IPO companies are known paths to wealth, and tech workers know to search for those companies. The early-stage startups that can set employees up for true financial freedom are harder to find and harder to value.
Angel investing helps solve both the access and the change of life-changing wealth problems. Newcomers can start early by joining platforms such as AngelList and investing as little as $1,000 per deal.
Once you start investing, you will gain broader perspectives on the startups' ecosystem and keep a pulse on the market.
You can track startups' progress from founders' monthly/quarterly updates as an investor. The updates allow you to gain valuable insights to identify break-out companies.
Combining these insights with a much broader network will provide you with the ultimate cheat code to find the best jobs with the potential for much higher financial upsides.
Let's dive into why I think angel investing can help you plan your next career move with some examples of the current market environment.
Broader Perspectives on Startups' Ecosystem
Most tech employees who work at one of the FAANGs or tech startups can tell you how demanding their jobs are, and they spend most of their time zooming in on their careers.
As a part-time angel investor, you can have a broader view of startups and the tech ecosystem, as highlighted by my fellow Hustle Fund Angel Squad member, Ryan Endacott, below:
"Angel investing has given me exposure to many more perspectives on startups/biz. Felt like I only had one piece of the puzzle before, and now I can see the whole system in action from different points of view. Lends to a much greater understanding of what's going on."
When you look at startup deals, you'll learn about the dynamics within the startup ecosystem, from the fundraising process to founders engaging with different stakeholders such as investors, strategic partners, major customers, etc.
Let's use early-stage startups as an example. By angel investing, you will learn what to look for in solid startup founders from their domain expertise gained prior experience to their track record of executing with little resources. You will understand better the challenges of founders building startups from 0 to 1 in the early days and juggling fundraising to ensure the company has enough runway to survive.
As an angel investor, you will be able to make a difference by providing much value-add help attached to your small check. Value-adds include leveraging your operator's experience and providing valuable advice to making intros to investors and potential engineers, and designers recruits.
Once startups find product-market fit, founders gradually shift their focus to building the company. For example, founders might ask advice from experienced operators/investors on building out different teams in the organization, such as sales and marketing.
Experienced operators and venture capital partners are in demand to guide founders to scale when they enter the growth phase, including developing strategies and finding the best candidates for VP roles.
Find Breakout Companies before Tech Crunch
As you become an active investor, you get previews of what founders are working on before it becomes well-known in the market. Examples include learning about the next Web3 startups in meetups, following YC startups launching on Hacker News, and getting inbound intros from other founders and investors.
You will get a more profound understanding of different fundraising strategies, where founders target different types of investors to raise capital for each round.
Important decisions made by leadership teams become more apparent to you, from figuring out how much capital is needed to provide 12-18 months of runaway to how to find PMF. In addition, you will see how founders figure out how to grow tractions by 10x to position the company for the next round of funding.
Startups often hold off announcing their fundraising rounds on influential sites such as Tech Crunch by six months or even longer. Founders do this to leverage the positive news for product marketing and soft-launch their next fundraising effort.
In other words, by the time you read about certain hot startups on the front-page headlines, founders might already hire for the position you want, or you missed the chance to join the startup before the equity value increased by 5x.
Build Network instead of Networking
Anytime hot startups post some of their high-paying jobs online, the recruiting process for those jobs becomes very competitive. Candidates often improve their odds by making more efforts to network to land those hard-to-get interviews. This type of job-seeking networking is often narrow-focus, where alignment is imbalanced.
By nature, angel investors build a broader network with more balanced alignments by sharing deal flow. As an investor, you can quickly scale your network faster by meeting other angel investors, founders, operators, and partners within the tech ecosystem.
Investing aligns the interests of both investors and founders to form and build that relationship. Once you start to invest in companies, you will have the opportunity to help founders work through some of the challenges of company building.
Founders commonly include an "ask" section in the monthly updates. This "ask" is where angel investors find the opportunity to add value, such as making valuable intros to potential investors and customers/partnerships. The experienced operators/angels also often provide tactical advice to help founders with hiring strategies, designing product processes, creating OKR systems to helping to prepare companies to scale.
As the startups show traction, you will already have the inside track to identify potential break-out ones. When the right job opportunities open up at those companies, you already know their needs. You have already established strong relationships with founders who can see the value and experience you can bring to the table.
With more and more operators starting to invest, I believe angel investing is the new networking for future job opportunities. Your next dream role could come one day, working for your portfolio company.
Keeping a Pulse on the Market
As you become more active in the market, you will naturally follow the activities of the key players in the system ranging from traditional VCs such as A16Z and Sequoia Capital to emerging cross-over/growth equity funds such as Tiger Global, Coatue, and more. If you are not as familiar with those firms, you can read more about them here and here.
Given the influx of capital in the tech ecosystems, more investors are competing for deals than ever, which has resulted in startups raising huge rounds at sky-high valuations.
At this point, you are probably asking how does following the market help tech employees plan their next career moves. Let's go through some examples of the forward-looking insights from the market that will be useful. Note that the following data (as of March 2022) might be stale by the time your read this section.
Stock Market Sell-offs' Impact on Startups' Valuations
Since Q4 2021, we have seen a significant sell-off in the global stock market. This sell-off is caused by a "flight to quality" shift as investors are concerned over macro events such as rising inflation that triggers interest rates increase for 2022 to geopolitical problems with the invasion of Ukraine by Russia.
The recent stock market sell-off also lowered tech company valuations. Major investors such as Tiger Global have adjusted their private investments at lower valuations. As public tech companies are trading at much lower multiples, deals repricing also occurs at late-stage startups.
Cross-over funds suffer from significant losses in the first quarter of 2022, so expect fewer deals to get done in the near term. These funds have already shifted towards the more attractive public tech stocks, reducing the demand for private companies.
Employees' Equity, Stock Options Exercise & Retention
Many tech employees do not know how to value their startups' equity from talking to multiple Hustle Fund Angel Squad members and former colleagues.
Most late-stage startups employees who do not follow the public market closely might not know that the current market value of their illiquid equity is not as high anymore, as indicated below:
Instacart announced they cut their valuation by almost 40% to $24 billion as I am writing this. As a pre-IPO company, Instacart needs to make this surprise move to make its equity compensation package more attractive and in alignment with the current market conditions. New and existing employees will be able to potentially earn their Instacart stock at a more attractive issued price instead of hoping for the market to rebound significantly to see profit from those shares.
If you just received an offer from a late-stage tech startup such as Instacart, it's beneficial to have these market insights to guide you in your decision to join or not. It could be helpful to use these market data to negotiate the equity portion of the offer, such as asking for more shares or adjusting for a shorter vesting schedule.
In addition, it's normal for startups employees to receive stock options. On the other hand, exercising those options is not as straightforward for many employees since they don't fully understand their companies' equity value.
One of my angel investor friends shared insights on how her former manager used to figure out their startup's current equity value by checking EquityZen before deciding to exercise the options or not.
To provide some better context, Carta recently tweeted that over $580 million of vested, unexercised stock options expired in 2021. Leadership teams who care about employee retention would be concerned about seeing such data. There is a greater need to teach employees about equity ownership to ensure less money gets left on the table in the future.
Joining Early-Stage Startups
For tech employees who are thinking about joining early-stage startups, the equity value of the compensation is a bigger unknown to many people. Early-stage startups are risky and don't have a close proxy to value these equities, unlike late-stage companies with the public market. For this reason alone, I recommend that tech employees start investing early to learn how to value startups properly.
For example, if you receive a job offer from a seed-stage startup, you should ask questions like an investor, such as "do I see this company will ever be worth 100-1000x in the future?"
Here is a fascinating insight from a Twitter thread discussing joining a seed-round startup vs. Series A. None of this is investment or career advice, but it's a novel way to look at how to choose early-stage companies.
As an angel investor that primarily looks at early-stage companies, I also notice that seed round startups are becoming more attractive to invest in and join as employees. Platforms such as AngelList have significantly increased the number of investors in the ecosystem, including solo angels, operator/part-time fund managers, solo fund managers, etc. Seed-stage startups are becoming more capitalized as a result, where founders can offer very competitive salaries to Series A startups, as referenced by the thread above.
At the same time, we have seen numerous new startups that provide solutions to help other early-stage startups build products and go to market faster, reducing execution risk.
Given today's current market conditions, seed startups are more attractive to join than Series A startups, given reduced risk and almost 100% increase in stock compensation.
Next Step
My next post will be a comprehensive guide on how to think about your startup equity like an investor. It will include figuring out the equity value of an offer, equity dilution, and whether you should exercise your stock options. Please subscribe below to get notified.
If you are interested in learning more about investing or have more questions about this, please reach out to me on Twitter.
Thanks to Haley Bryant, Ryan Endacott, Jaireh Tecarro, and EJ Lawless for reading drafts of this and providing valuable insights.
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Great article, Chris! I appreciate your perspective. I've also really learned a lot from the Angel Squad community and finding ways to demystify access to capital and help founders grow their businesses.