Angel Investor Alex Pattis Shares the Dos & Don'ts of Investing

In our weekly Insights from Angel Investors series we get into the minds of the top angel investors to help you learn how to activate your network, where to start, and rookie errors to avoid.

We’re super happy we recently got a chance to chat with mega angel Alex Pattis and find out what makes him tick and what angel investors can do to get on the cap table of their favorite founders.

Alex spent ten years as an operator, of which nine of those were in early stage startups. Because he is based in New York, throughout his career he met many people from all walks of life and saw cool companies being built, which naturally led him to creating a network and writing small checks for early stage companies.

Fun facts:

• He loved zero-to-one building and the scaling process.
• He didn’t know much about angel investing at first, but had a strong interest in spending more time with founders, seeing all types of business models, and learning what was working and what wasn’t from an insider’s view.
• Despite working in tech/startups himself, his initial deal flow actually came from friends who worked in finance who were interested in early stage investing.

First company you invested in?

It was called Exec, a sort of social spending app. It was eventually acquired, so it wasn’t necessarily a great outcome, but a good start nonetheless. At the time, I was too focused on product and what it could be versus what it was and how to get to more wider consumer adoption.

What unique angle did you use to pitch yourself to founders and what expertise did you provide to advocate for yourself?

Because I was an operator, I had experience in understanding how startups worked, and so I knew how to be helpful with go-to market strategy and acquiring your first customers. I think that's one of the best angles for angels to get into competitive deals.

On the other hand, one thing I want to point out is -don’t overpromise!

If you overpromise, it hurts you in the long run versus having one or two things that you're really good at. Having designated people on the cap table who can go really deep with one specific thing can add significant value.

Best way to build a relationship with a founder?

I think the best way to win over a founder and start a good relationship is to add value before you even invest on the cap table.

I spent a lot of time networking with VCs and trying to understand what types of deals they like and what types of founders they're interested in backing. I positioned myself as a hustle guy who could help source deals for them and in turn for me, it was helpful to build a VC network that I could make intros to when I was interested in participating in companies’ pre-seed rounds.

What are some common mistakes that founders make when they pitch to you?

I think one “mistake” that comes to mind immediately is just being overly confident. I've never come across a founder that had an easy path to building. I just don't believe that exists. I like people who are honest and real and can say, “here's where I think we're really well positioned.” When people say it's going to be easy or make it feel like things are going to be easy, there's going to be more of a challenge for them.

Another thing is when founders try to hype up something to build FOMO (which I get is very much part of the strategy to get a term sheet, get the right people at the table, and get everyone to move quickly), but that kind of turns me off. It’s similar to me saying that I'm going to be helpful with a bunch of things and then not following up. I end up just shooting myself in the foot, and I think it's the same with founders. I think you have to find a nice medium there.

Red flags that stop you from investing in a founder?

Being overly confident and creating FOMO just to get investors.

I actually joke about this with one of my partners who has spent more time in institutional venture capital than myself. We've now seen multiple companies that have raised big rounds and the founders are really good at fundraising, but not at actually building a company.

Some of those founders have not necessarily had bad outcomes, but big down rounds, major layoffs, or bad PR that has caught up to them.

Any interesting stories that you have around companies that you've heard about in untraditional or unexpected ways?

Nothing particularly funny that comes to mind, but since I've spent my career in sales, I'm very comfortable doing cold outreach.

How much do you think angel investing is strategy vs. luck?

It’s a bit of both. Networking and access is a huge piece of the strategy — whether it's building relationships with other investors, your portfolio founders, or agencies who support early stage companies from branding, product marketing, etc.

I also try to be active in sharing deals so that people keep me top of mind for other deals they're doing. It's really about being consistent with networking, building a good reputation with those you encounter, and staying top of mind by paying it forward.

Tell us in one sentence...

Two angel investments that come to mind that you're proud of?

Pair Eyewear and Selfbook.

What's the company you wish you had been able to invest in?

A company called Mystery. They provide tools for distributed teams, like helping engagement and monitoring in this new remote environment and are backed by Greylock. I think there's a huge opportunity ahead given the shift to remote work.

Any anti portfolio companies (companies that you passed on that have now done really well)?

Yeah, plenty. One that comes to mind is Coterie, a baby diaper company. I remember meeting them in their office. I don't even remember what the terms were, but it probably would have been a 50x investment.

What VC or angel do you look up to?

I really like Zach Weinberg, founder of Flatiron Health, who runs Operator Partners. I just love the successful operator investors. I think they add tremendous value.

Any industry or sector that you're most excited to invest in 2023?

Yes, two. I’m continuing to double down on SaaS and community businesses. (like PIN!) I think there are flywheels that can be created for a lot of community businesses when you hit the right product for the right community, and there's a massive growth opportunity there.

What advice would you give to novice angel investors?

Narrow in on selling yourself. Forget all the things you can do and just talk about the things that you will do in terms of value add for an entrepreneur and connecting the dots.

Maybe the dot is a VC they're looking to talk to. Maybe it's a partner. Maybe it's a customer. I think connecting dots and making those good intros are significant. The earlier you are, the more significant the impact.

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