Naval: One great reason to angel invest is that it keeps you sharp. It’s an incredible way to get educated and stay up to speed in technology. Great founders will seek you out and spend an hour telling you what they spent the last year learning.
Investing also exposes you to the different ways you can start a company. You’re doing a C Corp, but somebody else is doing an LLC. You raised money from angels, but somebody else went straight to VCs. You did the two-founder model, but others did five founders and someone else did the one-founder model.
Founders want to be backed by other founders
A lot of the best founders end up dabbling in other people’s companies as advisors or investors because they want to be good at everything. They’re building the foundation for a skyscraper, and they’re going to be very careful laying down those initial beams and bricks. The best way to figure that out is to talk to other smart people with skin in the game.
The best founders also want to be backed by other founders. They want to know the people they’re taking money from have first-hand experience. Especially on the angel side, being a founder often will help you get into a deal; whereas a pure financial investor may not.
Founders have unique networks and deep expertise. They may also have a unique advantage with dealflow from an incubator they went through; by being branded as a successful founder; being a domain expert; or having advised successful companies.
Investing aligns interests
Investing also is a way to give back. Many founders have a story about how someone took a chance on them early on, or about their first big break. Now you get to give other people their big break. You get to create the change you want to see in the world by supporting it financially.
Investing also helps align you with others. If you’re the kind of person who’s often driven by envy—which, let’s face it, many of us suffer from—one great thing to do is to align your interests. Now, all of a sudden, you’re backing somebody and you want to see them win.
Advisors have adverse selection
Another good reason to invest is to teach—what better way to learn than by teaching? You can also do it as an advisor. But as an advisor, you tend to own a lot less.
There’s adverse selection to being an advisor: Very often the best entrepreneurs don’t need or take advice. Sometimes it can work out, because of strong relationships and expertise. But just stamping your name onto a company that barely knows you is not going to make you much, and it’s not going to do much for them either. Investment is often a cleaner way to do it.