Things I didn’t know about angel investing that you might want to know

Sarah Drinkwater
6 min readMar 25, 2024

A few years ago, I put together a one pager to send out to Big Tech execs, startup founders, doctors, lawyers etc who ask me how to start angel investing.

Now my fund Common Magic is live, it’s more important to me than ever that founders find the right angels for their cap tables. I’ve got a good track record of persuading domain experts to write their first angel checks, most recently Dikla and Helen, and join me on what’s been both extremely fun and life changing. This doc hopes to persuade you to join us. Let’s start.

What’s angel investing?

Startup founders often need working capital to build out their idea, hire and invest in growth. They do this through selling part of their business in the form of swapping equity in the company for working capital (“raising a round”). Venture capitalists (VCs) are institutional funds; often they’re joined in the round by individuals (angels). Often small first rounds can be angel only.

Why should you start angel investing?

“Know first who you are then adorn yourself accordingly” is a guide for life; thanks Epictetus. Basically, know the game you’re playing.

There are a few reasons why angel investing might be for you. All of these are valid.

  • You’re surrounded by founder friends who you think are amazing and you want to back them. You want to back the vision of the future that’s most important to you, or you want to give back to those earlier in the journey than you are. Let’s call this bucket Support.
  • You want to stay close to founders working on frontier technology to inform your day job. Corporate workers often tell me this. Learn
  • Related; you want to move into a new field such as full-time investing. Evolve
  • Then earn — nobody starts angel investing to lose money but it’s worth noting, obviously, the risks of early stage investing. Don’t invest what you can’t afford to lose. Everything takes years; nothing is a sure thing and people are lying if they say it is; and those apocryphal stories about a drunk guy investing $10K into a startup team he met in a bar which turns out to be Uber’s angel round and results in $160M return are often apocryphal. Every angel needs to learn about power law and build a plan that makes sense for their circumstances.

In my case, I’d worked closely with + been around founders for over a decade by the time I started angel investing and, repeatedly, seen teams at idea stage go from there to real scale.

What are basic rules of thumb?

Leverage communities to find startups to invest in and be surrounded by people who’ve invested in them before. I was unusual in that I used to run a large space for startups so had a lot of dealflow but there are plenty of great angel communities or syndicates out there where you can start by looking at as many opportunities to invest as possible. Lean on people who’ve done it before, including microfunds like mine. Alma Angels, Odin* and Operator Exchange were all useful to me at different points in my journey. Often companies and their alumni or professions have domain specific angel groups — such as Xooglers or Developers.VC. Reminder; ask founders before sharing decks in groups like these.

Start with what you know. Unless the founder is a close personal friend, most angels start investing in the fields they know best which makes it easier to understand the technology, market and opportunity. The benefit of investing in groups is that often you can find others who bring expertise you lack, and look at opportunities as a group — which also benefits the founder in that they’re using their precious time to meet many angels versus one. Once you’re feeling more confident, you can follow your curiosity and move into new domains.

Track your assumptions and understand why it feels like a yes. I got lucky and joined the Atomico angel program after only a few investments and a condition of the program was creating memos. Memos are where you map out assumptions from markets to team to metrics. There’s so many great examples online (check out Sequoia on YouTube) and I find these critical in understanding later what I was thinking and tracking progress.

Check sizes are smaller than you think. One of the reasons I started angel investing so late is that I genuinely didn’t think I could afford it. But my very first angel investment was £5,000 into Near St (thanks Nick and Max). With special purpose vehicles run on sites like Odin* it’s easier than ever to start small for both angels (affordability) and founders (cap table management).

Understand why you’re a yes for them. Similar articles on angel investing often talk about traits of great founders but that’s pretty personal — ie I’m biased towards great communicators who know themselves and are fixing their own problems.

More importantly if the average commitment you can make is below £10,000, then you have to consider how you sell yourself and earn your place on the cap table.

The best founders will always have the ability to pick; make it easy for them to say yes to you.

Here are a few types of angels I’ve observed:

Brand — well-known angels, founders or those well-known in their field who will look great in any announcement of the raise

Customers — people that work at or bring deep connection to the target audience the founder is selling into

Domain expert — a thought partner in a particular domain from building technical teams to GTM. As an example, I learnt in the market my twin specialisms of community strategy and narrative (how to communicate what you do to general customer base, investors and hires) were unusual and useful and this allowed me to move horizontally from only investing in what I knew to stretching myself into new verticals that also needed this skillset.

Sounding board — the “coach” profile who can be a critical friend to the founders. Often these are ex or current founder/CEOs.

Buy a copy of Venture Deals and accept there will be things in legal documents you will need to ask stupid questions about until the end of time (always better to ask the question).

Think about “portfolio” even if that feels grand for YOLOing into a friend’s startup. Power law holds that within your portfolio of angel investments the majority of returns will likely come from one outsize success. This has implications for both the size of check you write and the number of investments you do. There’s no one way but ~30 investments is often thought to be a good power law number and I consistently wrote similar size checks.

So you’ve had your check accepted and the investment is signed, now what?

Time to get to work.

Bluntly, you’ll be better than most angels simply by reading and replying to monthly investor updates and not getting in the way (founder time is very important. Don’t waste it).

This is where knowing your role on the cap table comes in handy. Have a kick-off call, specifically ask where you can be useful, know it’s fine if the answer is “we don’t need anything right now” and try not to send articles about competitor’s massive rounds.

Congratulations, you’re now an angel investor!

And two things I continue to learn:

There are lots of good angel investments out there that aren’t venture scale.

Venture capital works well for a small amount of businesses but not all.

Several of my favourite angel investments are in companies that I wouldn’t have been able to do through Common Magic; in some cases, the company will become a profitable great business but not the right scale for venture; in others, the valuation doesn’t fit what funds like mine need.

This is where angels can lean in.

And don’t forget to have fun.

This is such a people business. A few days ago, one of my favourite founders called me and told me he’d managed to sell part of the company after a gruelling year all round. My first gut feeling was relief for him, me and the wider team. And, even though life is long & I’m sure we’ll work together again, the second feeling was a little sadness it’s almost the end of this very specific journey together.

I made money and had fun. What else can you ask for?

*disclaimer — I’m an angel investor in Odin.



Sarah Drinkwater

Solo GP Common Magic, investing in products with community at their core. Into communities, the best uses of technologies, London, looks and books.