How to decide if a "passive" or "active" investing approach is best for you

Welcome to Angel Investing Demystified - a new newsletter that peels the curtain back on Angel Investing, Venture Capital, and Startups.

Each edition, you’ll get a 5-minute recap of one of our weekly virtual events held at Angel Squad. These sessions include anything from fireside chats to interactive deal reviews and workshops from the top investors + operators in the game. 

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With that, let’s jump into our very first edition: How to decide if a Passive or Active Investing Approach is Best for you

Event Overview:

In a previous fireside chat, I facilitated a discussion on the journeys of both passive and active angel investors. 

The chat featured insights from seasoned investors and Squad members: Andy L. , Chief Strategy Officer at Custom Inc., Arti Villa Chandok , a senior software engineer at Coinbase, and Mike MacCombie , a stealth fund manager and community builder.

Charting Out the Two Paths: Active vs. Passive Investors

The discussion began by delineating the two primary investor types: active and passive. Active investors are deeply involved in managing funds, networking with founders, and seeking out deals. Passive investors, on the other hand, prefer participating in syndicates and are content with less of a hands-on approach.

Andy shared his unique position as a "passively active" investor: 

"I've tried to automate my funnel to see as many deals as possible. I want to see 3000-5000 deals a year and invest in 50 to 100 of them." 

Andy’s strategy involves using criteria to filter deals quickly, focusing only on those that meet his investment thesis.

Deal Sourcing as a Passive or Active Investor

Arti highlighted the importance of having a clear investment thesis, even for passive investors. "I'm looking for deal flow only in specific categories that interest me," she said. This approach helps her identify and invest in deals that align with her interests and expertise.

Mike, on the other hand, emphasized the value of community building in deal sourcing. Running a stealth fund since 2021, Mike leverages his extensive network and numerous community groups to source deals. 

"Building a place for things to flow and then stepping into the middle of it has been my strategy."

Performing Due Diligence

When it comes to due diligence, all three panelists agreed on the importance of thorough research. Arti focuses on founder-product fit and relies heavily on available information, such as pitch decks and founders' backgrounds. 

Andy conducts back-channel reference checks and examines customer reviews to spot any potential red flags. Mike prioritizes understanding the company's distribution leverage and customer demand, often talking to customers and other investors to get a comprehensive view.

Adding Value Beyond the Check

One of the key themes of the discussion was how investors can add value beyond their financial contributions. 

Andy shared his experience with Pressed Roots, a company he invested in early. "I have an advisor meeting with the founder every month," he said, highlighting his commitment to providing strategic advice. Similarly, Arti often helps founders with product feedback and connects them to relevant networks to accelerate growth.

Mike's community-centric approach also extends to supporting founders. He runs pre-seed deal flow calls and manages multiple WhatsApp groups, ensuring a steady stream of high-quality deal flow and providing a platform for founders to connect with potential investors.

And…that’s it for edition #1 of Angel Investing Demystified! 

We’ve got some pretty sweet events lined up this month for Angel Squad - so be sure to tune in to next month’s newsletter for a recap on one of these sessions.

Disclaimer: All “Angel Investing Demystified” content is for informational purposes only, and should not be construed as legal, tax, investment, financial, or other advice.