Now that Facebook has gone public, there's a lot of newly created wealth on the scene. History has shown that newly created wealth shops the startup scene like a kid in a candy store. Over the course of the lifetime of a new angel investor, they'll do 70% of all of the angel investments they'll ever make in year one. Then they realize that some of these companies will hit a wall, demand a lot of time, and that it's all fun and games until someone gets an eye poked out--or so the saying goes.
With a little patience, forethought, and strategy, you can avoid angel burnout. Here are just a few suggestions:
1) Advise first, invest later. Before you start writing checks, just spend some time with startups. Being a good angel or VC has a lot to do with pattern matching. This takes time--it took me 8 years from the time I evaluated my first investment as an analyst until the first deal I led. Fred Wilson spent 7 years apprenticing at Euclid before he started leading deals. You need to see more patterns of success and failure than just the ones you experienced yourself as an entrepreneur. In fact, taking your own startup experience and assuming that all of your lessons learned apply to every startup is probably a really bad idea. Its certainly not a way to become a great advisor. Great advisors help entrepreneurs come up with the answers themselves, versus just giving them all the answers as you see them from your own experience.
2) Network with as many other angel investors as possible. You're going to want syndication partners on the deals you find and sounding boards on the thesis behind each of your potential investments. Other angels are a source of dealflow and can be leads to the kind of talent your portfolio needs to hire to be successful. Consider not only joining existing angel investors but recruiting other successful investors from your industry to join you as well. Investors with industry expertise are invaluable in helping disruptive startups cross the chasm.
3) Start with funds. Angel investing is part lifestyle, part asset allocation. You want to share your knowledge and help companies, but you also believe that new and innovative companies represent a good return opportunity over the long run for a small piece of your wealth. If that's the case, you're going to be highly undiversified starting off. Early stage finds give you the opportunity to get exposure to the asset class without putting all your eggs in one basket.
When you invest in a seed fund, you also get access to an investment manager who is in the market 24/7 and who has the ability to spot trends, compare similar companies and see patterns of success and best practices. A mutual fund manager won't give you their portfolio strategy but most seed funds love having a network of angels to syndicate deals with. If they can help make you a savvier investor it only helps them--so it's a little like getting an investment advisor with asset class knowledge for free. A good seed investor can help you vet deals and tell you why or why not they'd be willing to take certain risks in the deals you send them. Keep in mind, though that a 100k fund investment in a 100 million dollar seed fund doesn't buy you the same kind of access that an investment in a smaller fund would.
4) Journal your progress. There is something about having a platform to write and share feedback that turns on the trendsetting part of your brain. If you've never blogged before, you might not get what I mean, but it's akin to how our view of the world changed the moment we all started carrying around cameras in our pockets. There wasn't suddenly more to take pictures of in the world but we started noticing things more--little things in passing along our commute, up in the sky or in the faces of the people we love. Technology slows the world down long enough to let us pay attention to move of it.
When you pay attention to trends and patterns, and chronicle your reactions to them, you start to form and test a philosophy. You essentially productize your advice, honing in on more standardized sets of actions you can suggest that entrepreneurs take. These are actions that are much more well thought out, with more scenarios taken into consideration. Writing forces upon your thinking a logical structure--a story--that has to hold up. Otherwise, all of your advice sounds like your best advice, until you tell someone else.
5) Focus. Startups attempt to narrow down their value proposition as being "X for Y". It's not such a bad idea for angel investors either. Do you help adtech startups get traction with brands? Are you a PR maven for fashion startups? Honing a particular skill to offer will increase your dealflow and make more teams want to add you to the mix. I can say firsthand that after placing over two dozen people at startups in the last two years that I get investment opportunities specifically because entrepreneurs ask me to help out with hiring.
Never stop learning. The NYC tech community in particular has been built on knowledge sharing. An entrepreneur can start from scratch to learn prototyping, customer acquisition, sales etc. from peers that have learned firsthand. Why not attend if you're an angel--even if you just successfully exited a startup. Given the pace of innovation, the world this current batch of startups is playing in differs greatly than the environment yogurt three years ago. Keeping up to date on the latest trends makes you a more valuable investor and will help you vet deals more effectively.