Take Notes
How angel network operators improve the member experience by writing deal memos
Memory Loss
Humans forget a lot.
Therefore, the ability to write stuff down is an incredibly powerful tool.
That’s why it’s so essential for investors, and specifically angel network operators, to take the time to document their learning and decisions while the information is fresh.
The Observer Express
Don’t have time to read the entire post right now? No worries, here are the main points:
We forget a lot.
Working with members to draft some form of deal documentation, such as a deal memo, can be a massive long-term value add.
As with any step in Angel Ops, there is a range of methods available to attack this problem: DIY, DWY, and DFY.
It’s Science
In the 1880s, German psychologist Hermann Ebbinghaus tested his memory over different periods. He plotted these findings on a “memory curve” which shows how most humans forget information exponentially over time. Unsurprisingly, his results showed that about 50% of all new information is forgotten within a day, and 90% is forgotten within a week.
Throw in the cacophony of distractions constantly calling for our attention in today’s hyper-connected world, and it’s no surprise that our brains struggle to sort through it all.
This begs the question - how can the angel network operator effectively help community members remember what they’ve learned and decided?
That is the entire focus of the second job in the Close step of Angel Ops: Create Deal Documentation.
Let’s jump in.
Angel Ops Step 4: Close, Supporting Job #2: Create Deal Documentation
As a quick refresher, Angel Ops, which I introduced in this post, seeks to map an answer to the following question: What does the process at a world-class angel network look like? Angel Ops is focused on the backend process of running deals and groups the workflow into five core steps. Last week I introduced the first supporting job in the Close step: addressing questions. The overall objective of this stage is to help members decide whether or not to invest, and (when the decision is affirmative) that decision culminates in a commitment to do so.
Step 4: Close
Job: Help members make a final decision on whether or not to invest.
Progressive Outcome: Commit - Members invest.
Within each core step, there are 3 “supporting” jobs-to-be-done that contribute to the primary job. This week, we’ll explore the second supporting job within the fourth step: Create Deal Documentation.
Status Check
At this point in the angel ops process, we will have effectively sourced a company raising funds, evaluated that company through our process, introduced them to our members, and (as discussed last week) addressed the questions our members posed.
Now it’s time to take some notes. Those “notes” can take many forms, but one of the most common forms of “deal documentation” is the deal memo.
What Was I Thinking?
A deal memo is a single document that summarizes a startup and the opportunity behind it in a concise format. It consolidates all the interactions, research, and experience with a particular company into a single artifact that can be easily referred to in the future, and typically includes a decision or recommendation. One is (ideally) created for any deal that is seriously considered.
These are most often used by venture capitalists (VCs), who must be able to defend any investments they make (or ones they don’t). For example, Bessemer Venture Partners, one of the oldest VCs in the country, has published some of their memos as a fantastic reference point.
But unlike VCs, angel investors are not expected to “defend” their investment decisions. It’s their money, their decision, and their risk. Plus, memos take time and effort to create, and many investors would prefer to allocate those resources elsewhere.
So this critical artifact is often overlooked. That’s where a world-class angel network can shine.
DFY, DWI, DIY
I’m a big fan of Alex Hormozi’s “Delivery Cube” framework, which helps business leaders consider creative new ways of delivering products and services. The cube has 6 categories for delivering a thing, and the most applicable of those categories to this particular issue is the “level of effort” scale.
There are three levels for angel network operators to consider when it comes to working with their members to create deal documentation, in order from lowest to highest engagement:
Do It Yourself (DIY) (Least Valuable)
Provide frameworks, templates, tools, resources, and other guides to help members easily and consistently keep track of what investment decisions they made for each deal they seriously considered and why. One time upfront job to put this together, zero ongoing effort.
Done With You (DWY) (Medium Value)
Following the “Answer Questions” step, coordinate with members to help them individually or collectively draft a memo distilling down what’s most important and where they land. Ongoing effort to coordinate and support the process.
Done For You (DFY) (Most Valuable)
Following the “Answer Questions” step, consolidate all prior diligence, questions asked/discussed, feedback from each member, and engage each interested member to understand their intentions and reasoning. Generate a deal memo on the group’s behalf. Ongoing effort to consolidate research, engage members for their perspective, and generate the final document.
Final Thoughts
This step is often overlooked in the scramble to handle the other steps in the angel ops process, and it’s an area I’m hoping to learn more about over the coming years. However, I believe that to scale and grow a world-class angel network, helping members keep track of their experience through quality deal documentation is an essential investment.
What do you think?
Does your community create deal memos? If not, how do you keep a record of key information and decision-making about the deals you seriously consider?
Weekly Observations: 3 Lessons Learned
You never know what opportunity is going to come through the door.🕑
This week a hot project hit our desks through a friend of a friend. To be honest, we didn’t have the capacity to handle it, and we almost turned it down. But hey, I spent 4 years selling into oilfield production. What did I learn? If someone needs it now, they’ll pay whatever it costs to get it NOW. So you name a price and figure out how to make it happen. We did, and it paid off for all of us.
Referrals are insane.🤯
This week I met with a connection who I was referred to by another acquaintance a few weeks ago. Neither of us had much context for the meeting, but after swapping introductions he said to me “If you know X and they went so far as to send you my way, I’ll do anything I can to help.” And he actually meant it - he volunteered to go the extra mile in several surprising ways after speaking with me for less than 30 minutes. Wild.
Economics matter.📊
This week, I attended the Rice Alliance for Technology and Entrepreneurship Energy Tech Venture Forum in Houston. While there, I ran into a former Schlumberger executive who now runs a $1B+ fund at Saudi Aramco. I like to think I’ve seen a lot of pitches, but this guy has probably seen THOUSANDS, all concentrated in the energy world. So naturally, I asked him: “What’s one thing you look at in an energy deal that most founders miss on?” Here’s what he said: “The economics. Their financials are often built around the basic assumption that XYZ product will sell for $2,000 per ton, but how do we get to that price point? That material might sell for $750 on the market today, and many fail to think through the ramifications to their business if those price expectations are not grounded in reality.”
Thanks for reading, have a great week.
-Andrew
If you enjoyed this post, please share it with a friend, colleague, or anyone else who may benefit.
P.S. - I recently finished creating The Angel Network Toolkit: 90 Resources for Cultivating a Thriving Community of Pre-Series B Investors, and I’m sharing it with anyone who refers a friend.
How did I do this week?
About Me
I cultivate flourishing.
I'm also the CEO of PitchFact, where we help angel networks conduct efficient and collaborative diligence. I'm a proud husband, aspiring father, and grateful friend. My love languages include brisket, bourbon, and espresso.