Inflection Point
3 takeaways from my conversation with Angel Network President & Venture Capitalist Eric Alfuth (Houston Angel Network, Caymont Ventures)
We like to find companies building at the inflection point of an industry.
We see deals all the time. But you have to have some underlying foundational thesis to say “Why do I like this deal? … Where is this going to be in 3 to 5 years? What's going to change in the macro environment that either makes this company super successful or is going to really not allow this company to continue?”
Today, I’m breaking down 3 takeaways from my discussion with Eric Alfuth, President of the Houston Angel Network and Managing Partner of Caymont Ventures.
Check out our full conversation + how to connect with Eric here.
The Observer Express
Don’t have time to read the entire post right now? No worries, here are the main points:
Make bets within a broader thesis. An investor’s “thesis” summarizes their beliefs, and these theses can be self-developed or discovered through a founder.
New angels: take it slow. While diving in can be tempting, Eric recommends new angels take 6 months to learn, start with something they know well, and make sure they can answer the question “How does this company make money?”
Startup governance is crazy important. Entrepreneurs need someone to “tell them no,” and Eric believes any startup raising outside funding needs a board.
1. Make Bets Within a Broader Thesis
An investment decision requires belief, and a “thesis” summarizes those beliefs. My conversation with Eric helped me see that developing and clarifying a thesis around each investment decision is an essential skill for angel investors to develop.
There are two basic ways to develop an investment thesis:
Self-developed. (This is best)
This thesis can be formed based on problems personally experienced, professional expertise, analysis of specific markets & macro trends, and more. The point is that this “belief” or “thesis” is pre-existing, and decision-making is fairly simple when a deal comes on the radar that aligns well with the thesis.Discovered through a founder. (Good, but be cautious & do your own research)
Limited oneself to a self-developed thesis may be a bit closed-minded. Eric highlighted how he’s cautious about “the great salesman”, but that being open to learning from entrepreneurs can be a great way to build a thesis. However, it’s important to run one’s own analysis and ask very hard questions before getting on board, since founders are inherently optimistic/biased.
2. New Angels: Take it Slow
Everything is going to look amazing. Everything is going to look interesting.
Angel investing is exciting, and it’s tempting to start cutting checks immediately. Eric’s advice for new angels? Don’t do that. What looks “amazing” will change the longer you’re in the game.
Here are his 3 tips:
Wait 6 months before writing your first check.
Start with something you connect with personally. Ask yourself: Would you buy this product?
Be sure you can confidently answer the following question: How does this company make money?
3. Startup Governance is Crazy Important
CEOs have a boss too.
Eric has focused heavily on startup governance for decades, and his comments reminded me how important this topic is.
You have to have that check and balance because you have a leadership team that sometimes can get so in the weeds of their company, and they start to think what they're doing is the right thing. It's hard for them sometimes to separate that and say, okay, what's the 30,000-foot perspective on this?
When should a startup set up a board? Eric believes by the time they go out to raise outside capital:
If you're out raising your seed round where you're talking to true third parties, people that you might not know, you should have an advisory board in place.
Final Thoughts
I’ve learned a lot from conversations with Eric over the last few years, and this one was no different. It’s easy to be swept away by an entrepreneur’s energy, but Eric’s comments highlighted the importance of developing a clear, well-defined thesis. He also shared thoughtful tips for new angels and left me reflecting on the importance of startup governance.
What Do You Think?
What was the thesis behind your most recent investment? Was it self-developed or something you discovered through a founder?
*I include this section in every post because I’m genuinely curious to hear what you think. I answer every response, so please, don’t be shy!
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Weekly Observations: 3 Lessons Learned
Community builders are rare and valuable.🤝
This week I realized that I deeply appreciate and respect the people around me who go out of their way to build community, especially in the professional sphere. The ability + drive to create space for like-minded people to connect is something special, and I aspire to grow in this skill over the coming years.Focus focus focus.🎯
It is so easy to get distracted by the 1 million things I could be doing. It is so hard to stay focused on the 1-3 things that I must get done.
Critical feedback is like unwrapping a gift and discovering it’s a pack of socks: kind of disappointing, but super useful.🎁🧦
Was fortunate to receive some critical feedback on my work this week. It stung a bit, but I’m so grateful for it and am confident it will make my work better/more valuable in the coming days.
Weekly Links: 3 Things I Found Interesting
The impact of founder personality on startup success (link) +
Study of 20,000+ founders from the University of Oxford (link)
Every company is a cult - and we need more of them (deep dive) (link)
How to think about a startup’s answer to “Why now?” (link)
Tune in next week for a breakdown of my conversation with a Certified Fraud Investigator on the importance of evaluating a startup’s quality of earnings.
Until then, thanks for reading - have a great week.
-Andrew
How did I do this week?
About Me
I cultivate flourishing.
I'm also the CEO of PitchFact, where our mission is to cultivate flourishing specifically through efficient and collaborative early-stage diligence. I'm a proud husband, grateful father, and honest friend. My love languages include brisket, bourbon, and espresso.