Bill Spruill and His Theorem for a Better Angel Way

January 3, 2013 — Leave a comment
Bill SpruillPhoto Credit: Bill Spruill

Bill Spruill
Photo Credit: Bill Spruill

When an investor believes he has an edge, he’s supposed to stay quiet. He’s supposed to focus his energy on exploiting his advantage, not on trying to teach others the methods behind his approach. That’s conventional wisdom anyway.

And yet here I find Bill Spruill, an angel investor who backs software startups (and a stranger to me just a few months ago) explaining his investing strategy in painstaking detail. It’s the day before Thanksgiving, and we’re sipping warm beverages at the Whole Foods café near my home in Raleigh. We’ve rendezvoused at local coffee houses since September, and at each meeting – despite knowing I’m both an investor looking for ideas and a writer likely to tell my readers all that I learn – he reveals a little more about what we’ve come to call the Spruill Theorem for Reasonable Angel Returns.

In a calm and thoughtful manner befitting a college professor, Bill presents case after case for me to consider. This morning he pushes a folded copy of the day’s Wall Street Journal across the table and points to an article about a high-flying social media venture attempting to raise a fresh round of funding. Its prospects are a bit dimmer than the last time it went looking for cash. “What’s going to happen to the early investors,” Bill asks me in his Socratic style of teaching-by-interrogation, “if this effort fails? What’s going to happen to other promising startups looking to get off the launch pad?”

Those two questions signal the reasons Bill wants to tell me and other prospective angel investors about his insights. What we think we know about the risks of these investments may be misguided. And sticking to conventional wisdom carries with it consequences not only for individuals but for the larger dynamic between investors with cash and entrepreneurs with their creative visions.

It’s bigger than Bill’s portfolio.  It’s bigger than any one startup. It’s an ecosystem issue. And Bill believes that debating the ideas of the Spruill Theorem will make for better informed angel investors and ultimately a healthier ecosystem of software startups in our Triangle community.

“Angel investors are heeding the wrong models,” he tells me. “We’re trying to copy the huge successes, thinking we’ll get the same outcomes. But these stories can be dangerous. These models rarely work for angels.”

He pauses for a moment before adding, “We need new models to follow.”

The Ron Margolis Angel Model

In his 1997 memoir, Pour Your Heart Into It, Starbucks founder Howard Schultz celebrates the story of Ron Margolis. The two men were acquaintances in 1987 when Schultz was hustling for capital to turn his concept (then known as Il Jiornale) into a chain of Seattle-area coffee shops. Margolis made a gut-based gamble one night over dinner, cutting Schultz a check for $100,000 immediately after hearing the entrepreneur’s impassioned pitch.

Over the next ten years the initial concept evolved and the ambitions behind it swelled, forcing Starbucks to raise ever more capital to cover its ever-expanding costs of building stores. Margolis hung tight through it all, and at the time of the book’s publishing, his initial investment had ballooned 100 times over. In a ten-year period it came to be worth more than $10 million.

Margolis was a physician with a thriving practice in Seattle. He was eager to parlay the success of his day job into more financial success supporting local entrepreneurs in whom he found the combination of passion and good business ideas. He became an angel, part of that ill-defined class of investors that provides startups with capital in sums as paltry as a few thousand dollars and as high as millions. There are no hard and fast requirements of how big a check they should write, just as there is no established training or education prerequisites for people who want to do it. But in the most general sense, angel investors are like Margolis in that they have success in other professions first and they generally invest in amounts of $100,000 or less at a time.

Bill’s own background fits into this generic profile. He had a decade-long career as an executive in various companies in the data space, and made a comfortable salary with these jobs. He helped shepherd two businesses through financial exits from which he scored a respectable payout. He continues working in the data markets today as a founder of Global Data Consortium, and he looks to align his angel investments with the deep expertise he’s developed in this domain.

While Bill’s profile lines up roughly to Ron Margolis, he recognizes that the typical angel experience could hardly be more different than that of Margolis and Starbucks.

Margolis clung tightly to his investment for at least ten years. During this time Starbucks raised round after round of new money from professional investment groups to fund its rapid growth. Margolis had many opportunities, no doubt, when new investors would have been glad to take shares off his hands for a price that would have represented very reasonable returns to him. But as we know, he never sold.

Indeed, what kind of story would it have been if he had sold? There would not have been a 100x windfall. He would not have been immortalized in Schultz’s memoir for playing the part he did in Starbucks’ success. I would not be writing about him for this article.

This is what would-be angels take from the Ron Margolis story. That he got these returns precisely BECAUSE he stuck it out. It’s a tempting way to interpret the investor continuum (below), that in progressing from left to right – that when the business attracts the interest and money of professional investors like venture capitalists (VC’s) – you’re decreasing the risk of failure and simultaneously increasing the probability of success.

 

Investor Continuum

Bill could hardly disagree more. While the specific type of risk might go away (for example, with more capital sitting in his bank account, the entrepreneur doesn’t have to worry about making his next payroll and keeping his employees from walking out), risk itself does not. Like whack-a-mole, once you tamp down one risk, another one – a new and potentially unanticipated one – pops up to take its place.

The great irony is that the very act of the VC introducing himself into the mix creates new variable with unknowable new risks and consequences. The risk profile has changed. Perhaps it is for the better, but it’s hard to disregard the data from Harvard Business School professor Noam Wasserman. In his book, The Founder’s Dilemmas, he highlights that 65 percent of venture-backed businesses never reach an exit through which they might provide returns to their investors. This includes the 15 percent that fail outright.  Worse yet, for 75 percent of startups that take VC investments and achieve an exit, all the gains go to the VC. Neither the founders nor (we should reasonably deduce) the angels get any money out at all.

When VC’s come in, there is often a cascade effect from the changes they impose as terms of their investment. This introduces new risks, including the risk of absolute failure and zero returns on investment for any early investors.

So what is the lesson from Ron Margolis?

He is an outlier; an exception to the rule. The rule being that the vast majority of startups fail to bring returns to investors who stick it out for the long haul. And that they fail in an absolute sense (go out of business) at an astonishingly high rate at all points along the investor continuum.

Bill says angels are doing themselves no favors in believing they will come out better in their investments by sticking around like Margolis. He believes they are much more likely to end up like the investors in CoMisery, a case study we turn to below.

CoMisery, Inc.: An Allegory for Software Startups

Permit me to lapse into allegory with the tale of a company I’ll call CoMisery (a pseudonym, of course). It is a proxy for an actual business, but I’ve embellished it somewhat to represent the collective experience of dozens of similarly ambitious Triangle-area software startups over the past 15 years.

If the Margolis Model is the outlier, the CoMisery experience is much nearer to the norm.

In 2001 a young entrepreneur burst onto the Triangle startup scene. Bright and full of energy, he saw an opportunity to create a platform that could become the standard around which businesses developed apps and content for all sorts of mobile devices. He started CoMisery. If he moved quickly enough, he reasoned, he could establish a toehold in what would become an enormous market. If he could get enough capital behind his efforts, he told investors, he could build a valuable business.

The CoMisery founder proved adept at inspiring investors’ hopes for a big success while muting their fears over losing their money. The nature of all software startups is about investors exchanging the uncertainty of today for the ambitions for tomorrow. For those that succeed, the rewards are stunning. Everyone is aware of what Microsoft, Google, Salesforce.com, Facebook (I could go on) have done for their early investors. The failures are less well-known, however, lost in the fugue of survivorship bias. They are as stark in their failure as the successes are bright though more numerous by orders of magnitude. And therein lies the tradeoff: the winners win so big that they often blot the likelihood of failure (i.e., losing your money) from investors’ awareness.

Allow me this rough metaphor.  The ambitious software startup is like a shuttle seeking orbit in space. It consumes tremendous amounts of cash, the fuel it needs to build momentum, as it chases first-mover advantage, as it builds economies of scale, and as it acquires competitors in a mad rush to stake its claim on a chosen market. It relies on investors to provide this fuel.

Most of these startups fail. Either their premises are flawed or they run out of fuel and they come plummeting back to earth. But some are able to hit escape velocity where their revenue growth far outpaces their need to increase expenses, meaning they are capable of producing torrents of cash. And whereas businesses that buy raw materials to manufacture evermore widgets (on depreciating equipment to boot) must constantly plow cash back into the growth of their business, software is rooted in the fertile (and scalable) firmament of digital 1’s and 0’s. These companies can grow with minimal reinvestment once they hit escape velocity. Meaning they can payout an enormous proportion of their operating earnings to owners.

This is orbit. It can make software ventures very, very valuable businesses to invest in. And so it attracts investors coming in at all points along the continuum, exchanging the risk of placing bets with early stage ventures for the hope of big returns.

So it was with the promise of CoMisery. The founder turned again and again to investors for cash as he hired software developers, marshaled marketing and sales resources, purchased equipment and bought-out would-be competitors. He raised hundreds of millions in capital while moving through the investor continuum, starting with friends and family willing to open their pocketbooks to him and progressing through angel investors, multiple rounds of venture capital (VC) and private equity on the same path described previously with Starbucks.

 

Investor Continuum

 

Despite burning through cash from each stage, the CoMisery founder was able to convince each new set of investors to pay more per share of his company than did the previous investors. In industry parlance, this is called raising “up” rounds. It means investors are excited and believe your company is on the right path; that it’s increasing in value. This excitement creates more investor demand than the company has need for actual cash/fuel. So new investors might be willing to buy the shares of old investors. They might provide them an early exit and guarantee a return on their initial money.

This is where Bill’s opinion becomes sharp. When a startup is able to generate excitement about its prospects, raising up rounds by bringing in more professional sources of capital, this is the time for the early investors – the angels in particular – to get out.

In the case of CoMisery, they did not. The vast majority of early investors hung-on believing the prospects for the business were getting rosier and rosier; the risk shrinking with each new up round; and the investment ballooning in value.

But that’s not how it worked. For various reasons (external and self-inflicted), CoMisery did not live up to its early promise. It still exists today, though with no meaningful presence in the Triangle. It is a shell of its former self, worth a small fraction of the hundreds of millions it raised.

Back at the coffee shop, Bill shakes his head incredulously at the thought of CoMisery and all the software startups it represents in which early investors clung tight the whole journey up and were stuck as it plummeted back down to earth. They never exited, and so many of them lost their money.

“This was bad for each investor individually,” Bill tells me, acknowledging the obviousness of that statement.  “But it was worse yet for the ecosystem of software startups we’re trying to foster here in the Triangle.” Early stage funding is critical to getting new businesses established. And when Angels are wiped out in high profile ventures like CoMisery, they become either overly cautious about new investments (worried over repeating the last folly) or simply don’t have the funds left to continue as angels. It’s bad for the entire ecosystem.

“It doesn’t have to be that way,” Bill says. “Angels are thinking about their investments the wrong way. They’re following the wrong models.”

Angels in the Ecosystem (Aiming For Virtuous Circles Rather Than Downward Spirals)

The Triangle adopted Bill many years ago when he made a move to Raleigh. He has reciprocated, making a quiet commitment to the success of the community, devoting himself in particular to helping build it into a thriving ecosystem for software businesses at all stages of development. He serves on the board of the Council of Economic Development (CED), he invests in startups as an angel, and he is an entrepreneur himself.

But his most important contribution is the tireless efforts invested in connecting aspiring technologists with resources to help them succeed.

There is a self-serving element to this, as one might suspect. Through countless coffees, lunches, and drinks, Bill cultivates friendships and contacts that keep him in the know; that give him a chance to review a lot of business ideas before they’re widely dispersed. The efforts help his assessment of potential investments, but that makes his dedication to the community no less noble. Bill believes on a deep level that the success of angels like himself is critical to maintaining a healthy ecosystem, one in which capital remains available to fund the best ideas proposed by the most promising entrepreneurs.

In this article’s introduction, it was disingenuous of me to characterize Bill as an investor with an advantage and myself as puzzled about why he might reveal his secrets. He does possess an edge, I believe, but it stems from methodology and discipline rather than a formula. There is little risk that, by parading its tenets in public, Bill’s strategy will be mimicked by competing angels who will arbitrage away the mystical forces that allow it to work. That’s the risk of the high-frequency traders, and their ilk, who depend on black box formulas to exploit their counterparties, who wring short-term benefits from the chaos of the markets, and who cloak their methods with paranoid secrecy.

Bill’s approach is complex and nuanced despite its apparent simplicity. He must cultivate people and ideas over extended periods of time. He must have the financial acumen and domain knowledge to distinguish good ideas from bad and smart investment terms from dumb. And, as we’ll consider in the next section, he must possess the discipline to exit when the reasonable returns present themselves.

It is anything but formulaic. You don’t get a quick return by being clever enough to see which variables can plug into which equations to create a singular solution. No, it’s a long game colored in shades of gray.

It takes skill and intuition born of experience. And it takes time born of a patient disposition. But, most importantly, it takes conviction.

Combining those things is no easy feat.

Bill sees little risk of copycats stealing his ideas. Quite the opposite. The risk is that too few take the Spruill Theorem seriously. The risk is that while angels combine skill and intuition to discern the good startups from the bad, they lack the patience and conviction to stick to a discipline of getting out when a guaranteed return presents itself. The risk is that too many investors perceive the angel investing world in terms of the Margolis Model, but that their outcomes are more like CoMisery.

When angels believe they have a handle on risks, thinking they mitigate them by clinging tightly through the up rounds – using the excitement of new investors buying in at higher valuations as a signal that risk is decreasing – and then they still lose their money…they withdraw. They retreat from startup funding, binding their pocketbooks in a tight knot and burrowing them deep beneath their mattresses.

The impact of this can be paralyzing for a mature software startup ecosystem. It can be devastating for one attempting to get established.

Why?

Looking back at the investor continuum, there is a big gap between friends-family and that place where professional VC’s come in. Once friends-family money has been exhausted, even the earliest stage VC’s remain wary of unproven and immature businesses. Angels become a vital bridge between the two categories of investors. They’re more sophisticated than friends-family and have access to more money. Plus, they tend to have a greater appetite for risk than VC’s.

 

investment gap

 

When angels are scared away, startups don’t have a chance to make it out of the cradle. Would-be founders take note of the scarce resources and either decide not to take the entrepreneurial plunge or decide to try it in a more promising ecosystem (say, Silicon Valley instead of the Triangle).That leaves fewer opportunities for angel investors in a particular ecosystem, and they, too, would have to decide whether to give up the angel trade or whether to continue it in a different market. It forms a downward spiral.

It’s a dystopian outlook, no doubt, but I don’t think it’s far-fetched. Ecosystems are fragile, especially when their key links are weakened or eliminated.

But downward spirals can be turned into virtuous circles by reversing direction. So it’s true with software ecosystems. A better model keeps more angels investing their money. This leads to more reliable funding of startups. Which leads to more good ideas thriving, to more entrepreneurs testing new concepts, and increases the likelihood of more businesses reaching escape velocity.

Bill wants angels emulating the Spruill Theorem because he believes it is a better model. He believes it will contribute to a healthier software ecosystem in the Triangle. And he believes this will give him more options from which to build his own startup portfolio.

A rising tide, as the saying goes, lifts all boats. Bill’s investing does not depend on a formula whose success can be arbitraged away by plagiarizing competitors. In his mindset, the more angels we have mimicking the Spruill Theorem, the healthier all the ecosystem participants become.

So Bill continues publicizing his approach, giving more freely of his time than we might expect from a busy software entrepreneur, and inviting others to learn about his theorem and consider adopting its tenets for themselves.

Spruill Theorem Explained

We know Bill’s process for identifying potential investment opportunities…he is a tireless cultivator of entrepreneurs and fellow investors. In setting up meetings with all these people he simultaneously creates relationships and uncovers ideas for new businesses, both of which ensure he’s never too far from the best startup concepts in the Triangle ecosystem.

In terms of ferreting out the good opportunities from the bad, Bill abides to a strict discipline of only investing in businesses he understands and with founders he sees as capable in the chaotic art form of creating companies from scratch.

But the Spruill Theorem is all about the exit. It’s about eschewing the Margolis mindset of hanging onto a bet for years in hopes of earning a windfall return to, instead, make an early exit that provides lower – but very reasonable – returns.

The Margolis Model says you hang tight through up round after up round of increased business valuation, staying invested for ten or more years while waiting for a return at least ten times bigger than your initial money. The Spruill Theorem says you exit in the up rounds, aiming for two to three years and being happy with a tidy return at two or three times your initial investment.

That’s it. The theorem is that simple.

The Spruill Theorem is about giving up the hope of a homerun in favor of consistent singles and doubles. There will be no Margolis 100x stories for Bill’s portfolio. But it reduces the risk inherent with sticking around as the professional investors come in; the risks inherent with keeping your capital tied up while waiting for the traditional big exits. And so it also means there will be less risk of a CoMisery type story from his portfolio.

Looking at the investor continuum, Bill is suggesting moving the exit opportunities backwards.

investor continuum exit

 

As Bill’s portfolio companies move from left to right on the continuum, it is the venture capitalist money that follows his angel investment. These VC’s are the most likely source of new money that would provide the exit opportunity to Bill and other adherents to the Spruill Theorem.  He is, in effect, asking the VC’s to buy his shares rather than having the company issue new shares. This means the VC’s are taking some of their money and rather than handing it directly to the business for constructive uses, they’re using it to liquidate old investors.

Eager to hear how VC’s might react to this, Bill and I spent time talking with three that work with early-stage software companies in the Triangle.

Venture Capitalists React (Constructive Capital versus Pure Investments)

Two of the VC’s were quick to lend their support to the Spruill Theorem. They saw the benefits of angels getting reasonable returns and getting out of the way when the professional class of investors comes in. Indeed, they both told us they look for similar opportunities in their own portfolios. When they can exit by selling their shares to a new group of VC or private equity investors, they grab their cash and move on to the next investment.

But the third VC (“VC3”) voiced a different opinion. “We have never used our cash to cash out angels,” he told me. “We want every nickel going to product development, sales and marketing.” The Spruill Theorem, he suggested, would not find a welcoming audience in investors like himself who see their purpose as being suppliers of the capital – that rocket fuel – early-stage companies so desperately need to build momentum; to chase escape velocity.

VC3 uncovers an important philosophical distinction between types of investors, and in the process he underscores how dependent the Spruill Theorem is on catching up rounds in the fund raising process.

When investors put their money to work in a business, there are two major scenarios for doing so. The first is constructive capital. This is the money that can fuel growing operations: adding engineers to the payroll, buying equipment, and marketing their products. This money is meant to be spent, and it’s offered at a time when the startup needs it to reach the next milestone on its path; before it’s developed the ability to generate enough cash to satisfy growth ambitions itself. This is the domain of VC’s and especially those – like VC3 – that specialize in coming in very early. The startup will issue new shares of the company, dilute existing ownership stakes, and exchange their shares for constructive capital.

The second scenario is about making a pure investment play. There are times when the prospects for a startup are so good and the investment community is so enamored with being a part of a sure bet, that investors want to get their money in any way they can. If the business wants to issue new shares, the investors are glad to buy them. But if the only way to get in is to cash out existing owners (founders, angels, employees), they’re willing to do that, too. When a new investor buys the shares of existing owners, the company doesn’t get any of that money to use as capital. It’s a pass-through from a buying investor to a selling investor, no different than me buying a few shares of Facebook from another schmuck with a brokerage account ready to sell what he owns. It’s a pure investment play based on the idea that you believe you’ll be able to sell it for more money to another investor later on.

VC3-like funds aim to be providers of constructive capital. As such, like the angels, they play a crucial role in the startup ecosystem. (And, I should point out, Bill doesn’t see them as likely sources to cash-out the angels.) But they all ultimately answer to a higher god…the requirement that they provide a return to their limited partners, those people or institutions that provided VC’s with the money to invest in startup businesses.  And at times that higher god calls them to sacrifice their mission of providing constructive capital and just get in to a business whose shares will be worth more in the future than they are today.

Even if that means using nickels to cash out angels.

This distinction between acting as sources of constructive capital versus being pure investors highlights how much the Spruill Theorem depends on the up rounds. As one of the VC’s said to me in reference to private equity firms, “you’re not going to find any investors doing things out of the kindness of their hearts.” The same is true of VC’s that might provide an exit to Bill when he’s ready to cash out. They’re not likely to do it out of a sense of generosity to him. They’re only going to do it if it makes sense for them. The brutal truth of investing is that investors overwhelmingly play their strength and try to profit from any disadvantage from their counterparties.

The only scenario in which existing investors have leverage over new investors is when the business generates excitement when moving to the right on the investor continuum; when it can demand an up round.

The crux of the Spruill Theorem, then, is that it really only works in up rounds when demand outstrips supply. When investors are generally excited about the business and VC firms are eager just to get in on the investment, whether or not they’re supplying constructive capital. When they are willing to divert their nickels from product development to providing liquidity.

So the up round is important. But even if you secure it, a new challenge arises.

Thinking back on CoMisery, in up round after up round when new investors were willing to provide reasonable returns and an exit for their investment, the angels held on. They clung tightly to their bets, much like Ron Margolis with Starbucks, either unaware of the new risks that popped up or too excited to care.

The Angel Challenge Lies Within

There is an old joke about an oil prospector who dies and is standing before St. Peter at the Pearly Gates. “I’d like to let you in,” says Peter, thumbing through his ledger, “but we’ve hit our quota for oilmen we can allow in Heaven.”

“Not a problem,” says the man. “I can take care of that.”

He cups his hands to his mouth and yells, “Hey, I hear they found oil in Hell!”

The gates immediately fling open in front of a stampede of oilmen rushing out of paradise in a race to the netherworld.

Amused, Peter concedes that there is now plenty of room for the man in Heaven and gestures for him to enter. But the oilman balks. As he turns to follow the herd he says to Peter, “You know, I think I’d like to see if there’s some truth to that rumor after all.”

***

The Spruill Theorem requires the angel to sell at a time when excitement is piqued by new investors coming in (and “pros” at that!) on an up round and saying the venture will likely be worth much more in the future. This taps into a swirl of feelings – hope, desire, greed, envy – that are the clear domain of the emotional side of the human brain.

The irony is startling. Despite the tremendous time required to cultivate all the potential investments; despite the intelligence and knowledge required to winnow all possible candidates down to the few you select for making an actual investment – these processes that tap into the most rational parts of the brain – the real challenge does not lie in convincing the upstream investors to cash you out when the up round occurs. The real challenge lies with having the discipline to take their money and get out.

The real challenge for the Spruill Theorem, in other words, lies within the angel investors themselves.

The Margolis Model suggests that the emotion driving angels to hang on through the up rounds is one of aspiration. The hope that this entrepreneur (whom you worked so hard to cultivate), this business (which you selected for its economic advantages) will become a huge success story and pay out windfall returns. And that by sticking around, you will get the satisfaction (and recognition and cash) of the victory on a big stage.

But I think the real motivation to see it through comes from fear, not hope.  (Though the two here are not so much opposite emotions as they are different sides of the same coin; distinct yet related.)

Consider the following…

In Walter Isaacson’s biography of Steve Jobs, he recounts the story of the third founder of Apple – Ronald Wayne – who came in shortly after Jobs and Steve Wozniak for the purpose of providing some adult supervision for the much younger compatriots.  We have no collective memory about him, however, because he willingly took an opportunity to cash out of the company early. He sold his ten percent stake in the business in 1976 for a total of $2,300. At the time it satisfied his needs for immediate financial security (he was very risk averse), but it left him as a footnote to the grand myth of Apple’s success.

Isaacson tracked Wayne down to his small town in Nevada while doing research for the book and (cruelly) highlighted for him the difference between what his shares in the business could have been worth (potentially billions) if he had stuck it out, contrasting that alternative outcome with the meager hand-to-mouth existence that has marked Wayne’s life since leaving Apple. What if, Isaacson essentially asked, you had the grit of Ron Margolis? What might your life be like now?

My own stomach ties itself into knots at the thought of it!

If the Margolis story inspires our aspirations for holding onto an angel investment, Ronald Wayne’s tale taps into a more powerful motivator. He taps into a visceral human fear that we might have something of great value in our hands, but – because we don’t understand it or fall prey to our own bad judgment – we part with it before its value can be realized.

Ronald Wayne inspires the fear of missing out; of not following that stampede of prospectors rushing out of Heaven, chasing that next great strike of oil, and finding out later they all hit it big and we missed out.

Because I Love to Do It

My sense is that Bill will find adherents to the Spruill Theorem; that his teaching will not be in vain. Other angels will be won over by its rational approach to securing returns while minimizing risk; to the promise it holds to help maintain a healthy startup ecosystem that encourages more entrepreneurs and therefore offers more investment opportunities.

But I’m less certain that many angels will possess the same cool-headed discipline of Bill when their investment attracts the attention of upstream investors. I’m not sure they will have the deep conviction that the theorem works when their rational brains get hijacked by their emotions. When the opportunity comes to cash out in the excitement of an up round, as each angel struggles with the decision to exit or not, he will tell himself in the unnerving quiet of the night how miserable he will feel if he steps away now and it becomes the success all these new (sophisticated) investors seem to believe it will be. He fears becoming the Ronald Wayne footnote.

Bill recognizes all these things. I’ve presented no new ideas to him in our conversations. He will be the first to say angel investing itself is no easy feat; that investors new to the game should think carefully before writing checks to entrepreneurs. Add to that the efforts involved with spreading the ideas for the Spruill Theorem and you get a lot of work for uncertain outcomes.

Yet Bill persists. He continues cultivating entrepreneurs. He looks hard for those new ideas that pass muster and deserve to make it through his selection process. And he continues sitting on panels, speaking at conferences, and taking countless coffee meetings with would-be angel investors in his attempt to share with the community what he believes to be a better angel model.

The dude abides.

The last time we met I run through a similar list of why angel investing seems so hard, and why it’s doubly hard when you burden yourself with carrying the banner of a new model. While two- and three-times returns on investment is nothing to shake a stick at, surely there are easier ways of getting it than angel investing!

“So why do you do it?”

Before I get the full question out of my mouth, Bill has jotted down a note on the paper in front of us and spun it 180 degrees for me to see.

It’s a quote we discussed earlier from an accomplished investor. He circles it and taps it twice with the tip of his pen.

“Because I love to do it.”

Paul Dryden

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