The Angel Investor One Year Rule

Angel investors are a unique type of person in that they’ve been successful financially (or won the gene pool lottery) and enjoy taking more substantial risks by investing in startups as opposed to standard investment options. As angel investing is more art than science there are a number of quirks or interesting rules that angels come up with based on experience or intuition.

Recently I heard a new angel investor rule that I hadn’t come across before: the angel must have known the entrepreneur at least one year before investing. The best time to raise money is when you don’t need it, and needing it in less than one year is the case for most entrepreneurs raising money. For this angel investor, requiring the one year minimum works well in that there’s a fair amount of time to see progress with the business, build rapport, and show value to the entrepreneur. On the other side, the opportunity to invest might not present itself again, the valuation could go up substantially, or something else might happen. There are always pros and cons.

What else? What are your thoughts on the angel investor’s rule to have to have known the entrepreneur for at least one year before investing?