Personally, I love Angel Investing! Not only does it provide an opportunity for outsized returns (if you’re making good choices) but also, compared to being LP in the early-stage Venture Fund it often allows you to have a direct line to founders, which tends to be awesome, and an opportunity to contribute to business success. 

Yet as I found helping to organize Coroot “Family and Friends” pre-seed round, not everyone thinks this way!   Even among my high net worth connections who have capital available, many are not interested, even before they know the project.    Sometimes the reason is the lack of time they need to evaluate if it is a good investment or not being familiar with the logistics of making such investments, in many cases though I think it is something different…

Early stage Angel Investing is not different to other early-stage investments, such as those done by VC funds – overall most startups fail, resulting in complete capital loss, and even if you’re good at picking winners you will have to deal with large amounts of failures and many people… just do not like it.  Even worse, while failures often happen within the first 1-3 years after investment, you may need to wait 5+ years for that runaway success to fully materialize,   making perception even worse than reality.

Investing in some form of early-stage fund, which makes a substantial amount of investments makes failures less visible and also with regular NAV calculations can make you feel good about unrealized investments quite early in the game. 

This reminds me that Entrepreneurs, like me, tend to have a higher risk tolerance and ability to deal with failures – it is an important part of the entrepreneurial journey, though I’m probably more risk-tolerant than average even among this group. 

If you like Angel Investing as an idea but are not sure where to start and how to stomach it, I would suggest starting by thinking about it as Gambling but with higher expectations of returns and possibly even more fun. If you’re OK losing $1000 in Las Vegas you probably will be OK losing it on your Angel Investment too.  Start with your play money, not retirement money, especially before you get a feel for how it works for you. 

The other good practice is to build a portfolio of investments, rather than have a single investment and look at portfolio, rather than single investment performance – some 20 investments would be a good start. 

Finally, you may want to spread your investments in time over multiple years as for various reasons some years may turn out better than others.

This may sound like a significant amount of work, and it is -work tends to be required to achieve good long-term outcomes in about every field.   It is essential if the financial results of your Angel Investing are your primary goal, which it might not be, it is not uncommon to do a small number of “investments” in businesses led by family or friends with the primary focus of supporting them or supporting the mission of the company  – many contribute to charities after all, where no direct financial return is expected. 

If you invest in your Family or Friend’s business for this reason, I would suggest asking yourself a question whenever investment loss is likely to ruin your relationships, and if it is worth it in the end.   Thinking about such an investment as a gift may help. 

I’m having fun doing Angel Investments and I think more people can have fun and profit from doing it too!

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