Just Say NO To Angel Investing
Beginning in , for the first time since its enactment in , Sec. The stock must have been directly acquired via an original issuance from a U. Well what do you know? My investment in the gin company back in meets all these qualifications. The other saving grace of this deal is a performance bonus. I had a lot more desires as a 29 year old than I do now. Just expect your money never to return. But he was my friend and I admired his drive and hustle. Just make sure there are no nasty covenants in place. No wonder I like real estate. I was kicking myself in for not taking the risk in a business I knew pretty well as an online media business owner.
Facebook decided to change the rules and made third party ad exchange providers irrelevant. I wanted a deal in exchange for helping promote their product, but they said demand was too great for them to negotiate. How do you do that? A few months later, the company shut down. Venture investing is seriously risky business. Advice For Startup Employees: Sleep With One Eye Open. Please feel free to share the bad outcomes as well. Like anti-dillusion of share ration. Anti-dilution and no liquidation preference are important clauses that protect minority investors.
I insist on both in all my angel deals. Where you can still get screwed is that a future VC investor may value existing small angel investor at a discount to the next round valuation, which if a startup CEO is desperate to raise funds, will accept. I intend to write an article soon on my own experience as a direct angel investor and as a small shareholder in a boutique VC fund. The thing is, you can have all those conditions for your round, but subsequent new rounds may have different conditions based on the demand of new investors.
Can you talk about your VC experience? What were your returns like as a VC and how about as a founder? This will be fun. Essentially angel investing cannot be compared to just one investment a person made. Are all angel investments like this? Angel investments should be compared to s and there are a handful that work resulting in outsized returns!
I feel like with Shark Tank today everyone wants to be an angel investor. Shark Tank hardly shows the risk since they hardly want to make the Sharks look bad on TV. Your post also reminds me of some of the dumb money floating out there. There are a lot of bodies down there. I think it is safe to say that unless you are prepared to spend a lot, and I mean a lot, of time doing research and conducting due diligence, angel investing is an opportunity best left on the table.
A few years back I was lucky enough to participate in a class at a US University lead by a couple of VC investors, and my takeaway back then was more or less the same back then. Thanks for sharing your personal experiences with angel investing Sam! But your stories really help hammer home the point. In particular, the lack of liquidity would be a good concern for me especially considering the low average returns.
He wrote a book about this topic!? Please tell me you have another post in the works that looks at the argument from the other side…. I hope your private investment as well that you leave a comment or write a guest post about your experience when it hits big! But my wrist parameters were completely off. But over the long run, it tends to hurt. The other start up looks to be more promising as a food and nutritional product with good sales traction.
I probably invested too much in the first company but I learned a lot in the process. A lesson that may prove to be very expensive but only time will tell. And they changed the rules on their ad exchange, and Triggit basically lost the majority of its revenue over night.
The second thing you said was my screw up too. Just over-diversify so you can handle the losers which will be a super majority percentage. Worrying about whale or VC challenges is like worrying about Wall Street portfolio managers. If you have any more comprehensive data, let me know. This type of thinking generally happens in a bull market. What are some of your angel investing wins? Thanks for writing this post. I think I somewhat suspected what you have in this post.
My parents who worked hard all their life and still does, always ask my opinion on whether they should look for high return and risky investments so they can bolster their retirement savings for the last 10 years or so before the get to the typical retirement age. With all the points you had made about why you and me should not be an angle investor, hopefully I will have more convincing arguments to explain to them why investing in a start up isnt they way to go for the average investors, and even less suitable for someone who should be protecting their nest egg in the later stages of their career.
Fascinating experience you had. I bet those employees were elated to get severance packages. However, not as much fun to pay for them, though? I think angel investing is hard and you better have a whole lot of capital to risk in order to get the rewards. Heck, I still beat most actively managed mutual funds doing this ,and the returns, compounded, are quite high. I think the most important one to consider is no one values your money like you do.
The potential to have your investment diluted is also a big risk when it comes to VC.
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The rest exist to satisfy demand among fund managers for venture capital as an asset class. It also sounds like you invested in a business you and the founder! Hi Andrew, thanks for sharing your thoughts. I love to get real examples from the community. What have you learned along the way? Can you talk about whether that deal made you and employees well off? It seems like venture-capital us are getting asymmetric returns.
OK, so you are investing via crowdfunding platforms. Was there any sort of nice windfall for you and the employees? But I consistently see this not to be the case. So it would be insightful to share whether you were able to get a nice windfall as the CEO of the acquired co. You did mention that he decided to be a stay at home dad.
So surely there was something decent? Unless your partner is doing well. And using AngelList, FundersClub, and others has been a great chance to review hundreds of different companies and their pitches, which is really useful due diligence practice. Indeed, one of the challenges with running a company like that is competing for talent against companies that are able to offer stock options, even though in many cases the likelihood of meaningful payout on those options for a regular startup employee are quite low; we were more successful in going after folks looking for more stability and a better work-life balance than the startup world.
There are Angel Investment groups and networks out there which allow smaller check sizes 5k and allow you to spread risk in companies. Most cities have one. Transactional attorneys know them well. Not sure what the return will be — if any. You really need to go into it with the mindset that you will likely lose all your money.
I did it mainly because I love small business and startups. With a nice exit on my own business I wanted to help support some local entrepreneurs. What was the total amount invested in the start ups and how long ago did you invest in them? How many of the nine do you think will actually provide a return? Investing in nine start ups is pretty good based on the advice of the Sequoia capital partner provided me. Laziness to the rescue! Based on the numbers you have here, maybe that is a good thing.
I too did some Angel Investing awhile ago. I invested in 2 companies directly 10k seed, 25k, series B directly and 1 fund startups 10k. This was over 4 years ago. So far the results are hit and miss. The 2 companies I directly invested in are executing on their plan but likely at least another 5 years out until a liquidity event or bankruptcy.
I liked Startups because the risk was spread across multiple companies. That being said the Startup Fund update was less then encouraging and the iRR has turned negative. Frankly, I expected a better run fund from startups and so far they are all hype, poor execution. Tim Ferris is a must read and eye opener too on Angel investing!! Having 45k deployed, I too am done until I see a positive result, which I am not expecting. Fascinating insight about Startups fund revaluing down their book so the IRR is negative.
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Keep us posted about the Startups fund! Maybe you can even share a guest post? I love this stuff. Figure out WHO is the one getting richer? Congrats on the windfall!
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Been angel investing for over 10 years and you make some great points. A couple additional comments —. If you are going to do it, invest with someone you have directly worked with during your career.
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Any nice returns you can share? I also do equity-only advising where I trade advice, intros and other stuff for equity that vests like an employee monthly for year terms. I have amassed a decent size portfolio. I work hard marketing myself, networking with other investors, doing due diligence etc. Like anything else, it takes time and work. Unlike anything else, so much of it is out of your hands. I think maybe one of my current deals will end up being a huge hit which will make the whole experience worthwhile and maybe help me raise a fund.
Or just add to the portfolio for a nice passive income bump. I like the strategy of advising for equity, especially if you like the company and want to be a part of the growth. Hey Sam, great article! I was a high level employee at the time and was largely responsible for a lot of the growth we had seen over the past 6 months I had started in April of that year. Because I was inside the company, I had a level of knowledge that other people outside the company were not privy to.
I myself was running the sales department so I had a very intimate pulse on the company. Additionally, I felt as if I was buying more equity in a company that I was in large part running. Anyway, I invested 30k in the round our minimum buy in was 5k for that round. Fast forward to now when we just closed a round with a private equity firm.
The company invested 2. We still believe there is a lot of growth ahead for the company but the plan is to sell the full company within years. As the head of sales, that certain does privy you to great financial information. May I ask how old you are and how diversified your investments are?
One of the best ways to get rich is to take concentrated bets…. And nobody thought they could lose in , and they lost. Based on the valuation from the PE company buying in, my total shares from grants and purchases at the company are worth k right now. Aside from that, me and the wife also 28 have k in index funds and k in equity in our house. So total net worth is a little over k right now.
We do have a few covenants that could trigger that would be less than ideal for shareholders. When I was 28, I was taking mad risk in everything! Mostly things worked out, but sometimes I blew myself up so badly. Seriously, thanks for this perspective. Thankfully I have not tried to hard to do so. I think for most of the readers here, I agree with this post. I think there is certainly a time and a place for angel investing, depending on where you are at financially. If you are still in the beginning and growth stages of your wealth accumulation… angel investing should be avoided.
You need every dollar of capital you have to invest in your own assets to ramp up growth. However if you get to a point where you have massive amounts of excess cash coming in on a regular basis, generated from solid, safe and secure assets, angel investing could be a lucrative, speculative way to make additional fortunes. Not only can you make extremely high returns, but you are helping other investors realize their dreams. Angel investing can hit 2 birds with one stone in my view; helping other investors get their business up and running and potentially offering a good return on my investment.
The game of angel investing is all about doing due diligence… also, as an angel investor it is smarter to go heavy on solid prospects rather than spread your investments thin across many business ventures put all your eggs in one basket and watch that basket! Watch several episodes of shark tank. Notice that each individual shark does not invest in a business venture on each episode. So as I said, once you get to a point of financial ABUNDANCE, a point where your wealth begins to multiply upon itself at an extremely fast pace, continuing to gain velocity each year without any effort on your part, then maybe angel investing could be an option for you if you know your stuff on business of course.
One other point I want to make. By the time a company holds an IPO the insiders early investors, angels, VCs etc are selling their shares for many times their original investment. Just my 2 cents…. I agree with your last point. By Series C or Series D, it becomes a pile on. But again, those angels and early series investors are experiencing their 1 out of investments that are actually going to be a home run and make up for their losses.
Just Say NO To Angel Investing
Folks just believe that all these huge growth companies are out there for everyone. Honestly, I was surprised at the tone of your post. Your angel investing record contains one mediocre outcome and two dodged bullets… not exactly a huge sample size. Also curious what the pre-money valuation was during the time of your investment. Valuations were far more reasonable then than they are today.
You might be singing a different tune! But I completely agree that the individual, part-time angel is at a severe disadvantage to the professional. Have you considered checking out platforms like AngelList to do angel investing? You can also invest in their funds for a more hands off approach. That was also 2 years ago. STILL in private beta. Do you notice something from the comments? Usually people brag about their successful investments.
EVERY angel investor is hopeful until the lights turn off for good. Yes, investing via Angel list and other source deals is fun. Get back to me in 5 — 10 years and let us know how you do. Better than a poke in the eye, but is it really worth it? Its also my impression that the D space is already full of way too much me-too junk. Thanks for the reply, Sam. Get into almost any group and somebody has something or is doing something better than you.
Those daily rituals that invisibly serve me or undermine me are there for my picking. The trick is to start with one. I written lots about the power of habits for increasing productivity, but good habits will also change your outlook. What seemed impossible can be nibbled away with one simple daily ritual. Take 2 minutes at the end of the day to appreciate the commitments you made to yourself — the more you do this the easier is becomes to keep the next habit. When you ask for what you want, resistance gets off the wheel and opportunity moves to the passenger seat.
But, when asked if they want to buy a copy of my book for all delegates at the time, that was equivalent to paying my fee they wrote a cheque. If we are going to do good on this planet we need to know we can make a difference.
Call it power, abundance, karma or confidence…I want you to be rich. A great starting point is to run a quick survey of your audience and ask them what they need. Speaker, author, athlete and founder of BlogWorks. I speak and write about getting stuff done and the art of growing younger. Blog , Habits , Wealth Tagged: Hi Hugh Thanks for sharing all your great tips. We are in playa del Carmen for a few days on vacation. We as Canadians are wealthy because we can read, have shelter, clothing, and abundant food.
I agree that an attitude of gratitude helps encourage an abundance mindset. There is a great blessing in being generous in spirit to give to those in need, and to recognize our responsibility to share all of our resources, time , money and energy. I also am rich in my relationship towards God and towards others. That is a great legacy that no one can steal away.
Elaine — thank you for that. Mrs Elaine Froese I thank God for your life with all you have said now… How I wish I would be in a position to say something like this one day because am very poor and the little I earn here in my country, I spend it on my old parents. God bless you also Mr Hugh. Hi Hugh, A very Dear friend sent me this information. I already feel as if a change in my finances is around the corner. I need the money to go to China in May, and have no idea how to make it happen. But I keep telling everyone that I am going. Love this one, Hugh, and the sassy, yet kind, attitude that underlies it.