David Cummings on Startups

A Viewpoint Against Angel Investing

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David Cummings

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Tucker Max has a new piece up titled Why I Stopped Angel Investing (And You Should Never Start) outlining some of his theories and lessons learned as a successful angel investor. With so much excitement and exuberance in the tech startup world, especially for angel investing, it’s important to understand some of the counter points.

Here are a few notes from the article against angel investing:

  • 2 reasons he stopped angel investing:
    • There aren’t enough good people to invest in (and too much money is already chasing bad deals)
      • Poor education on going from tested idea to scalable company
      • Young and inexperienced founders thinking they know everything
    • Angel investing is a poor use of time
      • Majority of time should be spent on the best and highest use of skills, with everything else delegated or outsourced
  • The biggest thrill in angel investing is that people flatter you and beg for your resources, and that makes you feel powerful and respected
  • The entrepreneur is doing the important work, not the investor
  • 2 reasons no one should be an angel investor:
    • The economics of angel investing work against all but a select few
    • The structure of angel investing works against all but a select few
  • If you have to be an angel investor, do it as a syndicate on AngelList

I agree that most people should approach angel investing as a way to help entrepreneurs and to stay engaged or learn something new. As a way to make money, most people are better off staying away from direct angel investments and instead syndicating through a successful investor.

What else? What are some other reasons against being an angel investor?

Comments

2 responses to “A Viewpoint Against Angel Investing”

  1. Anand Thaker Avatar
    Anand Thaker

    Glad to read about different viewpoints on the matter. I agree with a number of points you’ve outlined especially related to pride and expectet ROI. The following points are not negative, but a few other reasons for focusing on that may not suit an excited entrant to angel investing:

    1. Give back – The startup, entrepenuerial and MarTech communities have provided me a great deal professionally and personally investing at this capacity is a way to give back. I imagine many angels support causes. You still want to play the role by remain selective and expecting results.

    2. Be a Patron – Similar to the theme above. I would love to solve every challenge and create every disruption, but these’s simply not enough time. Some of these relate to part a bigger picture. Regardless, supporting an entrepreneur as an angel allows you to extend your exploration, insights or/and innovation.

    3. Inspiration & Connectivity – Yes, being an angel can be inspiring. Tap into new perspectives, energy and appreciation.

    Note, these are reasons beyond expecting a multiple ROI or badge of honor. Its not what most people expect, but there is a place for this type of inbestment in an individual or group portfolio.

    Reply
    1. Bernie Dixon Avatar
      Bernie Dixon

      Angel investing is in an asset class and just like real estate or collecting antique cars, you need the right skills and attitudes along with the ability to preserve your reputation. I have rules:

      1. Have fun and enjoy the people. Entrepreneurs are bright and mostly inspiring.
      2. Always be productive and helpful with an entrepreneur. We’re not in the business of killing companies.
      3. Realize the risk because most start ups fail. In three years there is an almost 90% chance the company will be out of business.
      4. Invest in your passions. You will be giving much more than capital.
      5. Join a network of other angel investors like the Atlanta Technology Angels. You will be floored by what others know. It will save you time, you’ll get a great education and it helps with the other 4 rules above.

      And maybe even consider reading the book, Angel Investing by David S. Rose. It takes the notion of angel investing to a whole new sport.

      Bernie

      Reply

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