15 Angel Investments and All Failures

Last week, I gave a talk at a conference. After the event, a gentleman came up to me and started asking about the local startup community. After going back and forth for a bit, it became clear that he was interested in angel investing.

He then shared that he had already made 15 angel investments over the past several years, and every single one of them had gone to zero. Worthless. He participated through local angel investment groups. It wasn’t him running around by himself writing checks. Like many of us are told, he diversified. He made a number of investments with the expectation that one would perform exceptionally well and make up for the losses of the others.

But here he was, after 15 investments and all failures.

Reflecting on his story, I’m sure he’s not alone. I’m certain there are many others who have made that many angel investments and seen them all fail. We know that the vast majority of startups fail. We know that 99% of startups never achieve $1 million in revenue. With those kinds of statistics, it makes sense that there’s a meaningful probability that 15 angel investments could produce zero winners.

So what should someone do?

Number one: invest with a local venture fund.
Become a modest limited partner in a reputable local venture fund. Use the experience to understand how they select entrepreneurs and evaluate startups. Spend time with the portfolio companies and look for ways to add value. Then consider participating in select follow-on rounds for the startups you believe in most.

Number two: invest when there is an experienced lead.
If a successful angel or venture capitalist is leading the round, the odds improve. Experienced investors have pattern recognition. They have seen what works and what does not work. The biggest challenge for first-time angels is what I call the “leftovers law.” After deals have been shopped around to professional investors and experienced angels and everyone has passed, they often make their way to newer angels who are eager to get started. Frequently, there is a reason others declined.

Number three: invest in areas where you have unique expertise.
Many angels I meet want to invest in tech startups but do not actually work in the tech industry. They come from law, medicine, finance, or real estate and want to dabble in tech because it sounds exciting. It is often far better to invest in startups within your own domain of expertise, where you have a genuine informational or network advantage. Invest in what you know, not what sounds cool.

Overall, my goal is not to dissuade new angel investors. Entrepreneurs need capital, mentors, and advisors, and angels often serve as all three. My goal is to help angel investors increase their odds of success so they continue investing and build long-term relationships with entrepreneurs.

The great thing about startups is that this is not a zero-sum game. The more innovation and invention we create, the better off everyone is. We need to invent the future, and angel investors are an important part of that ecosystem.