The Realities of Angel Investing

More than a few people I know have moved from angel investing into taking other people’s capital and creating a fund.  I know exactly why they did it because I understand the realities of angel investing.  I never say never but I am absolutely 100% positive that I will never take other people’s capital to invest for several reasons.  First and foremost is I don’t want to be held accountable to my LP’s or anyone.  It is that simple.

All investor should have a thesis and I do.  It is a financial one and it is the one thing that I have stuck to over the years.  Let’s start with some of the realities of angel investing.  You can’t just invest in one although some have and it worked out for them and that is rare.  You have to kiss a lot of frogs to find that prince.  The founders/companies that you think are amazing is not necessarily what the next round of capital is interested in.  That is extremely frustrating because you can’t grow a company without cash and as an angel you aren’t writing the big check.  Having an institutional investor around the table is a huge bonus and one that I’d like to have more of early on.

If you are active, you find yourself doing a lot of work for everyone else who has money in the business.  I have been in countless deals where I was the one who found the cash, made the right intro’s from marketing to PR to COO’s and found myself owning a lot less than the worth I provided.  Now, I would never do anything different because I want to see each company succeed, I want to do the right thing and it is part of who I am but as I begin to see some of these companies highly valued with a semi-clear path to exit, it is disappointing that I won’t reap the financial rewards that are equal to my input.  I can now be smarter about asking for something for this work as I know I deserve it.

I have known this for decades, way before I started angel investing, but whoever has the most cash in or leads the deal has the largest voice at the table.  Everyone leans on them to do some of the lion’s share of the work from spending time at the company, with the founder, interviewing the next round of the C-team and more.  At least that is what I expect those leads to do but sadly many do not.  It is hard to force change that I believe should happen when I am just an active angel who happens to be involved or even sit on the board.  The stories of this are endless.  The lesson to everyone here is just because you believe someone to be smart doesn’t mean they are when it comes to all the nuances of a companies growth.

One day, I will write the book and trust me I have a lot of good stories to tell.  Being an angel investor has been insanely rewarding but there are a lot of realities and it has taken me a decade to really understand them and in many ways how to work around them.  As I firmly believe, nothing in the start-up industry is standard.