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.



Comments (Archived):

  1. pointsnfigures

    Yup. All true. Some of the things that has been hard with going from being an angel to being a small fund: 1. Raising said fund. 2. Having to pass on deals because it doesn’t fit the fund profile. 3. Having to pass on deals because it doesn’t fit the math of the fund-meaning I can’t put enough cash to work to accept the risk/reward of being in the deal-especially at a particular valuation. 4. Passing on deals that you think are good, but won’t be large enough exits for the fund to make it pay for LPs.

  2. Bryce T.

    “just because you believe someone to be smart doesn’t mean they are…” So true. Can really be applied to a lot of things. Something I wish I learned a little earlier in my career.

    1. pointsnfigures

      Credentials sometimes throw you astray as well. That degree or whatever might not mean they are street smart, or the right fit for whatever hole you are trying to fill.

    2. Gotham Gal

      The earlier you learn this the better. Lol

  3. LE

    One day, I will write the book and trust me I have a lot of good stories to tell. See now when I saw the title “The Realities of Angel Investing” I thought you were going to talk about people who want to freeload off of your hard effort and knowledge to be able to angel invest. As in ‘tell me how to do it’ or ‘let me know and I will invest along side of you as you guide me and tell me what took you years to learn!’. Then I was going to make a comment talking about how when I used to wax and wash cars to earn money back in high school, there were always people who would want to ‘wash the suds off the car’. In other words they wanted to do the fun part and easy part without having to do any of the hard work. I use that expression to this day to describe people who aren’t willing to put in the time. [1]I love posts like this by the way real world and real experiences (which is why a book would be so interesting).[1] For a short time my niece worked for a congressional candidate in upstate ny (picked by the dem party) who eventually decided to drop out because he didn’t want to do any fund raising. He wanted the job but didn’t want to do all the things needed to get elected.

    1. pointsnfigures

      Y Combinator has seminars in how to angel invest

  4. Susan Rubinsky

    I would be very excited to read the book!

    1. Gotham Gal

      i might have to totally retire before writing. 🙂

      1. Jeremy Robinson

        I want to read your book too! Looks like you’ve got some advance orders here. I have to think all the work you’ve put in as an Angel has also made you feel pretty darn good about your ability to help folks at companies you really care about. And if I have to choose between being a rich person and being an altruist, I’ll always pick altruist [although both would be nice- J]

        1. Gotham Gal

          for sure…

      2. Susan Rubinsky

        I totally *GET* that. That’s why I stick to poetry. Even then, I often miss the deadline/goal.

      3. LE

        I think the way to do that is to write a little bit at a time whenever you are moved (by positives or negatives) with no pressure at all. And no schedule. No deadline. Not all at once and not when retired. To me that is like a musical artist or author trying to write a song or a book by locking themselves away. Remember the shining with Jack Nicholson?My point is it’s easier if there is emotion that is caused by things that happen as they happen.I have no intention of writing a book at all but I did write a short program so that I could easily keep track of things that I think every day so I’d have a back catalog of info, thoughs, ideas and concepts should I ever need it. [1] I could probably hire someone to take all of that and whip it into shape as well.[1] So this comment will go to that storage along with your blog post for reference!

        1. Gotham Gal

          Good advice

  5. Rachel

    That book is going to be a best seller Joanne! My dream is to write a Broadway show about 3 mom-preneurs experiencing the trials and tribulations of start-up world. Maybe Act 1 could be from the Founder perspective and Act 2 could be from the Angel side 🙂

  6. Pranay Srinivasan

    You are probably the best scout of undervalued founders. it is surprising that downstream VCs have not aligned around you and other angels who write their own checks to evaluate priority dealflow.

    1. Gotham Gal

      They kinda have

  7. CCjudy

    did you read Reset by Ellen Pao?

    1. Gotham Gal

      I did. Worth the read.

  8. TanyaMonteiro

    look forward to reading that book, titled #realityworks perhaps