When did Angel investing become a commodity?
I really starting angel investing about 20 years ago. My good friend started his second company and not only did I invest, but I also got on the board. Now, that is not the norm but that is how I began. Fast forward and over 120 investments later, I built a portfolio around a thesis and rolled up my sleeves with the intent of making investing a full-time job. I wanted to put capital into the start-up world with the intention of making an impact and in turn making returns on my investments.
There is a lot I have learned over the years. The biggest frustration has always been getting behind something I believe in with a small check. When 3-4 companies launch in one space, it is the one that gets the most capital behind it from an institutional investor that make it seem like that one will be the winner. It isn’t a foregone conclusion but it does make it more difficult to raise capital for the underdogs. I happen to like underdogs. Although remember, nothing is a success until it exits and success is relative. If the company took money in at too high a valuation, to begin with, a successful exit does not equate successful payback for the investors.
In 2010, Angel List launched. I never got excited about the platform for the simple reason that I do not want someone to follow my investment without doing their own personal diligence and making up their own mind. I always felt that investing was not something to be taken lightly, regardless of the rate of failures vs success and just investing besides me or taking a piece of a company where I get pro-rata rights when the companies are worth more so that I can keep an added piece of free ownership on top of that never sat well with me. I get that many do not have the deal flow and this is one way to get it but if you want it, you can find it, you just have to work it. In hindsight maybe it would have helped me get the funding I needed/wanted for the companies I got behind but it wasn’t how I wanted to play the game.
Everyone seems to be getting into the investing space even if the companies are ridiculously overvalued when they begin. Can someone explain to me why an idea, 2 co-founders, a deck and the beginnings of a business without a real product yet is worth $7m?
Fast forward, this past week something popped into my box called an Investor Premium Program. The concept is that you pay a yearly subscription of $2500 to get deal flow. They do the work for you so due diligence, collaboration with other investors and pre-screening is made available for you. All you have to do is pay the annual fee and then of course invest.
Just to note, not everything goes up, plenty goes down and more is going to go down in the years to come probably sooner than later. After reading about this subscription opportunity to deal flow, I asked myself the question “when did angel investing become a commodity”? I truly believe we will all find out, it isn’t.
.Ten Capital Group?I have received four “premium” deal flow offerings all priced at $2500 annually in the last month. Did someone have a conference?JLMwww.themusingsofthebigredca…
I never got excited about the platform for the simple reason that I do not want someone to follow my investment without doing their own personal diligence and making up their own mind.This above is totally ‘old school’ and I love it.The concept is that you pay a yearly subscription of $2500 to get deal flow. They do the work for you so due diligence, collaboration with other investors and pre-screening is made available for you.I think I know what you are referring to. I saw this and they are even targeting sub groups like ‘for Physicians who want to invest in health care companies’. In one way smart, but also laughable. The idea being that Physicians, many who know zip about business (I deal with them), think they are going to get on board and make money ‘off this startup thing’. But you have to give a hat tip to the people collecting the money for a good business idea for sure.I can only imagine that the most annoying thing that you run into is friends who want to invest along side of you. I am sure you get people all the time who tell you ‘listen if you invest let me know and I will also go in’. So after you do the hard work they want to tag along let’s say for the purpose of my comment at the same valuations perhaps. You must get this constantly. It must be really annoying. Since it’s not arms length it’s really dangerous to do that I would think (especially with the failure potential). I think it’s like many things. You need to do a great deal to hit winners. One or two will not do the trick. I wonder if they even understand this.
One or two definitely do not do the trick.
buy lotto tickets if you think only one or two will do the trick
For many, angel investing is a commodity. Look at it this way: You have some money you’d like to use as risk capital. Maybe it’s $250k. You know something good is going on because you read about Uber, Instacart, WeWork etc. Bloggers are out there blogging about their angel investments (Tweeting too!) Perhaps you read Jason Calcanis book Angel and you think you can make some money. You go to some local demo days and you start writing checks…..That’s where it ends. You write the check. Then you hope. That’s commodity money and why angel investing can be seen by a lot of people as a commodity.I also think it’s bullshit when an angel group just becomes a pitch club. If the funnel for deal flow and diligence isn’t actively done/managed by members, then you run the risk of being commodity money.I never looked at it that way at all. For me it was always about energizing a network to bring a lot of value to the company we invested in so that the company had a better chance than competitors. I know you (Joanne) look at it that way too. The best angel investors are not passive. This isn’t an ETF. It’s competitive. It’s game on. There is no second place.
Totally agree with you. Game on.
What do you think about equity crowdfunding? Platforms like Republic and Wefunder offer something very similar to what you are talking about, however it’s okay for non accredited investors to invest and there is not subscription that you have to pay.I’ve been investing that way because I’m not an accredited investor.
It is totally different. You are doing the work, reading about the companies, making decisions on which you think make sense.
You are right. However, it looks like the platforms try to make it more like you described.Seed Invest offers something called “Auto Invest”. Republic and SeedInvest claim that they “select” the startups, in a process which includes due diligence. Wefunder is not selective in comparison and they tell you “you should conduct your own due diligence”.Anyway, I do my work and choose in which ones to invest as you mentioned. 🙂
I would expect that we are going to see more of this at least until the next major washout/correction in the private markets. We haven’t really seen one in 10 years or so. Those of us old enough to have experienced one (or more) of those know what happens to most angel investments in that situation – even investments that are made with great care and diligence. If your company needs funding and you aren’t prepared to follow on, you will likely be crammed down or wiped out. Hard to imagine that these platforms will fare much better or that the appetite to continue to play will be as strong.
It is coming…
Prior to AngelList (and others in the space), angel investing was accessible to only a small group of extremely wealthy investors. Very few people have the luxury or privilege of being able to be a full time angel, and for various reasons (do not have the capital to cut a $25K check, or they have to work at a full time day job for a living), being a full-time angel investor would be impossible for 99%+ of the population.While I understand there are important caveats (buyer beware, for example), my 2c is that overall it is a good thing that platforms like AngelList increases access (both in terms of angels getting more access, and founders getting capital).
Angel investing is ridiculously risky. I can afford to lose every penny. It scares me that people have jumped into the angel investing world with the hope that this is the ticket to make multiple returns on their investment and that they can’t really afford to lose that capital.I have said to people who are looking to jump into this game that they should put aside the amount of money they would be willing to lose if they went to Las Vegas and rolled the dice. It is obviously different if you can get involved and help the founder and the trajectory of the company because that can be a win on so many levels regardless of the exit if there even is one.