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Fool me once. Fool me twice. Oh heck, fool me three times. But I'm not going to be fooled again. I've stopped investing in startups (so-called angel investing)

Fool me once. Fool me twice. Oh heck, fool me three times. But I'm not going to be fooled again. I've stopped investing in startups (so-called angel investing) when I realized that it's a fools' errand to invest in super early stage startups or in "convertible notes" or "pre-seed rounds" without any sort of informational or operational leverage. I'd rather invest in myself and other asset classes.

jeffshek 7y ago
But fool you ten times, and you get Dropbox.
- rexreed 7y ago
  The typical angel investor will never see a Dropbox. The numbers game doesn't work without some sort of unfair / assymetrical access.
- irjustin 7y ago
  10x that number and you're on the right track (still hoping for a Dropbox). Angels should be trying to do about 100 deals to break even. Seeds roughly 50-60 deals VC's 30 PEG 5-10 Angels who write 10k checks @ 100 deals JUST to break even extremely tough. Deal sourcing is so hard. Anyone who thinks they can get by w/ < 100 as an Angel is largely fooling themselves. New VC's fall into this trap regularly. The pro's know the numbers and the pattern matching. Fool's money is fool's money if you jumped too far w/o knowing what the pool is made of, so at least learn what the primary patterns are before you jump too deep.
  - monort 7y ago
    Is that 100 startups with ideas, you would be willing to build yourself?
    - irjustin 7y ago
      As an investor, no, don't limit yourself to ideas you would build yourself. Know just enough to decide whether the idea has merit and the team is worth the trouble. Angel.co has a great article because there's enough data now to make some insights[0]. TL;DR; any credible deal - get in on it. But it needs to be law of large numbers, so don't start until you can support 100/60/30/5 deals for your size. No matter how good the idea/team sounds at the angel level, it's likely to fail. YC still has a 50% failure rate >5 years. Arguably they're the 'great filter'. https://angel.co/blog/venture-returns https://angel.co/blog/venture-returns
ummonk 7y ago
I've never considered investing, but certainly from looking at it from the prospective founder side, it seemed rather unfair; angel investors seem to barely end up with a better valuation than subsequent investors, despite taking substantially more risk.
- rexreed 7y ago
  Bingo. Angels = Fool's Funding. If you're going to take money, take it from "professional" investors who are investing other people's money. If you are looking to invest your own money, invest with professionals / index funds / professionally managed funds. Do whatever you want with your money. Maybe you'll be lucky. Maybe not. But there's many other ways to strike luck throwing money around.
ypeterholmes 7y ago
Fair enough, but then how is an entrepreneur like myself expected to get the necessary capital to create an operation?
- rexreed 7y ago
  Customers? Various non-angel funds? Personal savings? Credit cards? Crowdfunding? Debt? These are all the approaches people have used. I'm not saying that if you can get it from an Angel willing to part with their money you should, but most angels get burned out / burned pretty fast. They should realize that most likely they'll be throwing away their money and never see a return. If they still want to give it to you, then go for it. But there are other ways. Personally, getting it from customers is the best form of capital. You're actually validating your business and building something of value.
- pc86 7y ago
  That's why it's called "building a business" and not "hustling a couple dentists out of a few million dollars."

jeffshek 7y ago

But fool you ten times, and you get Dropbox.

rexreed 7y ago
The typical angel investor will never see a Dropbox. The numbers game doesn't work without some sort of unfair / assymetrical access.
irjustin 7y ago
10x that number and you're on the right track (still hoping for a Dropbox). Angels should be trying to do about 100 deals to break even. Seeds roughly 50-60 deals VC's 30 PEG 5-10 Angels who write 10k checks @ 100 deals JUST to break even extremely tough. Deal sourcing is so hard. Anyone who thinks they can get by w/ < 100 as an Angel is largely fooling themselves. New VC's fall into this trap regularly. The pro's know the numbers and the pattern matching. Fool's money is fool's money if you jumped too far w/o knowing what the pool is made of, so at least learn what the primary patterns are before you jump too deep.
- monort 7y ago
  Is that 100 startups with ideas, you would be willing to build yourself?
  - irjustin 7y ago
    As an investor, no, don't limit yourself to ideas you would build yourself. Know just enough to decide whether the idea has merit and the team is worth the trouble. Angel.co has a great article because there's enough data now to make some insights[0]. TL;DR; any credible deal - get in on it. But it needs to be law of large numbers, so don't start until you can support 100/60/30/5 deals for your size. No matter how good the idea/team sounds at the angel level, it's likely to fail. YC still has a 50% failure rate >5 years. Arguably they're the 'great filter'. https://angel.co/blog/venture-returns https://angel.co/blog/venture-returns

ummonk 7y ago

I've never considered investing, but certainly from looking at it from the prospective founder side, it seemed rather unfair; angel investors seem to barely end up with a better valuation than subsequent investors, despite taking substantially more risk.

rexreed 7y ago
Bingo. Angels = Fool's Funding. If you're going to take money, take it from "professional" investors who are investing other people's money. If you are looking to invest your own money, invest with professionals / index funds / professionally managed funds. Do whatever you want with your money. Maybe you'll be lucky. Maybe not. But there's many other ways to strike luck throwing money around.

ypeterholmes 7y ago

Fair enough, but then how is an entrepreneur like myself expected to get the necessary capital to create an operation?

rexreed 7y ago
Customers? Various non-angel funds? Personal savings? Credit cards? Crowdfunding? Debt? These are all the approaches people have used. I'm not saying that if you can get it from an Angel willing to part with their money you should, but most angels get burned out / burned pretty fast. They should realize that most likely they'll be throwing away their money and never see a return. If they still want to give it to you, then go for it. But there are other ways. Personally, getting it from customers is the best form of capital. You're actually validating your business and building something of value.
pc86 7y ago
That's why it's called "building a business" and not "hustling a couple dentists out of a few million dollars."