4 ms·

$3.3MM as a bare minimum seems like way too much. The usual check size at an early/seed stage (re: angels) is around ~$25k, so this would mean having 132 compan

$3.3MM as a bare minimum seems like way too much. The usual check size at an early/seed stage (re: angels) is around ~$25k, so this would mean having 132 companies in your portfolio. That’s extreme for anyone just getting started, even considering the “shotgun” approach. It seems that most angels won’t have access to the “cream of the crop” as it were, perhaps that’s what’s skewing these numbers? (Worse companies on average would mean lower probability of success on any of them) The author is correct that the return on average is 20%ish, but that actually takes several years if not decades. Most investors would be better off buying index funds - so you seriously have to enjoy this for it to make sense.

pge 5y ago
The 3.3m number is not the amount invested in angel investment, it is the person’s total liquid investment portfolio, of which 15% ($500k) is allocated to angel investing.
- Terretta 5y ago
  and cut in half again for the 100% held back 10 companies at 25K for 250K put in and 250K reserve
- narrator 5y ago
  Angel Investments are very very illiquid.
deleted 5y ago
[deleted]
ghaff 5y ago
>Most investors would be better off buying index funds - so you seriously have to enjoy this for it to make sense. Data point of one but a friend of mine retired and got into angel investing. I guess he pretty much got out of it after a few years and I got the sense that he'd have done a lot better just in an index fund. He does still do some angel investing but just for a few companies he feels especially strongly about.
- tjs8rj 5y ago
  I don’t understand this sentiment - that generally the best investing return is just index funds. Really? The dominant strategy in investing is also the easiest one by far, while also simultaneously being the definition of “average returns”? No, if Angel investing didn’t have a commensurate premium, no one would do it. They would just do the easy way. Eventually markets progress to 0 profit (in theory - this has never been observed afaik), but in the mean time people make plenty of return. The magic of index funds is dead-simple passive avg returns with a solid track record. They promise average returns - which is nothing to scoff at for sure and very appreciated, but they aren’t the end all of investing. Also: that stellar track record (100+ years) of stellar growth also happens to be over the most economically successful period in the entire history of humanity. So many miracles have happened in the last 100 years that makes our society so different from the previous 10s of thousands of years of human history. For a 5% annualized avg real return over the next 100 years, we’d need a global stock market of $7.5 quadrillion - 131x the current global market. For 10% we’d need a stock market of ~$785 quadrillion - almost 14,000x the current global market. We’d have to multiply our projected-to-stagnate population by orders of magnitude and pull off many incredible and increasingly insane miracles to pull that off: colonizing the entire solar system, AGI, aliens donating everything to us, and so on - while contending with ever depleting resources. Relying on the passive growth of the global economy to invest is a “cheat code” quickly closing as it is, much less the best way to get returns. End rant
  - Cilvic 5y ago
    >No, if Angel investing didn’t have a commensurate premium, no one would do it. It could be the same thing as (day) trading, where many people overestimate their ability to generate a return. Also the "return" might not be financial, some people might just enjoy paying it forward, having the intellectual stimulation, taking part in a lottery, loads of reasons.
    - tjs8rj 5y ago
      But it isn’t. There’s entire firms dedicated to it with internal returns far higher than the stock market. There are just shy of an infinite of investments and investing strategies that have beat the s&p in average returns for decades on avg you can construct with historical backtest data without foresight (ie not just picking the winners given hindsight). There are published papers presenting these. In your perspective, is getting rich (or even just doing better than the index over any time period) just a matter of time or luck with no room for any skill? Because the index fund beating all other investments would have that conclusion.
triceratops 5y ago
$3.3m in liquid net worth is shockingly low. I'd expect a staff engineer at a FAANG to have that much. EDIT: That's a weird thing to be downvoted over. Is it not credible for someone making $500-600k gross income to have a $3m+ net worth?
- Terretta 5y ago
  and doctors and dentists and lawyers curiously, more angels seem to come from those than from staff engineers who plausibly should have better nose for potential outcomes
  - triceratops 5y ago
    Portfolio diversification? Staff engineers already have plenty of exposure to tech through their jobs?
- sombremesa 5y ago
  It looks like I misread the article so this is a bit of a moot point here, but I wasn't talking about $3.3MM in liquid net worth. I was talking about $3.3MM in angel investments (which are illiquid) - and that would mean at least $22MM in net worth.
- gsaines 5y ago
  I actually agree - I thought the number would come out much higher. Originally, I thought that you should only invest up to 10% of your liquid portfolio in angel investments, which implies a liquid portfolio of >=$5M, which felt more correct, but it was pointed out to me that angel investors are also probably more risk-tolerant, so I increased the number to 15%.
OrvalWintermute 5y ago
>The usual check size at an early/seed stage (re: angels) is around ~$25k, so this would mean having 132 companies in your portfolio. That’s extreme for anyone just getting started, even considering the “shotgun” approach. With social angel & seed investing, the numbers have really reduced. My early stage investment portfolio is ~$250K input cost, divided between investments of $1k, $3k, $5k, $10k, $20k, and $50k. Most investments I am trying to shoot for are in the $5k to $20k range. In doing this I have realized that a shotgun approach is better than big check to what I considered the best companies. Most of the investments are around significant gaps in the market, or products I really believe will displace an incumbent providing an impaired service. Am way up, mainly from SPACs acquiring companies, but the lockup periods are really really long. The early stage investments are around 10% of my portfolio, and less than 5% with my wife. > Most investors would be better off buying index funds - so you seriously have to enjoy this for it to make sense. I don't believe in primarily buying index funds because I think they: thrive during bull markets and die off during bears (survivorship bias) Have outsized risks when serving as a majority of a portfolio Overly risky due to concentrations Vulnerable to black swan events Rewards bad companies by lifting their stocks, regardless of how effective they are Provide inferior returns compared to value hunting Limits ability to utilize option strategies I know these opinions might not be shared by many, and I recognize index funds are generally much better than active funds merely due to mgmt fees, therefore I try to limit my exposure to them to less than 10%, not including my gold hedge.

pge 5y ago

The 3.3m number is not the amount invested in angel investment, it is the person’s total liquid investment portfolio, of which 15% ($500k) is allocated to angel investing.

Terretta 5y ago
and cut in half again for the 100% held back 10 companies at 25K for 250K put in and 250K reserve
narrator 5y ago
Angel Investments are very very illiquid.

deleted 5y ago

[deleted]

ghaff 5y ago

>Most investors would be better off buying index funds - so you seriously have to enjoy this for it to make sense. Data point of one but a friend of mine retired and got into angel investing. I guess he pretty much got out of it after a few years and I got the sense that he'd have done a lot better just in an index fund. He does still do some angel investing but just for a few companies he feels especially strongly about.

tjs8rj 5y ago
I don’t understand this sentiment - that generally the best investing return is just index funds. Really? The dominant strategy in investing is also the easiest one by far, while also simultaneously being the definition of “average returns”? No, if Angel investing didn’t have a commensurate premium, no one would do it. They would just do the easy way. Eventually markets progress to 0 profit (in theory - this has never been observed afaik), but in the mean time people make plenty of return. The magic of index funds is dead-simple passive avg returns with a solid track record. They promise average returns - which is nothing to scoff at for sure and very appreciated, but they aren’t the end all of investing. Also: that stellar track record (100+ years) of stellar growth also happens to be over the most economically successful period in the entire history of humanity. So many miracles have happened in the last 100 years that makes our society so different from the previous 10s of thousands of years of human history. For a 5% annualized avg real return over the next 100 years, we’d need a global stock market of $7.5 quadrillion - 131x the current global market. For 10% we’d need a stock market of ~$785 quadrillion - almost 14,000x the current global market. We’d have to multiply our projected-to-stagnate population by orders of magnitude and pull off many incredible and increasingly insane miracles to pull that off: colonizing the entire solar system, AGI, aliens donating everything to us, and so on - while contending with ever depleting resources. Relying on the passive growth of the global economy to invest is a “cheat code” quickly closing as it is, much less the best way to get returns. End rant
- Cilvic 5y ago
  >No, if Angel investing didn’t have a commensurate premium, no one would do it. It could be the same thing as (day) trading, where many people overestimate their ability to generate a return. Also the "return" might not be financial, some people might just enjoy paying it forward, having the intellectual stimulation, taking part in a lottery, loads of reasons.
  - tjs8rj 5y ago
    But it isn’t. There’s entire firms dedicated to it with internal returns far higher than the stock market. There are just shy of an infinite of investments and investing strategies that have beat the s&p in average returns for decades on avg you can construct with historical backtest data without foresight (ie not just picking the winners given hindsight). There are published papers presenting these. In your perspective, is getting rich (or even just doing better than the index over any time period) just a matter of time or luck with no room for any skill? Because the index fund beating all other investments would have that conclusion.

triceratops 5y ago

$3.3m in liquid net worth is shockingly low. I'd expect a staff engineer at a FAANG to have that much. EDIT: That's a weird thing to be downvoted over. Is it not credible for someone making $500-600k gross income to have a $3m+ net worth?

Terretta 5y ago
and doctors and dentists and lawyers curiously, more angels seem to come from those than from staff engineers who plausibly should have better nose for potential outcomes
- triceratops 5y ago
  Portfolio diversification? Staff engineers already have plenty of exposure to tech through their jobs?
sombremesa 5y ago
It looks like I misread the article so this is a bit of a moot point here, but I wasn't talking about $3.3MM in liquid net worth. I was talking about $3.3MM in angel investments (which are illiquid) - and that would mean at least $22MM in net worth.
gsaines 5y ago
I actually agree - I thought the number would come out much higher. Originally, I thought that you should only invest up to 10% of your liquid portfolio in angel investments, which implies a liquid portfolio of >=$5M, which felt more correct, but it was pointed out to me that angel investors are also probably more risk-tolerant, so I increased the number to 15%.

OrvalWintermute 5y ago

>The usual check size at an early/seed stage (re: angels) is around ~$25k, so this would mean having 132 companies in your portfolio. That’s extreme for anyone just getting started, even considering the “shotgun” approach. With social angel & seed investing, the numbers have really reduced. My early stage investment portfolio is ~$250K input cost, divided between investments of $1k, $3k, $5k, $10k, $20k, and $50k. Most investments I am trying to shoot for are in the $5k to $20k range. In doing this I have realized that a shotgun approach is better than big check to what I considered the best companies. Most of the investments are around significant gaps in the market, or products I really believe will displace an incumbent providing an impaired service. Am way up, mainly from SPACs acquiring companies, but the lockup periods are really really long. The early stage investments are around 10% of my portfolio, and less than 5% with my wife. > Most investors would be better off buying index funds - so you seriously have to enjoy this for it to make sense. I don't believe in primarily buying index funds because I think they: thrive during bull markets and die off during bears (survivorship bias) Have outsized risks when serving as a majority of a portfolio Overly risky due to concentrations Vulnerable to black swan events Rewards bad companies by lifting their stocks, regardless of how effective they are Provide inferior returns compared to value hunting Limits ability to utilize option strategies I know these opinions might not be shared by many, and I recognize index funds are generally much better than active funds merely due to mgmt fees, therefore I try to limit my exposure to them to less than 10%, not including my gold hedge.