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The 1 Thing I Wish I Knew Before Angel Investing
I Wasn’t Prepared for the Killer J-Curve
I started angel investing in 2009. Since that time, I’ve made 38 investments in 29 companies as an individual and joined 4 angel funds.
I’d love to brag that these investments have made me a billionaire. On paper, I’m doing reasonably well. In actual cash returned to the bank account, not so much.
When new angels ask me what I wished I’d known when I started, the noobs are expecting the usual platitudes: valuations don’t matter (wrong), invest in the jockey and not the horse (sometimes), or 1 investment will account for all your gains (usually).
But the one thing I really wished I’d known was: for early-stage startup investing, the J-curve is a killer. Because I wasn’t fully prepared.
Strategy Hits Reality on the Battlefield
When I started investing, my strategy was similar to the way I play Monopoly: allocate a block of money to invest in startups over the first 3 years. Then, starting Year 4, reinvest the returns from the earlier investments to make new investments.
Why 3 years? Because every startup says they’ll have an exit (acquisition or IPO) in 3–5 years. For each 2x exit, I could invest in 2 more startups. For each 10x exit, I could invest in 9 startups and and enjoy a luxury cruise of the Mediterranean.
Oh, I was so naïve.
Of those 29 individual investments over 12 years, so far only 3 have had exits, 4 were write-offs, and the other 22 remain sitting in my portfolio waiting for something to happen. That’s the J-Curve.
3–5 years? The only companies that have an exit in under 5 years are the failures.
For VC’s investing in Series A and later, 5 years isn’t unreasonable. For angels investing in earlier rounds, add 2–3 years to that.
There are exceptions, of course; a few big winners get plenty of press and make it sound so easy. For the other tens of thousands of startups that get funded every year, it’s a longer slog.
