Miker

17th level Hacker

Why I Suck at Angel Investing, and My Plan

I’ve done a bunch of angel investing over the last few years. And I’ve decided I’m no good at it. The market, so far, seems to agree with me. Most of the investments I’ve done are nowhere, frequently not even making it to launch. That’s okay actually, not a big deal.

What the realization has forced me to do is cycle back on why I was angel investing in the first place. I really wanted to do it so that I could help friends realize their dreams. There are tons of people I’ve worked with over the years who have fantastic skills and often correspondingly focused vision. That sounded like a great investment thesis to me, folks who I’ve worked with directly. And I figured that giving them some money to help out when they were starting on a new effort would be a great way to share in the adventure.

However, there’s a bunch of stuff I missed the first time around:

  • I’m bad at filtering ideas. I think everything is a good idea. That seems to just be a bias of exuberance and having been an operator myself for the last 20 years. I project how I would attack the problems, and assume if it’s something I can execute on certainly other people can. In retrospect that was dumb, and I should have realized this one in advance.
  • I thought I would be able to directly help out. I’ve been building businesses and technology for 20 years, I normally have a lot to contribute. However, once I’m an investor teams tend not to come back to me for help. I think cause most of them only want to come back with good news, they’re kinda embarrassed to come back to an investor for help. That’s just dumb on their part. I use my investors for help all the time, and they’re always supportive, encouraging, and effective. Trying to run success theatre is dumb.
  • Venture funded businesses, and the current crop of startups in particular, are really focused on short term financial gain. There’s not really much “realizing dreams”. Unless your dream is to flip a company to Google. So it’s ended up being kinda boring. If it was even in there to begin with, vision frequently takes a back seat. And the companies just randomly pivot over and over, flailing around trying to find instant product market fit and 10x compounding daily growth cause they think it’s rational to expect that. Of course they never do.
  • At the levels I’ve been investing (normally very small stuff like $10k to $25k, the occasional $50k) it just doesn’t shift the needle. Coupled with folks not coming back for help: I’m not getting any leverage out of the investment and the teams aren’t getting any leverage out of the money.

So, of course, the real next question should be how do I fix it? I could just give up on trying to make awesome things happen. But that’s not really my style. I’ve also been tempted to dust off lots of stuff I learned from Churn Labs and try to run a similar effort, with significant tweaks this time around. That whole line of thinking is worth a post of its own actually.

Recently I had to do some legal work that required me to actually go through and enumerate all my assets in one place. So the shares I have in companies that I’ve invested in ended up side by side with the list of companies I have shares from cause I’m advising them. And the difference was shocking. The folks I spend a bit of time with every month, they’re rocking it. That says to me there might be something to me being able to directly help out. Now correlation is not causation, I’m fully aware. So it might just be that the folks who aren’t asking me for money are predisposed to a working style that increases the chance of success, and it really doesn’t have anything to do with me at all. But right now it’s a working hypothesis at least, and I’m willing to test it.

There are actually a bunch of different methodologies I’ve been thinking about to put that test into play. But then my current company got bought (which, by the way, I’m using as an additional point in support of my hypothesis :-P), and for once I’m finally enthusiastic about working with the new team for a good chunk of time. So that severely cuts down on the plans I can realistically put into action over the next few years.

That means if I want to keep involved it really needs to be as investor, but I needed to figure out how to:

  • Work on things that are going to change the world in a positive way, and that me and the team will be proud of.
  • Make sure there’s a way to keep myself directly involved, so I can figure out if I actually make a difference at all. I need to figure out a nice scientific approach to determine this still.
  • Provide real leverage to the teams.

There are tons of incubators and accelerators out there now, and I didn’t want to be just another “me too” in a sea of mediocrity. Fortunately they tend to really focus on different businesses than I would like to go after, so I’m thinking I can do something that isn’t duplicative. There are tons and tons of little companies spun up to try to exploit tiny gaps in existing markets, and relatively few looking to open up new areas. In other words there aren’t too many SpaceX style projects out there. And I would like there to be.

My plan is to start filtering the projects I work with using a completely different set of criteria going forward, to take a much more active and direct role in the projects, and to start investing in the $250k to $500k range instead. I’ve got one of these starting to come together now, and a few other discussions with folks about the overall model. I think the right model for myself is actually to keep this to one project at a time, just to keep myself and the team focused. So I’m probably going to also start being a lot more low volume than I have been in the past.