One of the great things about America is freedom. When asked what they created at Independence Hall Benjamin Franklin said, “A Republic, if you can keep it.”
Angel investors are emblematic of American freedom. They take their own money and invest it in startup firms that could potentially change the world. I really believe that people should be able to invest their own money in whatever they want to invest in. When I got into angel investing I was surprised the Federal Government regulated it-and only made it possible for accredited investors to invest their money.
Jerry Neumann is an active angel investor in New York City. He wrote one of the best articles on angel investing that I have read. There is a rumor going around that certain people can “pick” companies. CB Insights had a slide deck at a recent early stage conference and addressed the issue. They say,
”Stock picking” for lack of a better term is difficult in venture and this is even for the firms with the most storied histories, most resources and largest teams.
Lately, I have seen a lot of interest in becoming an angel investor. I am happy for that, but Mr. Neumann’s article should be required reading before you write a check. I also have seen a lot of family offices try to avoid the fees that funds charge by direct investing. They should read Neumann’s article too. There is a reason VC firms charge those fees. It’s a lot of work if you are going to be successful. If you aren’t going to do the work, but want exposure, investing in a fund is a good idea.
It’s impossible to sum up everything that I have learned angel investing since 2005. Some of it is very similar to futures trading. But much of it is not. Mr. Neumann sums it up with these four points, but read the whole thing.
- Don’t look for unicorns
- An entire flock
- Let people know you are investing
- Things other people are confused by
Angel investing is a lot of fun. But go into it with your eyes open.