One of the tough things about being a fund is you only get a limited number of investments. Of those, you get to pick one in any particular race. If you invest in one insurance startup, that investment ought to preclude you from doing any more investments in the area of insurance that startup is targeting. Funds need to write a bigger check, so they actually take more risk not less. Funds also might avoid the space if there is failure.
When you are an angel, it’s a bit different. You might make multiple investments over a period of time in the same or similar sorts of things but on different companies. As long as you limit your check size, the pain of failure won’t be as bad.
Of course, it goes without saying that you should be investing in jockeys and not horses but I wanted to illustrate a point.
Here is an example.
Let’s assume Startup A is targeting the B2C insurance space. A fund invests in 2015. They are out of the running for investing in this space as long as Startup A is operating. If Startup A fails, when a new insurance Startup B targeting the same B2C insurance space as Startup A did, albeit in a different way, they are very likely to remember the pain and suffering of Startup A and pass.
If you are an angel with a smaller check size you might invest in Startup B, as long as Startup A is dead.
This thought occurred to me because I was thinking about several spaces where the road is littered with dead startups. Savings apps, investing apps, calendar apps and address book apps are some of the areas that have lots and lots of failure but still have big opportunities in the space.
I think we will see a lot of this behavior in blockchain and crypto apps.