Monday, October 01, 2012

Why Angel Investors don't make money

A very nice (and kind) article on why Angel's don't make money.
I make those few angel investments because I want to help my best students achieve their goals, and because I like being involved in startups. That’s the ultimate lesson from the fish stories in Silicon Valley. True fishermen cast their lines not because they want the fish, but because they like fishing. It’s fine to be an angel investor – just don’t do it for the money.
Also, a nice perspective on our current bubble:
The premier venture capital firms know the best investments have high technical risk and low market risk. Market risk causes companies to fail. In other words, you want companies that are highly likely to succeed if they can really deliver what they say they will. Unfortunately, consumer Internet companies don’t follow that pattern. They usually have low technical risk and high market risk. There is very little chance they can’t deliver their product. The big issue is whether the startup’s product is of value to a large enough audience. Most people see angels as taking market share from venture capitalists. I think that is the wrong perspective: The premier venture capital firms have consciously outsourced consumer Internet companies’ bad market risk onto the angels, maintaining their returns as a result.
I think this ascribes a little more concious agency to VCs than is true. What VC would not want to have a piece of the next Twitter, Facebook, or Pinterest? Certainly we've seen lots of funding pour into hot consumer segments. Nevertheless, I can see VCs wanting to avoid high market-uncertainty sectors and I can see Angel's step in where they fear to tread.

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