Why I stopped angel investing after 15 years (and what I'm doing instead)
153 comments
·May 3, 2025propter_hoc
alexeichemenda
>Best approach would be to make very few investments
Top VCs—who see the best deals and run deep diligence—still only have a 1–5% hit rate. As an angel, you don’t have that level of access or time. Even if you get strong referrals, you’d need to be 10–15x better than elite VCs to pick winners in a small portfolio. Unless you’re investing in at least 10 companies, it’s statistically a losing game.
My experience: I invested in ~200 companies early stage (with some winners like HuggingFace, Checkr & more).
jll29
"...and run deep diligence"
I've not seen that much but what I've seen is "Let's ask a few buddies and google a bit".
The takeaway that I agree with is the parent's and OP's point that you will need to invest in a lot of companies, perhaps 30-50, and you will nee to be in for the long term.
onlyrealcuzzo
A lot of angel investors are not investing particularly large sums, and a lot of what they're doing is buying someone that's going to use services other people they're connected to are selling.
When you're multiples are 10,000x revenue, a lot of people will shell out $10k to get you onto a few startup services...
That's the investment itself. Not getting paid back.
dmos62
What's your biggest motivation for doing angel investing?
iwontberude
Developing a network of people who do favors for each other and learning about other people’s businesses and industry. Angel investing usually isn’t that capital intensive, so it’s sometimes worth pursuing. I don’t do it to get rich.
gorgoiler
Is it a thing for angels to exit in the early rounds?
Instead of being shoved down the cap table by a giant tranche of series A preferred stock, might it not be appropriate to give the angel a payday instead?
I guess some angels want to keep their fingers in the pie? And, more likely, it’s just not a reasonable expectation to see an exit like that way before anyone else does?
DrAwdeOccarim
Yea, I’ve seen cashing out the principal+next investment and letting the rest ride.
chii
early exits probably won't get the type of return that an angel investor would be interested in monetarily, since you need more than fu-money to motivate them.
pfannkuchen
Isn’t angel investing more about networking and feeling like some elder statesman than about returns? That’s my impression anyway, as a non-angel.
bee_rider
> So net net the chances of success from passive angel investing are only slightly better than playing the lottery.
Is this right? An organization running a lottery—their whole job is to run a lottery, they’ve staked their reputation on the fact that they pay out to winners. The one with a reputation to defend is the one paying out.
The company angel investor is dealing with a company that, ultimately, wants to either get into position to sell some service, or wants to get bought. Their raison d'etre isn’t being a reliable payer-out of winners. I’d expect the lottery to be much more honest.
bilsbie
Is it not reasonable to ask for a seat in every investment?
hellcow
A general rule of thumb is that you have 3 board members at the seed (1 non-CEO founder, the CEO which is typically another founder, and the lead investor). So you have 1 seat available for investors, whereas you may take 5-20 checks. Not everyone is getting a seat.
At the A you usually expand to 5, adding the lead of the A round and an independent board member. Beyond that, it’s common for the earlier investors to get replaced on the board in future rounds and maintain observer rights.
algo_trader
What happens if your "lead" angels want to put money but not a board seat?
bix6
A board seat? Absolutely not, you’re a minor investor.
A pro rata opportunity? Maybe but why wrangle 50 angels when you can have 2 firms cover it?
edoceo
You don't do 50 angels. They're in one SPV and you only work with the deal-lead (while getting investment from N investors)
BlandDuck
Too many investors, too few seats
codezero
Very few of the startups I’ve worked for have given board seats before Series B.
paxys
At best it’s a stepping stone to a “real” VC job.
Take a couple years to learn how the industry works, make connections, maybe even get lucky with some bets. Then use all that to either start your own fund or get a job at a big Silicon Valley VC firm.
Mbwagava
Hell, investing in general is a "mug"'s game (never heard this phrase before) if you go by per-capita return. It's the exceptionsl performers that make an outsized contribution to revenue that floats the whole boat.
sanderjd
I read the point as being that angels can't really afford to invest broadly enough to hit those exceptional performers.
jay_kyburz
>Four others that raised money but with painful recapitalizations that effectively wiped out early shareholders
I think its the recapitalizations that make the investments unfair. To buy a stake in a company then have it diluted by the bigger fish once a lot of the risk has been mitigated is BS if you ask me.
tinyhouse
I'm not sure I'm following how anyone can target the angel investors specifically? Aren't all common share holders have the same fate? So if they screw the common share holders, early employees will get the same treatment as the angels? (dilution for example impacts all share holders). I understand that key employees can receive extra shares along the way, but most probably don't in their first 4 years.
RainyDayTmrw
The way I've heard it is that later investors collude (descriptive, academic term, not value judgment) with founders via liquidation preferences, dilution, etc., and effectively wipe out all common shareholders (particularly employees) and all earlier rounds, and then give the founders some additional terms to compensate them specifically. How exactly that works, what they're giving the founders, and how this isn't hugely illegal are all details that I don't understand. I put a top-level comment asking exactly that.
propter_hoc
That's exactly the approach. Seen many deals where the (remaining) founders get a big slice of new vesting options or reverse vesting shares as part of a recap or semi-distressed round.
Nothing illegal about it when the company needs the money, just one investor can write the terms they want, and the founders are on board with the plan.
ummonk
Yes, being an early employee is a sucker's game in much the same way as being an angel investor.
themanmaran
Yea the founders also have majority common stock. So there's not a normal scenario where the founders and other investors get paid out in an exit, but the angels don't.
The bigger fear is a non-exit scenario, where the company becomes profitable, possibly pays out large investors to maintain the relationship, and founders just take massive salaries. So no liquidation event that benefits angel investors.
YesBox
>Angel investors also face the longest time horizon for liquidity of any investor. Private equity aims for 3-5 year returns, and VCs typically run 7-10 year fund cycles, but angels usually wait 10+ years for exits. This means angels aren’t just taking company-specific risk, but also the risk of facing more macroeconomic cycles.
>Think about all that's happened since 2009 when I started: multiple presidential administrations, a global pandemic, zero interest rates, and now high inflation and higher interest rates. My investments have had to withstand all of these shifts, and many didn't make it through.
Really interesting stuff (for me, as an outsider).
Can anyone comment if VCs are looking for shorter fund cycles or are the macro economic shifts what's capping it at 10 years?
I once read one reason why startups take so long to IPO is so private investments can benefit longer from the growth
bix6
My LPs want liquidity now, always. 2021 was hot and it’s been relatively quiet since. Mega funds are keeping companies private longer. Capital is tied up which hurts emerging managers trying to raise. My LPs want returns in 6 years which only works if everything goes perfectly which almost never happens; that’s how long $100M+ rev takes if you triple yearly. IPO requires more rev than before, everything’s larger.
bsuvc
6 years?
As an LP, I would be excited for liquidity in 10 years at this point.
It seems like even for successful companies, there isn't a clear path to an exit for many of them. Add to that the increase in late-stage investors, and there isn't much of an incentive to exit.
bix6
A bit hyperbolic but yeah. It also depends on the industry / stage. I’m always looking for creative ways to get liquidity out given the exit issues you mention.
LunaSea
Would smaller ventures not be an option? Say investing 500k$ and selling for 10M roughly 5 or 6 years later?
I would imagine that building these smaller companies looking for smaller exists would be easier and more predictable.
bcantrill
It would be helpful to run out the math on the $500K investment: what's the post-money on that investment when it was made? How much capital did this mythical sold-for-$10M in 5-or-6 years company raise? (Or did it survive for a half decade on a total investment of $500K?) What was the headcount and the revenue and the burn? (And to whom does it sell for $10M?) Assuming that it wasn't a wipeout, you'll quickly find that the math doesn't... math: if you have somehow conjured a successful outcome in your mind, what you likely have is not a venture-scale business.
bix6
That’s not necessarily venture returns so LPs might not be interested. Selling secondaries is also a pain as you generally have to pay fees and sell at a discount.
RainyDayTmrw
I've heard variations on this sentiment repeated a lot. The exact message varies, but it's usually some variation of: early investors always lose, small investors always lose, and/or non-preferred shareholders always lose. I've seen and lived a small number of personal anecdotes that seem to back this up, and I'd like to better understand what underlying pathology causes this.
I understand that early investors are taking the most risk, and clearly there's a lot of downside. But what prevents them from being able to realize or capture the upside?
I've heard a theory, a few different times now, that bigger, later investors effectively collude (descriptive term, not value judgment) with founders to squeeze out early founders and employees (common shareholders) via unfair terms, such as excessive dilution (accepting too low a valuation for larger investment), excessive liquidation preferences (2x or more), etc., and then topping the founders up via side deals. I've heard that, by virtue of squeezing out passive participants, they're able to offer more to the founders, and that incentivizes the founders to take their deal over other alternatives. Does anyone know more specifics about how this happens? In particular, how is this not a breach of fiduciary duty to passive participants?
It's definitely possible to write anti-dilution clauses, etc. But, I've heard that more or less no one writes them, and more importantly no one accepts them. If this is a pretty well-known game, why haven't countermeasures become popular?
For my personal anecdote, I was once an early engineer - the first hire after their Series A - at a small startup that never found product-market fit. The economy was bad, and they were running out of money, and they took - as I understood it - a dubious Series B led by a dubious investor. The founders were very vague about the terms of the round. In particular, the founders revealed that the investors took liquidation preference, that it was greater than 1x, but absolutely refused to say how much. That always left a bad taste in my mouth. When I left, I didn't exercise my options. In the end, the company floundered, and is a zombie to this day. In that regard, I suppose that the particulars of that round don't really matter - none of us were seeing anything regardless.
I'd really appreciate if anyone closer to the money part of this industry could weigh in.
danielmarkbruce
It's people who lose, which is most, complaining about structural issues when actually they just suck at investing. It's a competitive game, they lost.
RainyDayTmrw
I mean, multiple things can be true at once, no? They could have made bad choices or had bad luck. Simultaneously, the system could be rigged for and against certain categories of participants. From what I've heard, there's a lot of both of these going around; startups are highly volatile, but also a lot of the people in the space not only don't play fair, but actively deride playing fair.
danielmarkbruce
You are hearing the voices of failed investors. There are successful angel investors. There are guys in the NBA finals getting paid $50m a year. There are movie stars.
In extremely competitive pursuits with insanely good outcomes, you are going to find an enormous number of people trying to make it and fail.
tzury
Well, it says right there at the beginning:
"Next week, I'll follow up with the cold,
hard data on my portfolio performance"
crsv
It’s hard for me to respond to these kinds of posts with anything other than a dismissive sentiment along the lines of “grats on being rich and playing your rich people sport. I’m sorry you don’t like your rich people sport anymore. Hope your next rich people sport is fun for you.”
baobun
> It’s hard for me to respond to these kinds of posts with anything other than a dismissive sentiment
Nobody's forcing you to respond, you know?
xpe
I get your point. Still, there are other ways to respond, even if they are difficult. One is to be curious and take what you can from it.
Another is to think about people poorer and less fortunate than yourself who might look at you dimly for what you take for granted.
I’m not saying that morality is relative, but points of view sure are.
auggierose
You got it right, this post is directed at other rich(er) people.
tananaev
I think there's just too much money chasing too few good businesses. Early days of tech boom with lots of opportunities is over. Any promising startups nowadays get crazy valuation very quickly, so stop making financial sense to invest in.
xpe
How would you test this claim relative to alternative hypotheses such as:
1. Investors choosing poorly
2. Investors not managing relationships well after they invest.
Maybe we can open up the discussion to involve the other design decisions that go into how funders structure deals and involvement.
georgeburdell
If it’s a bad time to invest, would it be a good time to be on the other side of the table?
Havoc
>The post-ZIRP era (2023-2024) created headwinds
Post ZIRP is arguable the more normal situation, in which case one really has to ask...was it ever real
kilimounjaro
From chatgpt: “ In summary, Halle Tecco’s personal portfolio comprises about 34 direct investments, of which 24 have at least one female founder (as detailed above). This means roughly 70% of these companies were co-founded or founded by women. Notable female-founded companies in her portfolio include Everly Health (Julia Cheek), Cityblock Health (Dr. Toyin Ajayi), Kindbody (Gina Bartasi), Tia (Carolyn Witte/Felicity Yost), Hued (Kimberly Wilson), and many others listed in the first section. Halle Tecco’s investment focus has clearly encompassed a large number of startups with women on the founding team, aligning with her advocacy for female entrepreneurs in health tech ”
Call it charity or call it buying gal-pals with hubby’s money but primarily investing based on identity seems like a bad idea
swyx
made me wonder who hubby was, so saving others the wikipedia search
> Tecco is married to Jeff Hammerbacher, cofounder of Cloudera
unsatchmo
If she’s rich and married a successful tech founder, I don’t understand why she didn’t get a lawyer to draft these investment papers to keep herself from getting fleeced. Like the amount she was dropping could probably have been recouped from a buyout without much fuss if the contracts were a bit more assertive.
necubi
As an angel, you do not get to set weird terms for your 10k check. The startup is raising on standard paper (these days almost always a SAFE) and you take them.
But no terms are going to save you from the reality that a failing startup that needs to raise more money will have to accept dilutive terms. You might be able to restrict it, but the alternative is that they can’t raise at all and shut down.
danielmarkbruce
It's not a legal issue. If you invest your money in failed businesses, you lose. There is no legal machinations that will help.
bombcar
If X contributions and value are undervalued by the market, investing where X is contributing would be a winning strategy.
If
particle_theory
Angel investors should do a __post money fixed percent SAFE__ . Why invest if you dont spend the effort doing the payoff math? Just ask an LLM..
> Over the years, I’ve purchased stock in about a dozen companies on the Robinhood app. Some have tanked ... but unlike startups, none have gone to zero.
Close to 500 US listed public companies filed for bankruptcy during this period.
bix6
SAFEs have also caused so many issues. They’re often poorly priced and can lead to legal issues or frustrations.
bcantrill
Absolutely. The reality is that SAFEs are often used to price a company, even though the pricing conundrum is exactly what they are trying to solve! If you want the reveal on SAFEs, raise them uncapped (with a discount, of course!) and watch how many people tell you that they can't possibly do that. (Not everyone, though -- deeply appreciate those investors who are willing to invest on uncapped discounted SAFEs!)
bix6
What’s your rationale for uncapped SAFEs? I don’t think they are a good deal for investors.
pge
I feel like this is not talked about enough. SAFEs are not the trouble-free investment vehicle that many people seem to think they are.
pgustafs
it's called "angel" investing because it's only one step removed from charity
rbanffy
Can I be a demon investor? That’d be a dream job.
n20benn
I believe that's the sentiment the "Shark Tank" or "Dragon's Den" series are trying to hint at.
linkjuice4all
It’s just called investor at that point.
rbanffy
Investors are in for the money. I’d be in for the sadistc side.
But not really. I wish I could be that evil. I’d be a lot richer if I were willing to play that kind of game.
ryanmerket
my charity donations are capped with the IRS. But my cap gains (and losses) live forever.
astrange
Almost everyone's charity donations are worth zero with the IRS since everyone takes the standard deduction now.
helixfelix
Your comment made me realize what a bubble of privilege I live in.
I raised my eyebrow at "everyone takes" standard deduction. How is that possible with home prices and interest rates? Even a modest 300-400k house at 5-6% interest, property taxes, local sales tax deductions and minimum charity would exceed the standard deduction. Where I live good luck finding anything more than a condo for less than a million.
Turns out 90% take standard deduction. This is another way to track the extreme "wealth" gap emerging. Only the wealthy itemize.
shawabawa3
Her follow-up with stats on her investments: https://substack.com/@halletecco/note/c-113855500
tl;dr: returned $0.31 on every dollar invested, albeit with a bunch of ongoing investments that may still pay off (but are unlikely to get her even on the investments let alone a profit)
ryanmerket
the blog post could have been a lot shorter: "I quit angel investing because I'm not very good at it."
itbeho
Per her linkedin: She's currently an adjunct professor at Columbia teaching a class on "Investing in Digital Health Startups".
null
bix6
Ouch. Wish we could see the companies list, or at least sectors.
With much love for my angel investors, angel investing is absolutely a mug's game.
If the company doesn't get off the ground (vast majority of investments) you lose all your money.
If the company does get off the ground, you are the lowest on the pref stack, and you have no ability to follow on to protect your position. You're not a contributing employee or meaningful future source of capital so your piece of the pie is just dead weight on the cap table. This means every single subsequent investor (and the founders, if they care more about money than their relationship with you) has an incentive to cram you down.
So net net the chances of success from passive angel investing are only slightly better than playing the lottery.
Best approach would be to make very few investments, where you're able to build a special relationship with the founder, and ideally get a board seat to defend your stake.
===
Edit - to be clear, I don't think startups should be giving board seats to angel investors. It does happen in exceptional cases where the angel is uniquely valuable to the company, and those are the cases where the angel can defend themselves. But they are rare, which is why it's mainly a bad game to play.