Every founder should learn angel investing
John Doerr famously said you have to ‘crash a fighter jet’ to learn startup investing. First you lose $20M, then you know a little about venture capital.
That’s not true anymore. You don’t have to lose millions. And you don’t have to work your way up to general partner. You can learn investing and get investment capital from Spearhead, our program to back founders with capital.
Every founder should learn angel investing:
It gives you access to historically-unique returns
Founders have an advantage because they see startups first
The returns may be better than starting a company
It’s a skill you can do for the rest of your life
1. Access to historically-unique returns
Silicon Valley is the new Wall Street (other startup hubs are included too). That’s where the great fortunes will be made.
The cost of starting and scaling a company has been decimated many times over. A fountain of new startups is generating historically-unique returns for their investors. Y Combinator is going to make billions of dollars because they were one of the first to address this opportunity.
On Wall Street, the S&P 500 returns 10%/year compounded, after taxes and inflation. This is staggering. But these companies are not filled with the best people in the world. New companies in startup hubs all over the world, filled with great people who are quick to leverage new technologies, should be able to compound capital faster.
The hard part of angel investing is accessing the best startups. But founders have special access.
2. Founders see startups first
Founders have special access to the best startups because they see them before other investors. They live in startup hubs and know other founders from their incubator, their school, their old company, their friends.
Many seemingly successful founders actually made their money by investing in their friend’s companies. Other entrepreneurs came to them for their startup experience and technical advice. Most investors can’t provide either of these, let alone both.
Not only do founders see startups first, they have many more advantages over other investors:
Founders are desired investors because they are powerful validation signals to other investors and VCs
Founders can get lower prices because of their pre-existing relationship with the company
Being the first credible investor in the company gives them access to pro ratas, pre-emptive rounds, and SPVs later
Founders know how the company is really doing if they’ve been informally advising the team for a while
Just being a founder in a startup hub is half the solution to finding good investments. The other half is learning the skill of angel investing and getting capital.
3. Returns may be better than starting a company
No investor would put all their eggs in one basket, why should you?
The odds that your particular company will work are low. Every founder knows this from the beginning. And when something works, competitors pop up quickly.
Even when a startup sells for $100M, the founders might walk out with $3-5M after sinking 5-10 years into it. This isn’t a great return.
So every founder should learn the side skill of angel investing. It’s a hedge against their company going belly up. Wealthy founders have been doing it since the dawn of venture capital. They sell picks and shovels on the side, while they mine for gold at their company.
This doesn’t mean running a professional fund with institutional LPs. You can’t do that and run a company at the same time. Apply to Spearhead instead.
4. You can angel invest for the rest of your life
Many skills don’t get better with time. You don’t get better at basketball over time–you get worse when your body starts to degrade. Tech skills can also degrade, especially as platforms shift.
But angel investing gets better over time. The wisdom to pick good startups increases over time. Access to capital and dealflow increase if you make good investments. You can angel invest from your deathbed.
Angel investing isn’t magic; it’s a compounding skill anyone can acquire. But it takes years to learn. And even longer to see real returns. So start now.
Naval: add a section on how their investors will feel about it.