Every founder should angel invest
But not for the reason you might expect
CB Insights published an interesting piece of research three years ago.
They dug into the correlation between success as a founder and success as an investor. There is zero correlation. Some incredible founders make terrible investors. Some serial investors are incredible without ever having started a company.
That being said, there is still a solid argument for all founders to spend some time angel investing (and probably for all investors to have a crack at starting a company). It’s about understanding the way your counterpart is thinking.
Investing forces you to think critically, assess risk rationally, and teaches you to quickly parse available information and make decisions in probabilistic terms, rather than absolute terms.
Doing this as a founder allows you to empathise with what investors are looking for, and avoid common pitfalls by applying this thinking to your own business and behaviour.
When you start a company, it becomes all-encompassing. Blinded by passion, and ever the optimist (as is common amongst entrepreneurial types) it becomes harder to understand why anyone wouldn’t invest in what you are building.
This is great, and somewhat necessary. But being so deep in the woods, it is hard to see the trees.
When you invest, you spend time skimming through thousands of pitch decks and speaking to hundreds of people. Your pattern recognition for a good investment is honed. You quickly realise how same-y a lot of pitches look, how herd behaviour of investors works, and how saturated most markets are. You also better understand just how tricky the illiquidity of the private market makes investing, and you will see the dangers of investing early when later stage investors (series A plus) come in and clear you out with aggressive deal terms or down rounds.
This helps you to better understand the risk/return profile of early stage.
Everything really does tend to fail, so your winners need to be huge and you need the right terms in place to protect yourself.
You realise exactly what sort of business you need to be building to be of interest to an angel or VC, you know what materials you need to provide someone with in order to stand out from the noise, and you know when a VC’s deal terms are fair and when they stink.
This doesn’t have to mean investing large sums. You could start by putting £50 into a few businesses on Crowdcube or Seedrs.
The returns are more about investing in yourself than others.
P.R.