The 2008 financial crisis gave way to a period of intense startup growth — how can an investor thrive as we move into another period of crisis and rebirth?
It was back in 2009 or 10 when a friend told me I should try angel investing. As an entrepreneur, I’d never thought about myself as a potential investor, but it seemed like a good idea. I did feel it was a special moment in Silicon Valley right then: Facebook hadn’t IPO’d yet, rents were still reasonable, and there was a real pay-it-forward attitude everywhere. You just felt that if you did good for the people you came in contact with, it’d come back to benefit you, somehow, somewhere.
That meant the investing landscape was very relaxed, I’ve never seen anything like it since. Investors would make up their minds in 30 minutes, send money before the papers were signed (or even drawn up), reporting was sporadic, chaotic, joyous.
That’s why it was such a great place to make mistakes and learn — because you could still make money while doing it. So here are some lessons that being a bad business angel taught me — and yes, I think they’ll absolutely come in handy as this current crisis plays out, whether it’s a question of weeks, months, or even years.
Deal by deal, what’d I learn?
The 1st Deal — Diversification is more important than amount
My first deal was with a couple of French people who had gone to Stanford. They presented the project super well, they really seemed to know what they were doing. I cut them a check for $50K.
Back then, you could pretty easily meet people, and I ended up meeting a super famous entrepreneur/investor not long after. I told him about the deal, and he was surprised I’d put that much in. He said he’d put in $10K, and that as a guy who’s a billionaire. But his reason was simple: if it works, your returns are so high that it doesn’t really matter how much you put in, so just put in a reasonable amount.
Takeaway: When you’re among the first investors, the startup is probably going to die, because that’s what startups do. When they work, that’s the real surprise. So diversify: having 30–50 companies in your portfolio is where you’ll start to feel good about the long term.
In France and Europe, people don’t usually have that many investments. We’ve got a culture that says it’s about intelligence, not luck… but that’s not really the case. Startups are a market where luck usually wins out. So I started putting in $10K tickets, no more big tickets.
The 2nd Deal: The best teams win
I was super dedicated at the time, so I’d spend hours analyzing why startups wouldn’t work. I thought that if I could figure out why some startups didn’t work, I’d be able to find the ones that would. Again, this is a super rational French approach, like they’d teach you in engineering school.
I had a chance to invest in a company where I did exactly that — I went looking and figured out why it wouldn’t work. I wrote a long 17-page email to the founders, explaining why I wasn’t going to invest. I ran into that team a year later at a party, and they thanked me because they’d used that email to create their roadmap. They’d just raised $100M 🤦♂️😹
Takeaway: Both time and entrepreneurs are active parts of the equation. We don’t realize how important time’s impact on us is — the person you’ll be in 10 years isn’t who you are today. A company is the same thing, it’s going to change, it’ll go in good and bad directions. A company that has all the reasons to succeed today can fail, and vice versa. So the most important thing is to find entrepreneurs who are able to do one thing: change reality in their favor over time. Good teams really do win, no matter what the project looks like right now.
The 3rd Deal: There’s no link between being a good company and being a good investment
My most painful lesson. I saw a deal come across AngelList for a few guys who had just launched their app. It was post-financial crisis, they had a vision about all these limousines that weren’t being used, that people needed taxis more and more. Now they were looking for BAs in a seed round with a pretty low valuation. I figured with how taxi lobbies were, there was no way it could work. Absolutely worst decision I ever made.
Because today, no matter what I’d have put in, I’d be looking at having Uber stock worth hundreds of millions, maybe even billions. It’s rare to find a winning lottery ticket; it’s even worse when you throw it away.
Takeaway: It’s counter-intuitive — there’s no correlation between a good company and a good investment. Uber is exactly that; if you put money in during the seed round, no matter what is happening with Uber today, you’ve made a TON of money. Lots of people say WeWork is worth nothing, but even today the company is worth about $10B. So sure, people who invested at a $30B valuation lose; but if you invested at the seed stage, you’ll have had so many ways to get out through secondary rounds and things like that, the probability of your not having made money is basically zero.
What’s it all mean? The relationship between value, success, and money doesn’t really exist. Even the question of the team can’t really predict success, because the team can change too. There is no transcendental justice that turns good companies into good investments. The startup world is a world of chaos!
I gave a presentation on this topic at our latest Madrinas meetup; if you’re a woman who’s interested in getting into angel investing, check it out → https://www.madrinas.thefamily.co/ 💖