Thoughts on startups by investors that
fund them & entrepreneurs that run them

What does it feel like to invest in a failed startup as an angel investor?

It’s not great…but it IS part of the business.

  • If you are an angel investor, the only way to do it is to take things very seriously.
  • If you take angel investing seriously, you should aim to develop a portfolio of at least 30-40 investments over 5-10 years of active investing.
  • If you invest in 40 startups, 20 of them (absolute minimum!) are going to fail.
  • If you can’t psychologically take the complete failure of at least one company (let alone 20 or more), then you shouldn’t be angel investing in the first place.

Since I’ve made well over 80 personal angel investments, and have been doing this for well over a decade, I’ve had more than 40 companies completely fail. Notonce did I have even the slightest thought of a question as to whether I should litigate. How I reacted personally in each case was the result of the interplay of several separate, factors, namely:

  1. How straight-shooting I felt the entrepreneur was
  2. How much effort the entrepreneur put into trying to save the ship
  3. How communicative the entrepreneur had been throughout the process
  4. How big a surprise the failure was to me
  5. How long after my investment the company failed
  6. How personally active I had been with regard to the company
  7. How much money the entrepreneur had invested in the company
  8. How much money I had invested in the company
  9. How much money others had invested in the company
  10. How the deal was structured

In the vast majority of cases, the reaction tends to be somewhere between acceptance and fatalism. The first time, it can be traumatic; the second, depressing; the third, resigned; and after that…part of the Circle of Life.

*original post can be found on Quora @ http://www.quora.com/David-S-Rose/answers *

Written by David S. Rose

user David S. Rose Founder and CEO,
Gust

David has been described as "the Father of Angel Investing in New York" by Crain's New York Business, & a "world conquering entrepreneur" by BusinessWeek. He is a serial entrepreneur & Inc 500 CEO who chairs New York Angels, one of the most active angel investment groups. David is also CEO of Gust.

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