You know I just had to read an article with the title Why I stopped angel investing (and you should never start). Tucker Max writes,
I can think of two portfolio companies specifically, both of which have raised major rounds from big name VC funds, where I have to actively refrain from punching founders in their stubborn, arrogant faces.
Actually, the sentences that I related to the most were these:
personally, I gotta be in the arena, competing, putting myself on the line. I can’t just watch. Once I understood this, the decision to stop angel investing was pretty clear.
I noticed this when someone put me in touch with the head of a firm that does early-stage investments. She showed me a few companies they were investing in, and I found that all I could think about was how I would position the companies differently and take different approaches in terms of staging their business. It does not matter whether I was right or wrong, but it showed me that I could not just sit back and watch someone else use my money to do things that I would not do if I were running the business myself. It would be way too stressful for me.
Finally, about successful angel investors, he writes,
they have the social clout to not get run over by VC’s and literally pushed out of an investment.
That’s the most frustrating part of angel investing. You manage to actually back a winner, and then a VC firm with clever lawyers just takes it away from you for nothing.
That’s what the plot of The Social Network was, right?
Oh, and it’s not so different from my experiences in churches, local politics, and grad school, except that those have zero chance of making you rich. If there is any way to limit the skulking free-riding free options exercisers that would be a big welfare improvement. This is why I’m fascinated by things such as how in economics you can pre-publish a paper for comment a year in advance and nobody just poaches it from you like they would in hard science. I think it is because reputation and niche is so much more effective there.
The askblog was about the last place I expected to find a link to a Tucker Max piece, but then I had no idea he was an entrepreneur these days. Who says there are no second acts in American lives?
He just wrote a book with Geoffrey Miller too, Mate: Become the Man Women Want.
“Finally, about successful angel investors, he writes, ‘they have the social clout to not get run over by VC’s and literally pushed out of an investment.’ ”
That would make for an arbitrage opportunity if the ratio of savings to start-ups weren’t so glutted. If the successful angel investors are doing the equivalent of converting their “social clout” into the valuable asset of informal “don’t you dare screw me insurance” then they should be able to ‘rent’ that asset to less prestigious market players and make some profit off being the intermediary.
I think the Angellist Syndicates mentioned near the bottom of the article are basically what you’re suggesting:
http://venturebeat.com/2014/06/29/an-angel-investors-ultimate-guide-to-angellist-syndicates/
Tucker Max is to angel investing what Jim Cramer is to stock investing. I would not try to extrapolate too much about the reality of the situation from what he says. Similarly, The Social Network = Wall Street. Make believe. My firm has made 400+ angel-type investments over the last 4 years and there just is not that much drama (unless you’re actively trying to make drama, in which case you’re the guy everyone else shakes their head about).
If most venture capital firms lose money (with a few outliers at the top) then it’s easy to imagine that 95% of angel investors lose money. The results have to be even more skewed.