“It was the biggest mistake I made as an investor.”

I was chatting with a fellow angel a while back. He shared with me something he learned the hard way: keep the checks small.

But year after year, angels keep getting this wrong. Here’s why…

How Angels Fail

Take a typical new angel — we’ll call him Jim. Here’s how Jim will fail at angel investing:

1. Jim takes $350k he doesn’t need and puts it in the angel investing bucket.
2. Jim meets Mike, a founder he loves.
3. Jim invests $200k in Mike’s startup.
4. A year later, Mike comes back for more. “We need it to launch the product,” he explains.
5. Jim gives them another $100k. “This should do it,” Jim thinks.
6. Six months later, that money is gone. Mike comes back again.
7. “We just need another $50k and we’re home free!” Mike tells him. Mike is persuasive and charismatic — after all, he’s a founder!
8. Jim gives him the last $50k, desperate to save the $300k he’s already put in.
9. Product never launches.
10. Company folds. Jim loses everything.

I don’t want to be Jim. That’s why I have to diversify widely.

Diversification gives us the best chance of hitting an outlier. It usually takes 30-50 well chosen seed stage investments to hit a unicorn. And those unicorns are where almost all the returns come from.

But in order to diversify, I need to write smaller checks.

Wanting to Feel Important

Writing lots of small checks is a simple strategy, but angels have a hard time sticking to it. We humans want to feel important, and we just don’t feel as important when we’re investing $5k as when we’re investing $100k.

“I was concerned about what my fellow investors would think of me,” my angel friend said.

That’s a very natural human thing. But we have to overcome it, as he did.

I try my best to purge myself of any desire to feel important.

These investments aren’t about me being a big shot. They’re about creating something awesome and making a profit while we do it.

I’m just a small part of that. I know it. And I’m fine with it.

People Pleaser vs. Company Builder

Here’s another reason why angels write larger checks than they should: they want to make people happy!

Most of us do. It feels better to make somebody’s day than to disappoint them, right?

What do you think makes somebody happier: $250k or $5k? Yep.

But while I always try to be polite, I can’t be afraid to disappoint people. That’s simply part of the business, and anyone who’s in it as an investor or a founder will have to live with it.

Our job is to help build companies, not make everyone happy.

Wrap-Up

If we want to succeed as investors, we have to find a sound strategy and stick to it. Our feelings can be a big barrier there.

Humans want to feel important, and they want to please other humans. But we have to move past those feelings in order to find success.

I like to focus on the task at hand.

Meet founders, pick the best ones, and slide in a small check. Then, help all I can.

Nothing else matters.

What mistakes do you see angels making?

There will be no blog tomorrow. See you guys on Monday, and have a great weekend!🥳

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More on tech:

The Power of Small Checks

My Ten Year Angel Investing Plan

Why I Don’t Pay for Angel Groups

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