Two companies about to shut down. Another getting acquired at a loss. This is the reality of angel investing — a lot of them don’t make it.

Every founder I’ve ever invested in worked really hard. But nonetheless, most companies die.

Today, I looked at my 3 most challenged investments. Let’s see what we can learn from these companies…

Startup X

I was sure this company was going to be huge. And boy was it growing fast — almost 20% month over month.

But one day, the growth stopped. Revenue started trending down, way down.

They had built a cool product, but it didn’t address the needs of customers well enough. Customers churned and new accounts became harder to find.

This founder is incredibly smart and worked very hard. But the company is likely to go out of business soon.

I invested in this company between rounds. This means the company wasn’t getting the usual multimillion dollar cash infusion when I invested.

They were profitable and had some cash in the bank, so I figured the investment could work.

But a company that’s profitable one day can start burning the next. Without a big cash cushion, the picture quickly becomes dire.

Startup Y

This one was a pure founder bet. I had strong conviction that this founder was incredibly determined.

I was right about that. But the company is still about to go out of business.

Despite his best efforts, a difficult market and a lack of cash made it hard for the startup to survive. Even the scrappiest founders can run up against insoluble problems.

The company had strong growth, but less traction than I’d normally look for. It was making a small profit but didn’t have a lot of cash on hand.

Like Startup X, I did this investment between rounds. And like Startup X, over time customers churned and a profit became a loss.

That’s when the minimal cash cushion began to bite.

Startup Z

“There are no sure things in startups, but this is as close as it gets.” Well, that’s what I thought then.

Now, this company is being acquired for a small sum and we’ll likely take a partial loss on the investment.

These guys had it all. Amazing product, incredible growth, a round led by one of the best early stage VC’s in the world.

But shortly after the round closed, the two co-founders started arguing.

One of them wound up leaving. The company has trended downward ever since.

Long sales cycles led to missed targets. Meanwhile, burn continued.

A lot of companies didn’t cut burn soon enough in the down market. Startup Z was one of them, and it helped sink the company.

Overall, this loss was the hardest to predict.

What I Learned

Out of 32 names in my portfolio, I’ve done 3 investments between rounds. One is growing, but the other two are about to go out of business.

I have enough information to say that investing between rounds is not a successful approach. In the future, I will only be investing when a startup is closing a full round.

Running a startup is hard enough. Doing it without a cash cushion is almost impossible.

Despite these losses, my follow-on strategy worked. I didn’t invest any follow-on in any of these companies, which will keep my losses small.

Lastly, Startup Z showed me how important the co-founder relationship is.

Today, I ask how the co-founders know each other. If they have a longstanding relationship, that’s a huge plus.

Wrap-Up

Ultimately, I will never avoid all losses. Nor should I.

We are playing a high risk game. Most companies will go out of business.

But if we’re lucky, 1 out of 30 or 50 becomes a huge success.

My hat is off to all these founders. They worked really hard.

In this business, failure is inevitable. All that matters is to keep trying.

What have you learned from failure?

More on tech:

Learning From My Top 3 Investments

Why It’s Easier to Raise $3 Million Than $300,000

Why Entry Price Matters

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