Why I stopped angel investing (and you should never start)

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I started angel investing almost by accident, which sounds strange to say. Who “accidentally” invests tens of thousands of dollars into highly speculative ventures? Well, I did.

A friend introduced me to Clayton Christopher who was raising money for his new liquor company Deep Eddy. Their first product, a sweet tea vodka, was amazing and he was an experienced entrepreneur, so I went in.

Investing was an exciting, interesting process. Then the company took off, and I got to tell everyone I know that I invested in that new vodka that everyone in Austin was drinking. Winning is the ultimate intoxicant, and from there, I was hooked.

I started investing in companies left and right. I became a huge cheerleader for angel investing. I wrote about how great it was, I recommended everyone do it, and helped a bunch of people start.

I was wrong.

I have completely quit angel investing, and I’m telling you to never start. 

Be clear: Angel investing as an activity is great. When the right people do it the right way, great companies are created and everyone wins. I’m NOT reversing my position on the activity itself, only on who should be doing it.

By the end of this piece, my hope is that you will understand four things:

1. Why I stopped actively angel investing
2. Why you should never start angel investing
3. Who should be doing angel investing
4. What you should do instead (and how to invest if you must angel invest)

My Angel Investing Background

This will give you an idea of my angel experience. I’ve found that 80% of the writing about angel investing is total crap, written by inexperienced amateurs who have never done it. That’s not me.

From 2010 to 2014, I put 1.2 million dollars (of my own money) into ~80 companies. Thirty-six were direct investments. You can see some of my direct investments on my Angellist page. The rest was invested through two larger funds where I am an LP (ATX Seed Fund and Evolve VC), and one smaller fund I advise.

I’ve done pretty well with my investments. Emphasizing that no return is truly real until the money is in the bank, I can say that as a minimum, a 5x return on my 1.2 million is guaranteed. And because the internal rate of return on the two funds I am in is very good as of right now, a 20x return (or more) is very much in play over the next 6-8 years.

I also gained notoriety from my angel investing. I was written up in New York Magazine as a leader in the trend of celebrity angel investing. I wrote about some of my investments, and a series of posts I wrote about crowdfunding, both of which got a lot of attention.