A few thoughts:
- You will lose all your money, almost certainly. If you are dabbling, it almost certainly will be a very early stage company. Most of these fail, anyway. The very best ones you likely don’t have access to.
- If you can’t afford to lose all your money, you will be super stressed. It is not worth it. You can’t control what the startup does, and if you try, it won’t help. You’ll become a nervous wreck if you can’t afford to write it off.
- Walk away especially if it’s a hot deal. If it’s such a hot deal, why isn’t Sequoia / Marc Andreeesen / Founders Fund / whomever taking it all? There shouldn’t be any room for you.
- But, invest in the very best people you know. Just the very best though. This is one of the “easiest” way to invest. If (x) one of the top 3 people you’ve ever worked with (y) has also pulled together a great startup team (z) in a space they know — that’s worth a flier.
- But also — it’s an exceptions-based business. So look for things that break the rules. Subway was funded by doctors and dentists.
- Consider at first investing in post-traction startups. If you are starting to invest, consider investing in startups that have real revenues, real growth and low burn rates paired with great CEOs. The price may be higher, but the risk profile will be much lower.
- #1 tip: find great co-investors with track records of success. You’ll see many of the best angel investors start investing with other great angel investors. This dramatically increases your odds. Past success does not perfectly predict future success in startup investing. But it at least means they sort of know how to deploy capital.