Angel investing in startups will make you feel cooler, but eventually poorer.

Investing in a future $1Bn unicorn at a $5M valuation is unreally good. A greater than 100x return in 5-6 years is a godly 115% rate of return. 5 lakhs can become 5 Cr. It seems worth the risk.

But 53% of Indian angel companies die without ever raising, and 98% don’t become unicorns.

All kinds of angel investing success stories circulate. Uber, AirBnB, Flipkart, have made angels multi-millionaires. Being the first investor in iconic companies is a badge of honour.

In reality, it is harder to make money to beat a 5% fixed deposit.

Unlike public markets where you can invest in any stock you want, you cannot invest in every startup you want. Access to startups is a competitive advantage in itself. 

As a new angel investor without connections in the ecosystem, if you’re getting to invest, the company has likely been passed by everyone. Fundraising is done in a priority order. 

The best angels will get access to the best deals.

Even if you’re someone with access to deals, you need to have money. Barring a few founders or investors, few have the ability to invest in 20+ companies. 

For you to even have a shot at a unicorn, you need to invest in at least 20+ companies. 

I ran 500 simulations on a portfolio of 1Cr investing in 20 companies, based on real, cold, Indian startup data. 78% of the simulations lost money. Imagine what happens if you invest in 5. 

There’s a reason why VCs usually have portfolios larger than 50. 

VCs tend to do better because it is their job to pick companies. Evaluating founders, markets and models all day makes you better than average. Just like leaving public markets to professionals, this too is a full time job.

If you have access, ability to deploy capital in 20+ companies, and picking skills you could eventually make money. A rare group has all three. 

Beyond that, it is at best support for your founder friends, and at worst an expensive hobby.