Why angel investing is dumb
Back in 2020, I hosted a daily poker game. We played for months until we burnt out. We were joined by a new player Akash, a friend of a friend. He came in and crushed everyone. Crushed everyone. He invited me to come and play with his other group of players. So I did it. And I lost ~30K playing in the group. In the space of a month. Then I quit.
Akash was kind enough to tell me what it was that went wrong for me: Because my risk appetite and bankroll were too low, it was stupid to play at his table. People at this table would lose $20,000 in an hour, come back the next day, and lose the same amount. Sometimes they ended up making double of that amount. They did not get upset about losing 50K in one night. They survived the dips. And came back. Again and again. They were use to playing at those stakes.
I am not a bad poker player. I have made a decent amount of money, if you take into account all the tournaments and cash games I have ever been a part of. But I am not the kind of person who is willing to go all in over and over again until I have doubled up.
This is exactly what a prominent angel investor did to me once when I was playing at his table. He kept challenging me by going all in multiple times. He kept shouting that he would double his money in the next 15 minutes. I knew my poker bankroll was not equal to his. So I started to tighten up my game.
Over time, I learned not to play with people whose bankrolls were much larger than mine. The key to poker is table selection. And in life, too.
I also had a look at the graphs of professional poker players on pokerguru. Their stats are open to the public. For months on end, these pros would go down. They would go down by L10 - L50 before they would win a big tournament and break even. But what if you don’t have that one big tournament win? This is what happens to a lot of poker players. And they end up dropping out of the poker game. Yes, many of these players are staked. Without staking, it is very hard to survive as a poker player in this day and age. People might go on a heater and make a boatload and use the bankroll to play the stakes they want. But that is the exception rather than the rule. Most poker players are money losers. Even the best poker coach in India has a record of losing money.
Angel investing and poker are not dissimilar.
You need to have good bank roll management. You need to take a sufficient number of swings. Let’s say: Your average cheque size is 3L. That is the lower end of the spectrum. A lot more is invested by people who have made good money at this game. Even with a 3L check size, you still need to invest in at least 100 startups [similar to the 100 buy-in rule in poker]. You will have to beat the variance. The best player in this game, YC, is doing the same thing. So you need to have a bankroll of at least 3 Cr. I don’t have a 3 Cr bankroll lying around. And ideally, you should not have more than 5% of your net worth invested in an asset class that is so risky that it can easily go to 0. And yes, you can go on a heater like Sacca, but most investors are not going to go to 0.
Most startups die. And my sample size would be too low. As I don’t have 3 Cr to bet. I feel till now I have only invested the money I can afford to lose. There are other benefits to doing angel investing. But it is a dumb idea to invest in startups from a strictly ROI standpoint unless you can investment in 100+ of them.
So think carefully before starting this journey.