Genuinely curious how this works for an angel investor if the failure rate is 95%. How many companies do you have to invest in in order to spread the risk of that 95%?
Most angle investors are either about to lose their shirt, or very lucky or very smart (it's hard to tell the difference between those last two). They usually can only do a few deals before they're spent out. Then they wait to either get 100 times their money or nothing.
They're sort of like guys buying lottery tickets, except the ticket costs more than most houses.
Vc Funds are plying the same game but on an industrial scale. So they get more average returns. Maybe better on average but maybe not for their investors as fees eat into that.
An angle with very deep pockets is probably more like a mini VC fund than an angle. They'll hire people to find and vet investments and maybe pool capital to spread costs and risks.
Angel investors are not VC funds. They can approach risk very differently. They don't really need to spread the risk or mitigate it if they don't want to. No one is auditing their investments (besides the tax man). The angel investors I spoke to when I was running my last startup really didn't need to make a profit. They wanted to make a profit because that meant success for a business they thought should exist (and would use in their other businesses in my case), but if they didn't they've only lost some money that they could afford to lose.
I get that but, how much money do angel investors have? How long before the 95% failure rate drains their capital?
You'd need at least 20 investments to even think about maybe beating that 95% failure rate, that seems like a very high number of investments for one person to find, evaluate, fund and wait before the 95% catches up to you.
You don't need 20 before it's more likely than not that you get a success. And I'm doubtful that the majority of angel investors actual have a net positive return.
They're sort of like guys buying lottery tickets, except the ticket costs more than most houses.
Vc Funds are plying the same game but on an industrial scale. So they get more average returns. Maybe better on average but maybe not for their investors as fees eat into that.
An angle with very deep pockets is probably more like a mini VC fund than an angle. They'll hire people to find and vet investments and maybe pool capital to spread costs and risks.