Recently one of my favorite startup CEOs, Sam Aparicio of Ringio, took me to task for one of my numerous Mr Cranky rants (See: Taking Issue With Mr Cranky’s Thoughts on DC Startups and Is DC the New New York). I’m happy he did because:
- My rants are designed to evoke emotion and start a conversation… the conversation has started
- He brings up multiple valid counterpoints
- He offered me an opportunity to clarify my position.
The problem with the “Angel Investor” moniker is that it is a misnomer. Calling me an Angel Investor is like calling Lottery Ticket Buyers, Lottery Ticket Investors. Sure there are mythic stories of people who made millions yet many of us are purely donating cash.
My investments priorities are: A) try not to lose too much money, B) invest to help great teams with good ideas, C) improve the DC startup community and D) pray that my lottery ticket comes in. The realistic returns on my portfolio are likely to be equal to those on the checks I write to other charities like the American Heart Association or American Cancer Society. An angel portfolio is much more likely to return a tax deduction than a windfall.
Any honest effort to educate potential investors, as Sam suggested, will fall short if it focuses on the asset class as low-risk, high-return portfolio rocket fuel. Official angel returns are difficult to substantiate. I’m confident that other asset classes will outperform my angel contribution returns. Real Estate, the S&P and an LP investment in a quality Venture Capital fund have better risk-adjusted returns. Heck T-bills have better risk-adjusted returns.
The reason Angel investing is relegated mostly to entrepreneurs as opposed to wealthy doctors, lawyers, and lobbyists is that many Angels are writing checks for a higher purpose than just financial ROI. Most Angels invest because they have startup blood running through their veins and they are giving back. They understand the benefits of a vibrant, innovative, growing startup ecosystem in their community.
Educating the wealthy is a great idea. Yet it’s unlikely that an honest education will incent disconnected wealthy investors if it focuses solely on the true Las Vegas-like odds of a win. Part of an effective education program will nee tod focus on the “higher purpose.” Potential investors must believe in the importance to a community of a healthy startup engine, just like donating to the Arts is important for a community.
So yes Sam, educate and raise money for Ringio; one of the select few great DC startup companies. But please don’t add your voice to the chorus of whiners who have crappy company’s and aren’t getting funded. Most importantly, build your business, the best way you can and make a better startup DC town. Make Ringio an investor success. story.
With investor successes, the money will flow. And when you and your team become cashed out multi-millionaires, add your capital to the Angel pool. The more cashed-out successful entrepreneurs giving back to the community the healthier the startup ecosystem.
As Seen in the Washington Business Journal’s TechFlash. © 20-Washington Business Journal. Used by permission.