If you want to make a good return (20%/yr+) by angel investing in early-stage startups, these are the four strategies that I see working today:
I’m an investor in over a dozen startup funds including Shrug, Haystack, Susa, Ribbit, Chapter One, 2am, and Pioneer Fund. They all boil down to these four strategies.
If a deal is hot, most angels won’t even know th at the round is happening until it’s closed. The investors who do know are crowding around, offering more money than the founders are seeking to raise. That’s why you need exclusive access. You need the company to do you a favor and take your money.
Why do hot deals make you money? Because as a rule, they’re worth more than the price you’re buying in at. Effectively, the founders have agreed to impose an artificial price control until the “round” is “closed”.
(I’m using scare quotes because these concepts have been obsolete since the invention of the SAFE note in 2013, but as of the time of this writing, investors are still LARPing. The whole concept of “access to hot deals” is a pet peeve of mine. It’s a value-destructive dynamic that doesn’t exist in properly-functioning markets like the market for public-company stock. When you like a public stock, you have the option to buy it immediately, no matter how hot it is.)