Angel Investing Scale Problem

Shaan Puri and Codie Sanchez share a critical view of angel investing, seeing it as largely inefficient despite both being angel investors themselves. They argue it requires multiple justifications to make sense, which is often a red flag for investment decisions.

Key Points:

• Problems with Angel Investing:

  • Requires a "blend" of reasons to justify (fun, learning, potential returns) - a red flag
  • Too similar to gambling due to charismatic founders
  • Need 20-30-40 deals for every 1-4 that succeed
  • High risk of fraud and deception

• Financial Requirements:

  • Should have $500K-$1M before starting
  • Better to let others lose money and learn from their mistakes first
  • Document potential deals without investing to build pattern recognition

• Better Alternatives:

  • Later stage deals through AngelList syndicates
  • Structured debt deals with equity warrants
  • Focus on companies with existing revenue
  • Look for deals that generate returns from day one

• Psychology:

  • Often driven by emotional rather than rational decisions
  • Too much emphasis on founder charisma
  • People justify it after the fact because "they just want to do it"

• Final Perspective:

  • Despite the criticisms, both still engage in angel investing
  • View it more as a "hobby that makes money" rather than optimal investment strategy
  • Recommend alternative investment approaches for better returns