The Angel Investor: the perilous voyage of risk and return

“If you want to sail around the world, you better make sure you’ve got the right people with you in your boat. If you want to start a company, the strategy is pretty much the same.”

 

What Every Angel Investor Wants to Know by Brian S. Cohen and John Kader

My ancestors were merchants. When they got on that steamer and set sail to distant lands five generations ago – they embraced the unknown – both the adventure and the perils that lay ahead. It was not a voyage for the fainthearted.

In Pedro Machado’s The Deepest Blue Sea he writes that there were dangers associated with maritime crossings in the Indian Ocean – from the unpredictable nature of the monsoon winds and weather patterns, to the threat of attack from vessels on the open seas. Sailing a vessel into the deep waters of the western Indian Ocean was a fraught undertaking. 

Starting a business from scratch is no different. These days, startups often begin in that proverbial Silicon Valley garage – or in front of your laptop in your bedroom or sometimes even on your friend’s couch. But the risk and uncertainty of charting uncharted terrains remains the same.

In Americana by Bhu Srinivasan he recounts the well-known story of the Mayflower and the settling of the pilgrims in New England. In his book, he asks a key question that is often overlooked: how was the trip financed? 

The voyage was financed by a group of investors in England via a company called the Virginia Company of London. Numerous individuals put in small amounts, limiting their financial risk. They stood to gain hugely, but only in the relatively unlikely scenario that the voyage was a great success. It was an early form of what we now call venture capital funding. 

Many startups look for funding when they begin a business and whilst having some seed capital is essential to starting any enterprise – money can only take you so far. If you’re dealing with investors who are just looking for a quick return on their cash investment – that ship is highly likely to sink fast.

So who is the right investor? The ideal investor is someone who brings more than just money to the table. They invest their time, share their experience and their network. Cohen and Kader go as far as to suggest that an angel investor is akin to a spouse. It is a long-term commitment.

“An angel investor funds startups with their own capital in return for partial ownership of the project… You’ll be together for a long time and you’ll need to find someone who won’t jump ship when things turn sour. You need someone who will stand by you and your business, through thick and thin.”

Investing in anything new is risky. Startups often run at a loss for years before they see a profit. Even Amazon – one of the big four tech companies – ran at a loss during its first few years of operation. Founded in 1994, Amazon first traded publicly in 1997, and didn’t turn a profit until 2001 – some seven years later. 

Unlike investors who are in it for short-run gains, the right angel investor understands that incurring losses is typical of startups in their early years. Sunk costs are inevitable. But at the end of the day, investors are not gamblers. They still seek to minimise risks associated with new ventures. Every startup has its issues. It is being prepared to deal with loss and risk and emerge stronger that will differentiate the startups that become established businesses – from the ones that don’t. 

When I started Mith Books on my own in 2019 – I was on the receiving end of a lot of cynicism and criticism from people around me. Startup founders need to accept that most people simply don’t have the appetite for risk. Not everyone will want to invest in your business. Experience has taught me that the lure of predictability, structure and certainty is far more preferable to risk, adventure and the unknown – which is why a vast majority of people end up working in established businesses and institutions for the entire duration of their careers. 

Now that I’m in my 30s, I often look back on my life and wonder what possessed me to jump into that perilous ocean. I believe what propels me forward is faith. Faith in life. Faith in myself. Somewhere deep down, I believe there are far better things ahead than what we leave behind. 

I may have started this journey on a couch somewhere in this crazy world – but I have a sneaking suspicion that my next steps will not be alone.