When I started making online angel investments in 2014, I quickly became convinced this was an incredible and unique opportunity. Almost instantly, I was investing alongside some of the best angel investors in the world: Naval Ravikant, Gil Penchina, Brad Feld and others.
I went a little overboard in the beginning. After six months, I already had around 20 investments.
At that point, I decided to take a breather. I slowed down on my investments. And I paid a lot of attention to those first 20.
I waited and waited, and… not much happened. A few of those companies went on to raise larger rounds of funding at higher valuations. But it was hard to tell how well they were really doing.
That’s because as online angels, we don’t often get regular updates from our portfolio companies. Startups are sometimes shy about sharing sensitive information with 100-plus online investors.
That was tough for me to get used to. I had to learn to wait. And I’m glad I did, because it’s a critical skill for early-stage investors. We have to remember that these are early-stage investments. They take time to develop. You may get regular updates, or you may not. But just because you’re not getting updates doesn’t mean the company is failing.
What I’ve found is that it often takes at least two years before you’ll know if early-stage investments are likely to be winners. This is radically different from investing in the stock market, where we get daily feedback in the form of share prices.
In startup investing, all we can do is make sure we’re investing in solid companies with real traction. Early on, one of the best ways to do that is by evaluating your co-investors, which I covered in “The Angel Investing Bible.” If you’re investing alongside solid investors and the deal looks good, take a shot. It could pay off really big.
Among those first 20 companies I invested in are Eaze (now worth a reported $800 million) and Cabify (worth $1.4 billion in its latest round of funding). More than a year passed before I had any certainty that these were likely winners.
Online early-stage investing can be frustrating at first. For most people, it’s a completely new way to invest. It requires patience.
Note: Most of the advice above applies to early-stage companies. If you’re investing in late-stage, pre-IPO companies (worth $500 million to $10 billion), you should be able to tell how things are going a lot sooner. At that point, many companies are getting regular news coverage.