Summary: The majority of angel investments are made by investors with no prior industry experience. This is a problem since one of the best indicators of investment success is the investor’s prior experience. If you are an angel investor, you should seek to invest in industries where you have prior experience OR invest alongside investors with prior experience. We believe so strongly in this fact that we’re building Fundify.com, a community of industry experts, to help.
Angel investors fund approximately 70,000 deals a year in the US, deploying north of $24 Bn annually. Most of the investors in those deals expect to lose money on their investment. But it doesn’t have to be this way.
A little while back, I told you how due diligence could improve your angel investing returns by 7x. Today, we’re looking at the same data set and highlighting another factor that will improve your investing returns. This factor is super simple and yields a 2.5x improvement on returns.
The best part is that you can test this factor with a simple yes or no question:
Do I have any prior experience in the industry I am about to invest in?
Let’s look at the data and see why the answer to this question is so important.
What the data says
Angel investing is about experience. While there are hundreds of potential factors that effect angel investment outcomes, your relevant prior experience might be the most important. The data shows that you don’t need a lot of experience, but you do need to have some. In truth, just one year makes a significant difference. The chart below shows the outcomes of investments made by individuals with and without prior experience.