Why Most Entrepreneurs Shouldn’t Be Investing in Angel or VC Deals.

8 Oct 2024 · 1 min

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In this segment, the speaker warns entrepreneurs against treating angel or VC investing like a hobby or lottery ticket, emphasizing that most hobbyist investors lack the due‑diligence skills needed to evaluate deals and add value. He recommends that entrepreneurs allocate only about 10 % of their overall portfolio to speculative, passion‑driven investments – a “slush fund” for fun deals. The speaker also stresses that any investment should be strategic: if the entrepreneur can leverage existing assets (e.g., a health‑and‑wellness blog) to promote the product, the investment becomes a self‑reinforcing loop that creates additional value. Finally, he notes that when investing is a primary business activity, it must be run with the same rigor and focus as any other core business.

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Where people lose money is if they're like hobbyist investors and they're not equipped to do the due diligence. They're not equipped to really understand what they're getting into or how they can create more value for that company. It's just buying lottery tickets and like hoping that it works out. The people that have been successful at investing, what we don't understand is what a small part of their portfolio that is. If it's 10% of your portfolio, that's fine. I actually recommend that all entrepreneurs have like a 10% slush fund where they can go out and do really fun deals and things that they're interested in. The other thing is that if they can actually help the project. One of our mutual friends has a mega health and wellness blog, and then they go and invest in products that they can promote on their blog, and it becomes like a self-licking ice cream cone. If investing and growing that company is your primary business, you have to treat it like a primary business.