What are some risks associated with angel investing?

Hey folks, welcome back to InvestRidge. I'm Pankaj. Today I want to talk a little bit about what some of the risks are when you're angel investing in a tech startup coming up next. Alright folks, welcome back. So what are some of the risks? You know, in the previous episode we talked a little bit about why people sometimes get into angel investing. Well, let's talk a little bit about some of the risks associated with angel investing. So one of the reasons I listed last time was people are getting into angel investing because they're not finding the yield that they're looking for in other asset classes like stocks, bonds, real estate. Right. So some of them have started angel investing. Yes. If a deal works out, you could probably make a lot more money angel investing than you could in real estate or stocks or something. But the likelihood of any individual finding a deal and in making one or two or three or five investments and hitting the ball out of the park are like close to zero. You're probably more likely to like, you know, I don't know, win all paid trip across the globe than you are to hit the ball out of the park on a couple of angel investments. People still get into it even though there are significant risks. So, so let's talk about what some of those risks are. Well, number one, macro conditions, right, like you cannot control things like the coronavirus. Haven't really followed up on what's happening with a lot of Chinese startups. But you know, over here in the US we have seen recently that there's been a little bit of a pullback and part of that has been because of the challenges that folks saw with companies like WeWork. Right, and that's a perfect example. It's a company that has grown tremendously since it was founded, primarily driven by an extremely charismatic founder. And now that founder is out and the company has been devalued significantly from the last round and that's affected primarily their late stage investors and not necessarily the earlier investors as much. Of course, decrease in value hurts everyone. But you know, for earlier investors, it's more about the multiple that they're gonna get that has come down rather than them actually losing money. So deals fall apart at any stage of the game, right? A company can be succeeding for five years and suddenly things go wrong. They'll fail. Number two, the market just isn't ready for the product that you have put together. You know, how many video sharing services were there before YouTube? YouTube finally got it right and was at the right place at the right time. Right. Timing counts. For a lot. And a lot of startups are too early and that's why they fail. Another risk while investing in startups is people risk. And when you have a small organization, and this is especially true for early stage startups, when you have a small organization with 5, 10, 20, 50 people, a lot of the business is concentrated in very few individuals. So when an individual leaves, it has a significant impact. That's not to say that companies don't get over that, but it hurts. When it's a founder that's leaving, it's even more of a battle because many times not only is that founder leaving with significant knowledge of the business and the technology or whatever, but, but they're also leaving with a significant amount of equity, right? And reclaiming that equity can sometimes be a very difficult thing to do. So that's another thing that is pretty risky about startups in general. Starting a business of any kind is very difficult. And you know, one out of ten businesses survive past three years or something, right? With tech startups, it's just as difficult, right? Yes, you have angel investors, yes, you have VCs that can give you money that. But a lot of times the markets that you're going after are just so, so, so early and so young and in many cases don't even exist yet that it's very difficult to know whether a market is going to accept the product that you're building. So these are some of the things that I wanted to talk about when it comes to risks associated with investing in startups. I'd love to hear what you think some of the risks are in investing in tech companies. If you haven't yet subscribed to the YouTube channel, if new to you're, please make sure to hit the subscribe button and make sure the notification bell is turned on so that you don't miss a single episode of Invest Stream. Thanks again for joining me. I will see you again soon.