Wednesday, January 14, 2015

‘Angel Investing’ (Book Review)

With the growing number of technology start-ups and the popularity of reality television shows like the Canadian Dragon’s Den and it’s American spin-off Shark Tank, terms like “angel investor” and “venture capital” are becoming household words. However, how to actually survive and thrive in this sort of investment market is still a great mystery to many. For those looking to fund these sorts of high-risk businesses, help is needed. And that’s exactly what Angel Investing: The Gust Guide to Making Money & Having Fun Investing in Startups offers.

Author David S. Rose is a veteran angel, founder of the New York Angeles investor group, and CEO of the online platform Gust, which connects moneyed members to entrepreneurs. In Angel Investing, Rose shows the novice the ropes, covering basics such as the differences between equity investment and lending; and among accelerators, angel investor groups, and venture funds. Readers will learn how to evaluate an entrepreneur’s potential, what to realistically expect from their portfolios, and how to be actively engaged in a business without becoming a nuisance. Rose also discusses what to expect in case of an acquisition, where your company is bought out by another one, and bankruptcy, where your chances of losing your entire investment is high. I particularly liked the author’s warning against trying to maximize financial return and social impact simultaneously. While it’s a nice idea that we could make money while being “do-gooders,” Rose points out that each project needs to focus on one goal.

Sounds good so far? Well, for those who would rush out and buy this book as a sure-fire way to getting rich, I want to add two words of caution. First, this book was written for Accredited Investors (i.e., people with mega-bucks who are permitted by the government to blow large amounts of money on start-ups that will in all likelihood fail). So you might be thinking, “What’s in it for the Average Joe?” Well, most of us at some time or another have been asked – or will be asked – to participate in a “Friends and Family” investment round. Now, armed with this book, you can learn to think like the multi-millionaires and billionaires and critically evaluate a business’ potential before dropping your life savings into your nephew’s big idea.

Second, angel investing is definitely more of an art than a science. It’s not a given which firms will be successes and which ones failures. (Don’t believe me? Check out the Apple chapter in the documentary film Something Ventured.) Most of the statistics are “guesstimations” based on Rose’s experience, not backed by hard data, nor expected to ever be. He talks about what generally happens, what entrepreneurs usually do, what problems often arise, etc., and builds his recommendations from this. But few things, aside from a few laws, are really set in stone. While it might seem like I’m being a “party pooper,” note that this is reality for any kind of investment or speculation – including Bitcoin, people! Angel Investing won’t eliminate risk, but it can teach you how to be a better informed investor.

Disclaimer: I received a copy of this book as a First Reads giveaway winner on There was no obligation to write a review.