So You Want to Invest in Startups? Think Twice!

Table of Contents

• Introduction
• The Startup Dream vs. Reality
• Founders Ghosting Investors: The Silent Epidemic
• Is Sending an Email So Hard?
• Fiduciary Duty and Common Sense
• The Glory Days Are Gone
• Final Thoughts

Introduction

So, you’ve got some cash on hand? Maybe it’s from years of hard work, or perhaps you inherited it from family. Either way, you’re now looking to make that money work for you. Who isn’t these days, right? High-risk, high-reward investments are all the rage, and with startups, the potential for massive returns is enticing. You’ve seen it all—TechCrunch articles singing the praises of big exits, LinkedIn success stories paraded by entrepreneurs and angel investors, social media posts declaring the latest “unicorn” that just disrupted yet another industry 🤩.

Naturally, you’ve started to think, “Why not me? Why can’t I be the next angel investor to hit it big, just like those early backers of Instagram, Uber, or Airbnb?”

Well, I’m here to tell you… pump the brakes. Think long and hard before you decide to part with your hard-earned money. Because here’s the dirty little secret about startup investing: it’s not all shiny exits and “10x” returns. Far from it.

The Startup Dream vs. Reality

Let’s clear something up right away. Like any other investment, startup investing has its ups and downs. Yeah, I know you’ve heard that before. You’ve probably read a hundred articles about how most startups fail. You’ve seen the stats—90% of startups bite the dust, blah, blah, blah. But do you really get it? Because if you did, you wouldn’t be jumping into this high-stakes game so eagerly.

Over the past 10 years of being an angel investor, I’ve seen the good, the bad, and the straight-up ugly. Sure, there are good times, but they are fleeting. The bad times? They can stretch on for years. And there’s one part of this whole game that no one talks about. Not in the startup blogs, not in those glossy LinkedIn posts. But it’s something you need to hear.

Founders Ghosting Investors: The Silent Epidemic

What’s worse than losing your money in a failed startup? Being ghosted by the founder you trusted with your hard-earned cash. Yeah, you heard that right—ghosted. And it’s happening more often than anyone wants to admit.

I’ve had founders—who, let me remind you, I invested in—vanish into thin air when their startups hit rough patches. No emails, no WhatsApp messages, no investor updates. Radio silence. Imagine this: you invest $100,000 into a startup, believing in their vision, and suddenly the founder disappears. Weird, right? It sucks. And it happens more often than you think.

Now, what do you do in that situation? How do you react when your investment turns into a black hole of silence? The worst part is when, after a year and a half of dead air, you suddenly get an email. But it’s not a heartfelt apology or an explanation of what went wrong. Nope, it’s a request for more money to bail out their sinking startup. How would you feel?

Is Sending an Email So Hard?

The reality is this: sending a simple investor update takes what, a few minutes? These days, with tools like ChatGPT (just avoid spilling the sensitive stuff in ChatGPT), there’s no excuse.

Angel investors are often more than happy to help out when things go south. We’re not just here for the good times. It’s in the rough patches where strong relationships are built, not in the fantasy of a “big exit,” which, let’s face it, probably won’t happen anyway 🤷‍♂️.

Fiduciary Duty and Common Sense

Founders seem to forget one crucial thing: it’s not your money to play with. You have a fiduciary duty to your investors. It’s your job to keep us in the loop, to treat our capital with the respect it deserves, especially when things aren’t going as planned.

And here’s the truth no one tells you—even when startups succeed, the returns are often mediocre. In this economic climate, with wars, inflation, and global uncertainty, you’re lucky if you just get your money back. A lot of people like to think of startup investing as a golden ticket to financial freedom. But honestly? Those days are over.

The Glory Days Are Gone

This isn’t the 1990s when people were throwing money at the next Amazon. It’s not the early 2010s when everyone was scrambling to back the next Facebook, Instagram, Uber, or Airbnb. We’ve hit a saturation point in the tech startup space. The unicorns are rarer, the success stories fewer, and the risks? Higher than ever.

So, if you’re thinking about becoming an angel investor today, you need to do your homework. Get to know the founders beyond their pitch decks. Understand the business inside and out. Don’t get swept up in the allure of “Startup Porn” (Read my blog post to learn more about this hidden issue.)

Final Thoughts

Investing in startups can still be rewarding and some angel investors in the past have been lucky, but don’t go into it thinking you’re the next Silicon Valley mogul. The truth is, you’ll most likely end up losing more than you gain. And the emotional rollercoaster of being ghosted by founders, watching your money disappear into a sinking venture, and being asked for more when there’s no hope left—it’s not for the faint of heart.

Think twice before diving into the world of startup investing. It’s not the dream you’ve been sold. And if you do decide to take the plunge, make sure you’re ready for the gritty, unglamorous reality that lies ahead.