Before I started angel investing, my husband and I discussed our investments and decided to put a small percentage into early stage angel investing. We went in with the assumption that we’d lose everything and were fine with that. With that in mind, I focus on spreading my bets and only double down when I see the risks start to reduce in the later stages.

Melissa Widner

Get comfortable with risk by spreading your bets

Angel investing is highly risky - I’m comfortable with the possibility of losing our money because there's also the possibility of a very large return. But it’s a long game. I believe the average time for a good venture exit is 13 years and that aligns with my experience. I made my first angel investment in 1999 and my largest exit was in 2011.

Because the timelines are so long and it’s so risky, you can’t predict which investments are going to deliver big returns. So the more you spread your bets the higher the probability you have of finding that one. A friend of mine is involved in the Band of Angels, the oldest angel investing group in Silicon Valley. He has told me that their IRR over 15 years was about 54%. That’s a massive return but about 90% of their returns came from just six companies. So to increase the probability of getting a good return you need to be in as many companies as possible given the amount you’re investing.

A good way to spread your bets is to invest with other people or in syndicates. I'm never a sole investor, I’m always part of a syndicate. Then you can invest in more companies and give yourself a better chance of investing in the one that gives you an exceptional return.

I made my first angel investment in 1999 and my largest exit was in 2011. Because the timelines are so long and it’s so risky, you can’t predict which investments are going to deliver big returns

My strategy is to double down on potential winners

It isn’t always possible to identify which business will give you a big return at an early stage. Angels often invest because they like the entrepreneur or the other investors and it’s a space about which they feel passionate.

Looking at my angel investing experience so far, I've invested in about 20 companies. More than 10 of them have either been through fire sales or gone out of business. Just two companies have realised 95% my returns. When I realised that those companies may be successful I put more capital in. This supported their growth and also increased my potential return.

Everyone has a very different approach to angel investing. I have some friends who invest a lot in a few companies and are actively involved. My approach has been to invest in a broader group of companies to spread my risk and then invest more further down the track when I can see proof of potential.

Melissa Widner is a General Partner at NAB Ventures and Angel Investor.

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