A friend of mine recently invited me to join him at a meeting where someone had created a unique service targeting a very specific market. He wanted my perspective on the opportunity. Initially, I hesitated, expressing concerns that my questions might make the promoter uncomfortable, especially since the founder was projecting that his company would go public in five years. I smiled and remarked that building a new service business and going public in such a short timeframe is both a daunting task and an ambitious dream. Despite my reservations, I agreed to attend and promised to provide feedback afterward.

At the meeting, we encountered a passionate founder who was genuinely committed to making an impact in the space. Over the last couple of years, the company had learned, pivoted, and now aimed to scale its services digitally for a global audience. It was an impressive journey, and their enthusiasm was evident.

After the session, my friend asked for my opinion. I noted that the venture seemed more like a lifestyle business that could exhaust its resources while bringing satisfaction primarily to the founders. The cap table already included many individual investors, likely friends and family who believed in the founder’s professional reputation. I shared my high-level observations but emphasized the need for an informed decision.

My friend quickly pointed out that my approach to evaluating businesses seemed far removed from how many novice investors assessed opportunities. I explained that after over 15 years in this field, I’ve encountered numerous opportunities, some of which led to investments that were later written off.

Before I left, he asked if I could help him evaluate whether the opportunity was suitable for investment and potential exit. I explained that while I couldn’t personally commit the time to perform a detailed analysis, I could recommend “Redwood Partners,” (www.redwoodpartners.in) a company known for conducting thorough research for funds and assisting early-stage companies with validation. Within two days of receiving the pitch document, they provided a detailed note that thrilled my friend and aided his decision-making process.

Over the last year, I’ve observed a growing number of groups and individuals venturing into angel investing, often drawn by its allure and influenced by impressive presentations. While this enthusiasm is commendable, I am skeptical about its sustainability, especially when decision-making lacks a structured process and overlooks critical factors.

Here are some key points for aspiring angel investors and family offices to consider:

1. Diversify Investments: Commit to investing in at least 10 companies across various domains within a 2-3 year timeframe.

2. Seek Independent Input: Learn or obtain unbiased insights into the reasons for choosing a specific investment and the potential for scale and exit.

3. Avoid Herd Mentality: Do not invest merely because others are doing so. Focus on your own investment thesis.

4. Preserve Capital: Avoid being swayed by the relatively small investment amounts. Sometimes, it’s wiser to wait.

5. Understand Timelines: Be prepared for an average waiting period of five years for an exit.

Angel investing is high-risk, high-reward territory. It demands thoughtful decision-making and a systematic approach to maximize success. Wishing you a Happy New Year 2025 and encouraging all to be conscious investors.