Image via WikipediaThe idea behind insurance is that you pay for auto insurance, I pay for auto insurance, and so do a million other people. Not a million get into accidents. When a few do, it is paid for by all collectively. Angel investors get screwed by established venture capitalists routinely. In the later rounds the VCs hog the negotiations in ways that people who believed in you early end up getting the short shift. You end up not making money even when the startup does well.
And then there is the no small matter of losing your money entirely because the startup you invested in went down.
It is a numbers game. Startups are known to go down. The best VCs expect at least one third of their startups to go down. And at the outset they have no idea which one third.
Instead of asking angels to invest in individual companies there should be this investment pool concept. A thousand angels put in 10,000 dollars each into the pot. That money might go into 10 different startups. And the profits and losses get shared among all.
One idea would be to put a million each into each graduating startup from a program like TechStars.
Paul Graham: Wrong About NYC
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