Should Entrepreneurs Start Thinking More Like Angel Investors?

(Originally published on Forbes by Andrew Gazdecki)

Starting your own company is hard. You can expect pain, frustration, setbacks and tears along the way — and perhaps even failure. The wins make you feel unstoppable, and the downs like you’ll never figure out a way forward.

Entrepreneurs often wax lyrical about their billion-dollar ideas. But since it's often reported that the majority of startups will fail, I started wondering if there was a better approach to building a successful company.

Increasing Your Chances Of Entrepreneurial Success

While focus is important, it can blind us to other opportunities — and often, our own failures. When you become attached to a business you believe will change the world, you’ll probably fight tooth and nail to keep it afloat.

But competition is fierce, and successful funding rounds don’t always mean success in the market. You need to work out a plan to get you where you want to be, whether that’s a $10-million exit, $100-million exit, an IPO or some other specific goal.

An angel investor, for example, might invest around $25,000-$100,000 per startup to achieve positive returns on a small portion of them. One 2017 study, "The American Angel," cited average angel investments ranging from $32,000 to $44,000, depending on the U.S. region. Likewise, with $100,000 capital, you could potentially start 10 businesses with a budget of $10,000 each, build 10 minimum viable products (MVPs), and gather feedback on all of them to find the one that resonates with the market, which could take you one step closer to your goal.

So, instead of piling lots of time, effort and money into one idea, you could spread your capital across several businesses and hedge as an angel investor would.

Angel Investing Versus Traditional Entrepreneurship

Like angel investing, the more companies you build, the greater the chance should be that one of them will become a life-changing return on your time and capital. Where an angel investor increases their portfolio to maximize returns, you, as an entrepreneur, could apply your talents to other business ideas to multiply your chances of success.

Angel investors generally make small bets on startups and help them get through those tough early stages of growing a business. They make lots of these bets. "The American Angel" showed that angels with entrepreneurial experience have an average of 12 companies in their portfolio.

Out of those small bets, only a handful — a very small percentage of them — are likely to become really successful. For example, the "American Angel" study found that angels studied had a positive return on about 11% of their investments.

The odds of investing in a successful startup may be similarly low for both angel investors and traditional entrepreneurs. However, an angel investor diversifies to minimize losses and increase returns, while a traditional entrepreneur often chooses not to.

Many of the entrepreneurs I meet spend years or even decades on one business. Not all of them will succeed. But if they adopt the same mindset as an angel investor, there’s a good chance they’ll achieve their goals.

Multiply And Conquer: A New Model For Entrepreneurship

In business, success can pay for failure many times over. If you build nine unsuccessful companies, for example, but your 10th one is a success, it's possible you’ll recover everything you’ve lost.

It’s important, therefore, not to get too attached to one idea — at least until you have some traction, such as finding product-market fit with paying customers. In the meantime, I believe one of the most important steps in this approach is to get an MVP to market so you can gather feedback by speaking to customers and investors. It's much more powerful when you can share your vision with a working prototype.

Becoming An Agile Entrepreneur

An angel investor views each investment in terms of risk – yes, it could be a multi billion-dollar company, but it probably won’t be. So, they split their capital across several projects.

In the same way, an agile entrepreneur splits their time and energy between several ideas. Remove your emotional attachment to one project, and you’ll start to see things objectively. If your business fails to impress mentors, investors and customers, close it down. Stick it on your resume, and move on to the next one.

Time is your most valuable asset. To become an agile entrepreneur, you can think of your business ideas as an angel investor thinks of investment opportunities. Build a portfolio of startups, aiming for one of them to succeed. An angel investor could receive a small return on a few companies, so consider following that strategy by starting more companies over a shorter period of time.

Sumner Redstone is credited with saying, "Great success is built on failure, frustration, even catastrophe." So don’t be afraid of failure. Plan for it. Think more like an angel investor, and you can mitigate failure as you would any other risk.