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237: Is Angel Investing Right for You?

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Boring is good. Beware of shiny objects.

When it comes to investing, those are the words that I generally live by. When I keep true to this wisdom, I don’t generally lose money.

Now that doesn’t mean I have never lost money! Remember, before I became a boring domestic real estate guy, I was a flaming entrepreneur! I acted on every good and bad idea that I had. 

I made millions of dollars with some of those startups while losing most of it with just a few bad decisions. It was exciting—but not all that profitable.

I remember a few years back after losing a ton of money in a failed business expansion that my net worth was preserved only by the real estate I had purchased along the way. Luckily, I had a rule that I had to buy at least one apartment building every year while building my other businesses.

Guess what survived? Guess what thrived? Yep…the boring stuff. Those apartment buildings I bought while I lived in Chicago saved me!

And while not all real estate investments grow by 500 percent plus in just 3-4 years like mine did, you can pretty much count on most residential real estate to be fairly safe in competent hands.

Boring stuff like real estate is a slow-burn for creating wealth. We can amplify that growth through velocity—we can invest in value-add projects that quickly refinance and recycle capital. However, it is highly unlikely that you will end up with “10 bagger” on any individual real estate project.

To get a 1000 percent plus returns, you need to do something a little riskier like I did with those start-ups. But is it prudent to do so? After all, if you are making $500K or a $1 million per year, do you want that kind of risk?

For most people, the answer is no. But, what if you want to go from being a person with a net worth of $3 million to $30 million? Well, if you really want to do that, you are going to need to take some risk—asymmetric risk.

If you’ve got the money to do it, it might make sense to take that 5-10 percent of your net worth and shoot for the stars. If you lose it, you can afford it. But if it takes off, it could be life changing.

Bitcoin and other cryptocurrency speculation is certainly a good example of asymmetric risk. People who bought a couple of hundred dollars of bitcoin back when it first came out are worth hundreds of millions of dollars!

That kind of crazy profit is extraordinarily rare and requires a huge amount of good fortune.

However, more modest levels of asymmetric risk can potentially be systematized. That’s essentially what an angel investor fund does and that’s what we are going to talk about on this week’s episode of Wealth Formula Podcast.

So…if you’re tired of all the boring stuff we do in Investor Club don’t miss this episode!

Tom Wallace is the Managing Partner as well as investor and board member at Florida Funders as we are part of that change. As a 25 year veteran of angel investing, he has learned the hard way how challenging angel and early stage investing can be …vetting the deals, due diligence, checking out the entrepreneurs (so important), legal docs, and negotiating valuations. It can be daunting and easy to cut corners which can be fatal. Florida Funders does all this for the investor and allows you to invest as little as $5,000 or invest in a seed fund that really enables you to diversify your risk which is so important in this asset class.

Shownotes:

  • Angel Investing in technology.
  • How much of one’s investment portfolio should be used on Angel Investing?
  • Tom talks about the five D’s of Angel Investing
  • What is the biggest mistake one can make in Angel Investing?
  • Floridafunders.com