THERE’S A PERVASIVE idea that angel investors are all billionaires. And it isn’t hard to see why: ask someone to name an angel investor and you’re likely to hear names like Ron Conway, Tina Sharkey or Peter Thiel. Even those less familiar with the world of angel investing might be able to name Ashton Kutcher, who has backed startups like Airbnb, or Justin Bieber, who put money into Spotify.
But the idea that angel investing is an exclusive activity and the preserve of the super-wealthy is worth investigating. Yes, angel investing comes with risk and yes, very rich people are better positioned to bear that risk, but regardless, that doesn’t necessarily mean angels are members of an elite club. David S. Rose, for example, writes in his book Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Start-ups that more people should become angel investors and that angel investing is “a legitimate part of an alternative asset class investment portfolio.” According to Rose, a “rational person can be an investor and not a gambler”, so long as potential investors don’t start pouring money into projects that they might need.
Others have pointed out that where many angel investors fall short has less to do with money and more to do with research. Speaking to the New York Times, a former commercial banker called John O. Huston described how he turned his hand to angel investing after growing bored in retirement, believing his ability to analyse risk would guarantee him some success. He didn’t do enough research, however, and his initial portfolio performed poorly....