Oct 11, 2022

Eskay Lim/EyeEm via Getty Images This story is available exclusively to Insider subscribers. Become an Insider and start reading now. Redeem now Once only for the superrich, angel investing is now open to anyone with a few thousand dollars. A growing number of digital platforms and angel groups have all but eliminated barriers to entry. With an estimated 360,000 active angel investors, it's become a favorite pastime in Silicon Valley. In fall 2017, Marjorie Radlo-Zandi was feeling out of sorts, her beloved apricot standard poodle, Sabrina, had just been diagnosed with cancer. "I was absolutely devastated," Radlo-Zandi said. Not long after the diagnosis, she was at an investor conference and happened to see a 10-minute pitch from the founder of Torigen, a startup developing innovative cancer treatments for dogs like Sabrina. Radlo-Zandi ended up writing a check for $10,000, thus began her career as an angel investor. "I feel great about my investment," she said, "but honestly, I feel even better about all the dogs that are treated." Angel investors, much like venture capitalists, put up money to fund promising startups at the earliest stage. Unlike VCs, though, who invest other people's money, angels deploy their own wealth. Historically, they've been successful founders themselves, sometimes looking to use the windfall from an exit to take a flier on a risky, new venture. For fledgling startups, they can provide a much-needed lifeline, often without the strings attached to an institutional VC investment. Yelp, Facebook, and Google all relied on angel investments to get off the ground before attracting traditional venture capital. The world of angel investing — once the exclusive purview of the superrich and the well connected in Silicon Valley — is increasingly open to anyone with a few thousand dollars and a passing curiosity. The commercialization of angel investing The proliferation of platforms like AngelList, Angel Match, Canopy, Assure, and Carta have all but removed the barriers to entry for prospective angels. The Center for Venture Research at the University of New Hampshire tracks more than 360,000 active angel investors, a more than 80% increase from 10 years ago, when the center first started publishing data. With a median check size of $25,000 and many angels keeping their day jobs, it would seem angel investing has become yet another expensive Silicon Valley hobby like collecting sports cars or buying tungsten cubes . "It felt like gambling," David Spreng, a veteran venture-debt investor who's been angel investing as a side hustle for more than a decade, said. One of his first angel deals was a $50,000 investment in the student-loan refinancer SoFi. He was introduced to the company by the managing directors of the VC firm Ulu Ventures, with which he happened to share office space. He had only about 30 minutes to meet the founders, hear their pitch, and decide if he wanted to invest. "For me, it was exhilarating," he said, "and kind of an adrenaline rush and, you know, something that I enjoyed and wanted to do more. But, you know, if you are going to get that high at a cost of $50,000 or more a check, it's a lot more than cocaine." A cottage industry has sprung up around a new generation of amateur angels. There are angel conferences, angel meetups, and angel groups, such as the Hustle Fund Angel Squad, which allows aspiring investors to jump into deals alongside seasoned VCs with as little as $1,000. There are angel academies, such as Jason Calacanis' Angel University, which offers a $300 half-day course on everything from deal sourcing to allocation buckets. It's seemingly never been easier to be a Silicon Valley dealmaker. "Many people think that this is something that only the wealthiest have the privilege to access," said Dmitry Samoylovskikh, a serial founder who's building a platform to allow individual angels to easily pool their funds. He got the idea to become an angel the night his daughter was born in 2020. It was during some of the most trying days the pandemic, and he remembers pacing around his living room after bringing his wife home from the hospital and resolving to make his daughter a millionaire by the time she turned 18. He wrote his first angel check shortly thereafter, a $1,000 investment in an electric-aircraft maker. "You definitely feel that you are in a different league now, even if you wrote just a $1,000 check. You are an angel investor from that moment on," he said. Samoylovskikh described his investing style as "spray and pray" — every year, he tries to make 20 to 30 investments of $1,000 to $2,000 each. "What excites me most about this is not returns," he said, "but rather the understanding that I back real companies in early stages and I help them in some very small, small way." Where it all began Modern angel investing appears to have begun in 1976 when the former Intel executive Mike Markkula — who was recently retired at 32 and advising startups pro bono between guitar lessons and woodworking — drove out to Los Altos, California, to the fabled garage where Steve Jobs and Steve Wozniak were working on a prototype of the Apple II. Institutional venture-capital firms like Sequoia and Kleiner Perkins, put off by Jobs' general unpleasantness and tendency to wash his feet in the toilet, had declined to invest in Apple. But Markkula, an engineer by nature, was instantly won over by the technology and eventually cut a check for $91,000 (nearly $500,000 in today's money) in exchange for 26% of Apple. In so doing, he may have become the first modern angel investor. By the time Apple went public in 1980, Markkula's share of the company was worth more than $200 million (nearly $700 million in today's money). Andy Bechtolsheim, the founder of Sun Microsystems and the first outside investor in Google, wrote a $100,000 check in 1998 to the search-engine company, earning him a stake that, by the time of Google's initial public offering in 2004, would be worth over $300 million. The Leverage Software founder Mike Walsh in 2010 became the first backer of Uber, with a $10,000 investment that is estimated to now be worth tens of millions of dollars. Stories like these have added to the myth of the Silicon Valley angel, helped along by prominent evangelists like Tim Ferriss, one of the first people to crowdsource angel investments from average people, and the Y Combinator cofounder Paul Graham, who's scathing anti-VC essays became gospel for techies and hackers in the early 2000s. The currency of Silicon Valley "Your currency, for lack of a better term, in Silicon Valley is you either started a company or you angel invest, right?" Adrian Aoun, an angel investor and the founder of the healthcare startup Forward, said. "The vast majority of people are not successful founders, so they just walk around, and they say they're angels, and it's a hell of lot easier to say you're an angel, obviously. So yes, it's a résumé builder — there's zero question about that." Aoun has invested in about 300 companies, including Impossible Foods, Pinterest, and Robinhood. He tries not to write checks smaller than $50,000, he said. He worries that many of these amateur angels may be setting themselves up for failure, he said. After all, venture returns follow what's known as a power-law distribution, meaning that the vast majority of investments are failures with the top tier of winners accounting for nearly all the returns. If you don't have the funds to bet big on your winners, the losses from your losers can add up quickly. "Once you get past this, like, top echelon — and that top echelon is a very, very, very small percentage of people — I suspect that the returns are incredibly rough and these people are mostly throwing their money away," Aoun said. Of course, for many angels, investing is about more than just returns. Janine Sickmeyer was inspired to become an angel by the miserable time she had as a founder raising money for her legal-tech startup, NextChapter. She pitched 86 investors on both coasts, and all she had to show for it was a series of traumatic experiences, she said, describing aggressive advances from prospective investors, requests for late-night meetings in hotel rooms, and insinuations that her company would get funded only if she went home with the VC. "One pitch, like in the middle of my pitch, a guy said, 'Well, I could see why someone would give you a check because you have a pretty face,'" she said. Eventually, she decided not to take any outside money, instead using the revenue from her customers and bootstrapping her way to a successful exit. When she finally had capital of her own, she said she hoped she could spare other female founders the horrific experience of having to go through a similar road show. That opportunity came when Chrissy Cowdrey, the founder of the visual-storytelling platform Stagger, cold-direct-messaged Sickmeyer on Twitter asking for a meeting. "I had imposter syndrome myself, like most people do," Sickmeyer said, but she took the meeting. She remembers getting off that first Zoom call, turning to her husband, and saying, "I want to do it," she said. She wrote a check for $50,000, posted a tweet announcing her first deal (she said about two people liked it), thus an angel was born. For people like Sickmeyer, the democratization of angel investing has become an opportunity to take back some small measure of power in a world historically dominated by the same handful of white male venture capitalists. She would go on to make about a dozen angel investments before starting her VC firm, Overlooked Ventures, which invests in underrepresented founders. "I want to be the one giving money to these people that deserve it," she said. Sign up for notifications from Insider! Stay up to date with what you want to know. Subscribe to push notifications