Picking Winners as an Angel Investor

Can you reliably pick winners as an angel investor?

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The short answer is no. Lots of people will want to share with you their success stories.  Their 20x, 50x return etc, but you need to be aware that this is largely survivorship bias, with many Angel investors experiencing losses on their investments that make them reluctant to continue on the path of what can be an exciting asset class.

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Recently, during an investor night hosted by Accelerating Asia, a visitor who had invested alongside me in an Accelerating Asia portfolio company posed an interesting question: "Oz, why invest in startups as an angel when the Accelerating Asia fund has already invested?"

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First off let’s look at why I invested in the Accelerating Asia Ventures Fund in the first place:

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1. Selection criteria.  Accelerating Asia Ventures receive over 800 applicants per cohort, and only 10 get selected per cohort.  That’s a lot of selection effort and sifting that a single Angel investor could never handle.
2. Selection Process.  Have you ever needed to “phone a friend”?  The selection week run by Accelerating Asia Ventures is a bit like phoning a friend.  Experts from various industries and backgrounds get to meet the founders and provide their feedback.  This diverse feedback provides additional data points in selection that individual Angel Investors could never hope for.
3. Diversification.  Fund II is investing in up to 125 startups.  That’s way more than I could work through and invest in myself.  Based on popular theories for fund management the larger the investment pool, the better the odds are that you can hit some winners in the portfolio to pay back the entire fund and then some.

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So back to my friend’s question: why make personal investments alongside the fund?

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Looking at the three points I made, by investing alongside the fund I can be more involved in the startups I personally love.  It also importantly resolves what I call the “Exit Dilemma”.

What’s the exit dilemma?  Believe it or not, I literally discussed this with another investor facing the exit dilemma. When faced with a potential exit opportunity they were faced with the dilemma: Should they exit now or wait longer? 

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The pointed question to me was: "Will you exit too, or stay for Series B?"

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Because I had also invested in the fund, my response was: "If the fund exits, I'll stay. If the fund continues to Series B and beyond, I'll exit." 

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This strategy allows me to get more involved where I want, take a positive upside when it’s available to me, and at the same time have no regrets.  I admit this isn’t for everyone, and there are downsides to this approach.  As with everything your mileage will vary, and in the dynamic world of angel investing, there's no foolproof method.

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It may sound oxymoron-ish, but if you’re interested in Angel investing and not sure where to start or worried about the risks, then going in on the Accelerating Asia Ventures Fund is a great way to get started.  It minimizes the downside risk and helps you get acclimated to Angel Investing.  

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Osman Ahmed is a Venture Partner and Investor Relations Lead at Accelerating Asia Ventures. Outside of this, Osman is an active angel investor with a personal portfolio of over 16 startups globally. He is also currently the COO of Curium, a deep-tech scale-up developing AI-based calibration tools for Autonomous Systems and anonymized asset tracking software using LiDAR, RADAR, IMU, and Camera sensors. 

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