I once had a phone conversation with one of our Tundra Angels members that I still think about today. Let's call the member, Jack. 

Prior to joining Tundra Angels, Jack had invested in a few companies outside of the Tundra Angels context. He mentioned a deal that he did several years ago that didn't pan out.

Jack's exact words over the phone to me were, "I lost my ass on that one." 

I was taken aback.

The inflection of Jack's voice when he said it was laced with frustration and bitterness, but also an aire of, "I wish I knew what I was getting into." 

The emotional pain felt three-dimensional to me. 

Then Jack said, "Because of that experience, I'm going to go a bit lighter on my first investment in Tundra Angels."

This one, their check on the new Tundra deal, was about $25,000. The other investment, the one that Jack lost his ass on, he didn't tell me the number.

I didn't ask Jack what "lost my ass" meant. And I didn't have to ask. When somebody says they lost their ass on an investment, the number likely isn't five figures. It's six figures, and sometimes… could even be more. 

Also, the more hype around a deal, the more FOMO, the more people are apt to make more emotional, less rational decisions.

As Jack and I talked, I learned that when he "lost his ass" it was one deal from a time ago. A single investment with no comparison set. Somebody he knew almost certainly brought it to him over a coffee meeting. Presumably, there was no local sounding board, no second opinion or context of a network of experts with differing domain expertise. 

That's how many in this region attempted angel investing in years past.

This n=1, one deal at a time, who-you-know scenario. The optimistic thinking of, "I hope it pans out..." 

In angel investing, when n=1 investments, it mostly doesn't pan out. The angel investing math doesn’t work like that.

This is something that I think about a lot. The financial loss wasn't Jack's only loss. It was the category's loss in his head and how he viewed it.

What happened next was that the story of failure was evangelized. Jack likely told their friends, "Stay away from angel investing. I lost my ass on it." Unsurprisingly, their friends decided angel investing wasn't for them. A whole cohort of capable, capital-rich operators in this region quietly wrote off venture as a category.

There are a handful of deals from five or ten years ago that local investors with real money put substantial capital into, that went south or sideways. I know a number of them. Some of them are people I respect in the area.

At one point, I was texting with someone in the area about a local deal, describing the context, and this person followed up with this text…

But what happened in almost every case was the same scenario: an opportunity came through somebody who knew somebody. The investor liked the founder. Maybe even the individual investor put together a meeting with a few of their close friends to hear the pitch as well. The deal looked great because it was the only deal on their desk. They wrote a meaningful check. The company didn't make it.

And the negative feedback loop of the category continued to be evangelized.

Now, let’s separate the real truth from the truth that is assumed.

By the Angel Capital Association's own data, angel invest has been one of the highest-return categories of the last twenty years when entered with the right structure and context. 

That disconnect is real to me. The asset class does work. It is just that the conditions under which most people in this region tried it were not as it should be. It is because of the way that they tried it.

I want to be clear that this is not a knowledge problem. It's not even a diligence problem. One aspect is that it is a consideration set problem.

When you only see one or two deals, you have very little to compare it against. Every deal looks great if you're looking at one. The pitch is good, the founder is enthusiastic, the deck has a hockey-stick projection. Of course it looks great. But you haven't seen 17 others that month to compare it with.

One can do all the homework in the world on a single company and still make a bad decision if you have no reference to frame the opportunity up with others in the consideration set. 

A network solves the consideration set problem in a way that doing solo deal flow and diligence cannot.

Take the year 2024. 161 startups crossed the Tundra Angels' desk - representing a mixture of inbound, VC firm and angel investor network referrals, and our own outbound.

I personally evaluated those 161 to select only 15 to pitch for the pitch meeting. From the 15, we ended up investing in five.

If you’re not killing deals along the way, you’re not saying yes to the ones that you ought to be.

That’s impossible when n = 1.

Every member in Tundra Angels sees those fifteen pitches across the year, decides which companies we will pass on and invest in and, builds a real frame of reference across each pitch meeting. Over a few years, that's dozens of deals each member has made an actual decision on.

But the comparison work doesn't only happen across pitches. It happens inside every pitch meeting too. After each company presents, members break into table discussions: two positives, two areas of concern. Five minutes. Then we go around the room. Then we take an indication of interest from every member. To be clear, the investment is not the next action. Rather, we are taking an indication of interest, which is the fundamental question, "Do you want to pursue this into due diligence?" That structure forces comparison into the conversation. Nobody decides in isolation.

Again, that’s impossible when n = 1.

Now, I do give Jack a ton of credit. This person came back to angel investing, years later, in the context of Tundra Angels. A lot of people wouldn't.

How he ended up joining Tundra Angels was that he knew a number of investors in Tundra Angels. All of them were continually telling him, "You should join Tundra Angels, you'll really like it." Now, Jack, who told me he lost his ass years ago is investing in a different context. He is no longer in the n=1 context. He sees many startups a year, has a frame of reference across pitch meetings, and is surrounded by a network of experts who can validate or call BS on a startup opportunity. 

Jack didn't come back to angel investing because he forgot that he lost his ass on that one deal. Jack joined Tundra Angels because those who he knows in Tundra Angels were telling him that the conditions for angel investing success are vastly different.

Maybe you are like Jack and that you'd say you "lost your ass on that one (deal or investment)."

Or, maybe you haven't lost your ass, but you are worried that you could be like Jack, if you are not careful. 

I want to be clear - angel investing is risky. Transparently, one of our portfolio companies shut down in the last several months and our investors received about 25 cents on the dollar.

But, if you look at those same investors’ individual portfolios and the upside they are experiencing as the startups in their portfolios achieve higher valuations, it tells a different and much more bullish story. That’s why it is about building a portfolio. Not a few select investments. There is little statistical difference between n = 1 and n = 3.

If you are looking for ways to asymmetrically increase your likelihood of being successful, then you’re in the right place.

Because, per the data, the angel investing asset class does work, in the right conditions and context.