In the past 1 year, Angel Investors have incurred heavy losses to the tune of around 5.7 Bn$ or roughly ₹47,000 crores which show issues in either strategy, methodology, or fundamentals.

Many people have FOMO or Fear Of Missing Out because of which they start investing in stocks they have no idea about. Let me explain this with the help of a real-life example.

Someone in my distant relatives was very keen on investing in the stock market ever since he saw a boom in Unicorns. His confidence increased manifold when he saw me earn handsome returns in the Startups & Pre-IPO. Not to brag, but i have been an avid investor since the very beginning and I have been fairly successful at it. So my relative thought that if I can, why can't he & I feel there was always a fear of missing out at the back of his mind. The thought wasn’t bad either. After all, that's what we have been taught that nothing is impossible.

He decided to invest a portion of his savings in Startups & Pre-IPO, in the hope to earn excellent returns. Although his journey, unfortunately, didn’t turn out as rosy. The reason was that he invested in stocks which he had very less idea about. He invested in brands he had heard about but didn’t check their background, the financial status of the company, the experience that the management possessed, etc. Turned out that the company my relative was investing in didn’t wasn’t performing as well as its reputation & thus had a negative cash flow to the extent that they had to take debts to meet their day-to-day work. Eventually, my relative ended up in heavy losses. Infact this is not a one-off story. We met thousands of investors who are willing to invest but lack strategy and knowledge and end up in losses just because of it.

This is just one example of poor strategy but not the only example in the market. One can find thousands of such investors who invested only out of fear of missing out. Infact, if you are thinking that these are ordinary people who invested in the wrong business, allow me to give you examples of top businessmen who made wrong investment decisions.

Although, It's not common to find stories on unsuccessful Indian angel investors as they don't tend to be widely publicized. However, here are a few examples:

Vijay Shekhar Sharma: Vijay Shekhar Sharma is the founder and CEO of Paytm, one of the largest digital payment platforms in India. While Sharma has had great success with Paytm, he has also experienced some failures as an angel investor. In 2016, Sharma invested in the hyperlocal services provider, Zimmber, which later shut down due to financial troubles.
Anand Ladsariya: Anand Ladsariya is the founder and CEO of Everest Flavours, a leading food ingredient company in India. However, his investments in startups haven't always been successful. In 2017, Ladsariya invested in the health-tech startup, Medidaili, which later shut down due to a lack of funds.
Bhavin Turakhia: Bhavin Turakhia is the co-founder of Directi, a leading technology company in India. He is also a prolific angel investor who has invested in several startups such as Haptik and Unacademy. However, his investment in the grocery delivery startup, Peppertap, was unsuccessful. Peppertap shut down in 2016 due to a lack of funds.

It's important to note that angel investing is a risky and unpredictable endeavor. Even experienced investors can make unsuccessful investments due to various factors such as market conditions, management issues, or unexpected competition. It's crucial for angel investors to conduct thorough due diligence and have a diversified investment portfolio to mitigate risks.

Now, as we can clearly see, some high-profile names invested in the Angel Investment market & yet they faced significant losses initially. Many reasons can be attributed to the same. For instance, Poor strategy can be one of the reasons. Poor understanding of the background or methodologies could also be one of the potential reasons behind their generating losses. Another reason could be the unrealistic expectation of generating quick returns which is rarely the case with Angel Investing.

This is exactly what we aim to cover in this article of our Angel Investing Masterclass. We’ll speak on why should one not do Angel Investing.

While angel investing in startups can be a potentially lucrative investment strategy, it's important to consider the risks and drawbacks before making any investments. Here are some reasons why you might want to think twice before investing in startups:

Risk of Losing Money: Investing in early-stage startups is inherently risky. Many startups fail within their first few years, and as an angel investor, you may lose some or all of your investment if the startup you invest in does not succeed. It's important to have a diversified portfolio of angel investments to minimize the risk of losing money. If you’re someone who feels that all your investment should be successful or should generate handsome returns, then investing in the Stock market is not the right choice, instead, try investing in much safer options like Debt Funding Market, get Fixed Deposits in banks where you’ll get small regular returns.
Lack of Liquidity: Angel investments are typically illiquid, meaning it can be difficult to sell your shares or exit your investment. Early-stage startups often have no secondary market for their shares, and it may take several years before the startup is acquired or goes public. This means that angel investing is a long-term investment, and you should be prepared to hold your investment for several years.
Time and Effort: Angel investing can be a time-consuming and active process. As an angel investor, you'll need to do your due diligence on potential investments, monitor your portfolio, and actively work with your portfolio companies to help them succeed. This can be challenging if you have a full-time job or other commitments.
Limited Control: As an angel investor, you typically have limited control over the operations and decision-making of the startup you invest in. You may have the ability to provide advice and guidance, but ultimately the founders and management team will make the decisions that impact the success of the company.
Valuation Challenges: Valuing early-stage startups can be difficult, as there is often limited financial data available. As an angel investor, you'll need to carefully evaluate the potential of the startup and negotiate a fair valuation before investing. This can be challenging and may require the assistance of a professional advisor or consultant.
Opportunity Cost: Investing in startups requires a significant amount of capital, which may be better used for other investment opportunities. Depending on your financial situation and investment goals, you may be better off investing in more established companies or other asset classes.

In conclusion, while angel investing in startups can be a potentially lucrative investment strategy, it's important to carefully consider the risks and drawbacks before investing. As with any investment, there is the potential for significant returns, but also the risk of losing your investment. It's important to have a diversified portfolio of investments and to carefully evaluate each opportunity before investing.