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Invest small amounts across a dozen or more young companies; reap outsize rewards on one or two; repeat.
This is the simplified version of angel investing, the euphemistic term given to early stage investments in companies that are long on ideas and short on capital.
“Smart people are doing it because they don’t know what they don’t know,” said Daniel L. Gottfried, a partner at the law firm Hinckley Allen. “When these doctors and lawyers are doing it, they’re investing with the hope that they’re going to make lots and lots of money. It’s roulette.
“But unlike roulette,” he said, “there are things they can do to stack the deck in their own favor.”
Mr. Gottfried, who has advised angel investors and companies seeking angel investments, said he had become skeptical of the culture of angel investing.
“What bugs me is this whole start-up scene is a lifestyle, and there are these investors who think it’s sexy and want to be part of that lifestyle,” he said.
Angel investment groups are popular. I’ve written about their strategies of bringing together investors to pool their capital and their knowledge of different industries. But that, too, is a time commitment some investors cannot make.
Another option is to find investments where you can use your knowledge as well as your capital.