Lesson 03
Every story here is a survivor
This section is a catalogue of outliers, and reading it as a set of methods rather than as a tail of a distribution is the most expensive mistake it can cause.
The pattern
Every investment described in this section worked. That is why it was written about, why the figures were published, and why we were able to source it. The cheques these same investors wrote into companies that returned nothing are, with very few exceptions, undocumented.
This is survivorship bias in its purest form, and it is worth being blunt about because the entire genre of angel investing writing is built on it. A method that produced one 4,000× outcome and forty zeros is indistinguishable, in the retelling, from a method that works.
The correct reading is that these entries describe what the top of the distribution looks like, and what it took to be in the room when it happened. They do not describe a reproducible process, because the process — write many cheques into companies you can assess, at prices that leave room, and hold the ones that work — is unglamorous and produces these outcomes only occasionally.
The investors themselves are generally clearer about this than their retellers. Several have said in public that a single outcome dominated their results and that they could not have identified it in advance.
For your own cheque
What an angel takes from this
- Read every angel success story with the denominator attached. The question is never "how did they pick that one" but "how many did they write, and what did the rest do".
- Plan for the distribution rather than the anecdote. That means portfolio size large enough to contain an outlier, cheque size small enough to afford it, and reserves to follow the ones that work.
- Be suspicious of method claims. The strongest available evidence is that entry price, portfolio size, holding period and access explain most of the variance, and that all four are structural rather than clever.
- Judge your own decisions separately from your outcomes. In an asset class where a good decision fails four times in five, results are a terrible short-run signal about process — which is why the sell rule, the cheque size and the portfolio plan are written down in advance.
Checked, not remembered
Sources
Every figure on this page is traceable to published reporting. Where credible sources disagree we say so above rather than picking the most quotable number, and we do not state what a stake is “worth today” — that moves with the share price and is stale the moment it is written.
The mechanics