Saturday week ago must have been a wild party for those two dozen Finnish families, who suddenly became millionaires by lottery. By scratching the lucky numbers on a lottery ticket, most of them have changed their lives completely.
Some pundits compare startup investing to lottery: Get rich quick with little work and little risk; buy the shares cheap and make a fat quick exit. Dead wrong.
First of all, startup investing is hard work. Giving your money to the founder is the easy part, even though finding a potential ones does take some time and effort. The real work begins after the investment round is closed. To try to make sure the company becomes a success and the investment pays off, angel investor will be there, involved with the founder in developing strategy, building sales and marketing, in board meetings, advising on international expansion and subsequent financing rounds, just to mention a few. Personally, I’ve also made cold calls to customers and stood at the company booth at trade fairs.. And the work will take years, 8 in average. This is something else than scratching a ticket.
Secondly, private investing in startups and growth companies is the essential fuel for keeping the overall economy healthy. Without a strong ecosystem of startups and growth companies, new jobs will not be created, failing companies will not be replaced by successful ones, corporations will not get radical ideas, and new opportunities will not be explored. Yes, there is good public money available, and more could be made available by political decisions. The key is that public money is (as it should be) lazy, since it needs to be impartial. It does not come with the stick and carrot of private investment: Drive to grow the business and make it succesful, and the day-to-day help to achieve this. I bet lottery wins have not created all that many new businesses.
Thirdly, angel investors take a very real risk. In investing ones own hard-earned money in substantial amounts into the riskiest possible cases, angels accept the fact that they are very likely to lose it all. And lost money is not the only disappointment, when you’ve put in a lot of work to help the startup and it still fails. Loss of 10€ and 5 minutes seems like small ticket (pun intended) in comparison. It’s only fair that angel investors expect a fat profit out of the successful cases, those are the ones that make investing worth the effort and sensible.
Nevertheless, congrats and all the best to the fresh millionaires. One can only hope that they keep calm and invest their new wealth sensibly, rather than splurge it all on fancy cars and round-the-world cruises. Some might even become business angels, and create new jobs in promising startup companies. Now that would earn them an even bigger congratulation.
FiBAN chairman 2015
FiBAN's news about startup investing.