Lessons from Passover: The 4 Sons of Angel Investing

With the holiday of Passover ready to drop at the end of this week, it offers a good time to reflect. One of the best known sections of the Passover ritual meal is the recitation of the “4 Sons”. These prototypical characters represent all of us — different types of people, each with their own types of questions that stem from our experiences and individualized views of the world. Each son asks his own question.

Instead of providing an overarching singular answer to these sons’ questions, the Passover Hagaddah answers the 4 sons by addressing the subtext behind the questioner himself (and not just the question itself). Of course, while enjoying the holiday, we’re focused on the experience with our friends and family, but we’re also investors at heart.

I couldn’t help but transpose these 4 sons and their questions to the investing world and in the process, address some key tenets core to angel investing and our crowd investing model.

So, here it goes…

OurCrowd’s 4 Sons (of Angel Investing)

The Wise Son: What does the wise son say? How many investments must I make to average the historical 22% average yearly returns angel investors enjoy?

The wise son recognizes that he could swing for the fences and make very concentrated investments backing just a handful of interesting opportunities. But this son is wise because he understands that angel investing is a game of risk management and that it’s extremely unlikely to get lucky making only 1, 2, or 3 investments. So, he wants to know that he’ll need a portfolio of at least 10 early stage investments to perform well. He’s so wise that he also understands that while you need a portfolio of angel investments, you still have to approach each individual investment as if it were your only investment. Smart. For the wise son, we recommend signing up for our free 8-lesson email course on angel investing.

The Wicked Son: Why should you bother making angel investments — don’t most of these companies fail anyway?

The wicked son asks the question in second person; he doesn’t address himself because he’s skeptical of investing in early stage companies to begin with. To him, the answer needs to be how the asset class (early-stage, private companies) fits into an overall asset allocation model. A recent NY Times article showed that over the past few years, not a single mutual fund manager consistently routed the market. And the market’s been strong during this ride. The point is that some of the most interesting opportunities are happening in the private markets (think Facebook before it went IPO and companies like Uber that have multibillion dollar valuations as private firms) and a balanced portfolio can benefit from a single digit allocation to this asset class. Equity crowdfunding investment platforms, like the kind we’ve created at OurCrowd, make it easy to begin developing quality deal flow and access to some of the same investments institutional investors are making (even for wicked people).

The Simple Son: What is this equity crowdfunding stuff I’ve been hearing about?

The simple son isn’t plugged into the Silicon Valley echo chamber to hear about how the startup market is on fire. He doesn’t really know that Israel is considered the Startup Nation, had $15 billion worth of private companies get acquired and go public last year, and is on pace for another record this year. The simple son is still using MySpace and doesn’t know of  billion dollar startup unicorns like Slack, Airbnb, or Dropbox. He doesn’t know of Snapchat, Flipkart, or Palantir. And he definitely doesn’t know of Kickstarter, Indiegogo, AngelList, or OurCrowd — all companies changing the way exciting companies receive financing. So, for him, we invite him to start learning all he can at our newly-launched Angel Investing Education Center.

The Son Who Doesn’t Know How to Ask: This child is somewhat bashful. Investing has always been surrounded by jargon and complicated maths. Some of us are intimated and fear that we’ll been seen as foolish or naive. Equity crowdfunding is opening up investing in early stage companies to many of us who didn’t have access to these types of opportunities before. It’s full of amazing potential to move from being a passive stock market investor to an active investor who can actually make a difference in helping a young company become tomorrow’s Apple, Google, or Facebook. Bring your experience and rolodex to a company and improve its chances of success. This participative investing speaks to investors looking to make a difference in their business activities. Don’t let the technical aspects of angel investing scare you off — we do our best to clarify and explain the process using everyday language.

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In truth, these 4 sons aren’t discrete people — we have bits and pieces of all of them within us. This holiday season, let’s commit to redoubling our efforts to continue educating ourselves and those around us. To making a difference in our limited investment period on this planet. To being better investors but also better mentors.

L’chaim!

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