I like the fact that everyone in the start-up space is learning all the time. This is a complex adaptive system, which is dynamic and changes all the time, which means no one has a formula to figure out how to identify the winners.

One would expect that the best way to learn is from the ones who have done well. All we need to do is to copy the success stories - after all, these are the ones we want to emulate !

We are looking for entrepreneurs who will have the same skill sets as the successful founders - and once we find them, we back them with money to create a winner. I wish life was so simple !

The problem is that a lot of these successful founders are one of a kind. They have a special skill set , and it's hard to quantify it, or find other people who have the same DNA. Also, what may have worked for him in the past is unlikely to work again because times and circumstances change, which is why using a copy and paste model is doomed to fail.

However, what's much more interesting is that the reasons for start-up failure are very similar across the board. If we follow Charlie Munger's reversal rule, the best way of ensuring success is to prevent failure , which means angel investors and entrepreneurs can learn a lot more from the start-ups which fail . They teach you what not to do , and it's much easier to translate these lessons into real life . This is what my experience has been .

Like most angel investors , I think of myself as being smart and experienced . I believe I am able to judge people , and am willing to invest my money so that I can back entrepreneurs who I think are going to be successful now .

I've been wrong a number of times , and it's these guys who teach me a lot about what I shouldn't be doing for the next start-up I invest in !

The most important lesson I have learned was from one of the first start-ups I invested in ( and I am protecting the guilty here by not naming them) . I blindly trusted a good friend's judgment about a founder whom he felt I should back because he was doing some very cool stuff. I didn't bother to do my due diligence, because my friend ( who is an experienced mentor and coach) vouched for this founder, who was from IIT, and was working in the alternative energy space - an area for which I have a soft corner. I was the sole investor, and signed a cheque for the entire amount, and didn't even bother to meet the other co-founders . Within a month of signing a fat cheque, the team imploded, and the start-up crashed and burned. I never got any updates; had to chase the founder repeatedly to even get a statement of accounts; and still have no idea where my money went and how it was spent ! While I am perfectly comfortable with the poor outcome ( I know that most start-ups do fail, and can be quite forgiving about this), what makes me unhappy is the lack of process - both in the way I invested; and in the way the founder failed to provide updates.

I am still unhappy about this, but have become mature enough to realise that I should think of angel investing as being a journey , and there's no point in dwelling in the past. Yes I am going to be wrong multiple times , but there's no point in beating up on myself. Provided I learn the right lessons from each failure , I will hopefully get incrementally smarter, so that I will hopefully improve my probability of success . My hope is that my batting average will incrementally improve over time. This is why we now have a thesis, and try not to break our rules, so we can check whether we are on the right track, and keep on testing our hypothesis.

This is why it's so important to have a long term perspective when you want to participate in the start-up space . Otherwise the chances are very high that you will end up burning your fingers and being extremely unhappy . In fact, you should worry if you have a few early successes , because this is likely to go to your head, and you will start thinking that you are much smarter than everyone else and have figured out all the answers . It's this lack of humility which is likely to lead to disaster .

I think experiencing a few failures ; and not giving up just because you have lost some money is far more likely to put you on a long-term path to success . This requires maturity , as well as the ability to allocate assets in such a fashion that you don't lose any sleep when the start-ups you back fail. While you can never control the outcome, you can control the process, and being systematic and disciplined improves your chances of success.