levy is Adam’s fourth business on top of the 100+ startups he’s invested in during his career in Silicon Valley. Previously, Adam served as Co-Founder and COO of AbstractOps, a platform unifying and automating back-office workflows, and remains as a Board Observer today.
For the final piece of this three-part series, we sat down with Adam to cover two of his biggest mistakes as an angel investor and ways to tactically avoid them.
“Investors like telling success stories. But it’s crucial to be honest: 90% of your deals could likely fail. Then, you can actually start to learn from those mistakes.”
How early-stage angels can learn from failed investments
According to Adam, studies by industry thought leaders have demonstrated that:
- Investor success rates appear to peak at their first deal and decline with experience
- Venture firms with the strongest initial performance see the greatest decline over time
- Conversely, firms with the weakest initial performance see the greatest improvement
Adam’s reasoning for these phenomena? When you’re making your first investment, you have zero experience, so you’re less likely to rely on past events to make your assessments.
As you witness successes and (many more) failures, you may simply become jaded. If you hear the same pitch for five years and never see it pan out, you’re quick to discount it on year six.
He’s experienced this plenty himself, but he’s worked on applying a new mindset: How do you know this isn’t the year that the right founder will tackle the problem and finally make it work?
Along those lines, Adam reminds us that the world changes quickly and dramatically.
If you’ve spent a decade in investing, the ideas that would’ve failed back then are now operating within an entirely new industry of global circumstances, tooling and capabilities, and more.
Beware blind optimism – remember to slow down and reflect
The flipside – naive or blind optimism – can also hinder your success in investing over time.
As investors gain experience and accumulate positive returns, a natural response is to take that money and invest on a larger scale — and to take bigger risks as you do so.
However, that confidence can quickly turn harmful if you don’t apply your gained experience and knowledge to fully vet and analyze high-risk investments.
Adam tempers those impulses by simply checking in and slowing down on a regular basis, which means being candid about the notable investments he’s made that have failed.
Ultimately, maintaining an upward trajectory in angel investing requires balance: reflecting and improving upon failures while also keeping an open mind about your next success.
“You become jaded after so many years. ‘I’ve heard this pitch millions of times. It’s never worked.’ But what if you brush it off the one time or team it could work?”
Why you should never invest based on groupthink
One of Adam’s greater regrets as an investor occurred when a portfolio company was acquired by Block (formerly known as Square). His team had two options to proceed:
- They could walk away with cash: 25 cents max on the dollar for their investment
- They could get a 1:1 swap of their equity for Block equity at the same value
They had no idea what Block equity would be worth (this was well before their IPO), and most of the prominent investors in their round were choosing to take the cash at a loss.
So they followed their lead. Years later, Adam sums it up as: “That was so stupid of us.”
The mistake wasn’t painful because they lost out on the equity — but because they’d basically followed the lead of the crowd without thinking through the circumstances on their own.
He took a simple lesson away from that event: Always do your own thinking as an investor.
“We made an investment decision by following the crowd, without thinking independently through our own principles. That was a big failure on our part.”