Many successful entrepreneurs choose to become angel investors after a successful exit (i.e. selling their companies for lots of money). But according to Andy Rachleff, CEO of Wealthfront, co-founder of Benchmark Capital, Stanford professor and University of Pennsylvania Trustee, this is a losing proposition. Angel investors generally lose money (as do most venture capital firms) because they lack two key traits that the few successful venture capital firms possess. First, angels lack proprietary knowledge of the characteristics of winning companies. Partners at successful venture capital firms have a history of helping make companies successful. This knowledge is shared internally and applied to all of their portfolio companies. Second, angels tend to bet on the wrong types of companies. Successful venture capital firms focus on companies with high technical risk and low market risk because it's the latter that leads to failed investments. In other words, investors that make money bet on companies that need help making something for which there is a known market.
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