Getting imposter syndrome seems inevitable when just starting out, regardless of what your endeavor is. Imposter syndrome refers to a psychological pattern where an individual questions their own achievements, skills, or abilities and has a persistent internalized fear of being revealed as a fraud or an “imposter” even though evidence to the contrary. Those experiencing imposter syndrome often attribute their successes to luck, timing, or other external factors rather than their own competence, leading to feelings of inadequacy, anxiety, and self-doubt. This phenomenon is often observed in high-achieving individuals, such as academics, artists, and professionals, and can pose a substantial barrier to both personal and professional growth.

Unlike the majority of traditional investing, such as stocks, bonds, real estate, angel investing into startups could take anywhere from 5–15 years to yield a result, and most likely closer to 10–15 years. So how would one actually be able to have the imposter syndrome, if there is no evidence of apparent success, or failure, yet? Perhaps another question that could be asked is, why would someone choose to put money into small, unknown, startups given the uncertainty?

Just starting out in any field will require moving forward in the absence of results. This is no different for investing in long-term companies, with no real stock prices made available. Going forward, the good news for startups is there will soon be secondary markets that allow individuals to buy and sell as though they were trading public securities. The other good news is that a startups runway of cash is often in short supply, due to the unprofitable nature of businesses just starting out. So, with the constant need to raise capital, particularly for companies in the last 20 years, new rounds of funding will also come with new, higher marked up valuations. This bodes well for the average investor as they will be able to see semi-periodically where the investment is at, and to some extent, how their own assessments of companies are doing so far. The assessments may not come as readily as the stock market however. If some of the companies you’ve invested in have raised capital at higher valuations, a new series round, that is good news.

Another option that investors will have to look at in determining their own apparent success or failure in startup investing is updates from the companies they have invested in so far. Many companies will provide monthly, quarterly, or semi-annual updates of the status of the company, including runway, employee count, revenue, new contracts, pending deals in the pipeline, new product developments, etc. This allows the investor to gauge the forward indicators that have not yet appeared in the financials.

Checking the average statistics and seeing where the companies you’ve invested in is another way to determine the potential skill of investing in startups. For instance, 75% of venture backed firms go to zero in the long-run. So, if less than 3 out of every 4 companies you invest in go under, that suggests some skill in picking above average companies. 1% of venture backed startups end up becoming unicorns with valuations exceeding $1 billion market capitalization. So with sufficient diversification, an investor for example could invest in 12 companies per year, 1 per month. And after 5 years, that would already be 60 companies. Hitting even one company that yielded a unicorn, particularly with market caps nowhere near the $1 billion threshold, would already be a golden ticket, more than paying off if all the other companies went bust.

The other issue with investing in startups is that portfolios typically follow a J curve shaped return distribution, even for the successful investors. This is due to the companies going bankrupt occurring right at the beginning, thus decreasing your initial return, and your grand slam winners will take longer to mature in value. Particularly for the unicorns, the maturity timeline horizon will be increased even more dramatically. But once those few winners in your portfolio, the 1 or 2 best investments yield a acquisition or IPO, the portfolio value skyrockets, thus forming the increasing part of the J curve. No one knows ahead of time whether they will succeed in an endeavor or not. This is even more true investing in startups where the uncertainty is even higher.

With proper fund allocation, putting a small % of your net worth into startups so that your risk, if it all went to zero, would be very minimal to your actual lifestyle, but so that you are putting enough that it could make a big difference should the right startups be selected. Current equity crowdfunding platforms have said investing restrictions in place already, to help prevent you from total devastation. Investors with incomes or net worths under $124,000 are able to invest 5% of the higher of the two. Investors with income and net worth both over $124,000 are able to invest 10% of the higher of the two. So, someone with $70,000 salary and net worth of $300,000 would be able to invest 5% of $300,000, or $15,000 per year. $15,000 spread across say 12 companies, will not cripple your life if those companies go bust. But, they could totally elevate your financial future if something turns out right.

Disclaimer

This is not Financial Advice. This article is meant only for educational and perhaps entertainment purposes.