Sicilian Investment Method: Why I became an Angel Investor

How can you make a small fortune with start-ups?

By investing a large fortune. In most rankings, start-ups are found in the weakest investment category. This is despite the fact that some of the most successful companies in the world today, such as Google, Facebook, Amazon and many more, were startups just a few years or decades ago. It is easy to overlook the fact that behind every successful startup are hundreds of failed companies. This so-called survivorship bias makes us envy the relatively few successes and forget the overwhelming number of failures.

In contrast to a normal start-up, a start-up is only a start-up if the risk of failure is enormous. Otherwise, it is just one of the many normal, i.e. low-risk, start-ups, often in the service sector such as gastronomy, trade or software development. Risk alone is not enough, of course. There must also be the beneficial potential of destroying entire branches of the economy. For only by destroying the good with the better can a better world for all emerge.

If an economic sector has not been exposed to this beneficial destruction for too long, it falls into a dangerous equilibrium. More and more of the same emerges - in other words, more and more competition based on the same business models. At first glance, this may seem fine to consumers, but competition between the same business models lowers the price, until in the end there is no more beneficial profit left. This achieves one of the main goals of Marxism: the supposedly evil profits benefit the general public, not the working class as Karl Marx thought, but the class of consumers, i.e. everyone.

Start-ups as a bet on a better future

The start-up is always a bet on the future. The bet is the whole company. In this sense, Tesla is still a startup. As with his other companies, e.g. the space company Starlink, Elon Musk is betting everything on one card. Steven Jobs' Apple, too, can be identified as start-up behaviour, as the idea of doing without buttons on a phone was insanely risky at the time. Experienced investors assume that out of ten companies in which they invest, eight fail or stagnate and at most two recoup their investments or make the profit needed to invest in further start-ups.

Anyone who thinks profit is bad has not understood what sustainable entrepreneurship means. A better world through start-ups is created when entrepreneurial people replace their permanent employment with self-exploitation. It is in the nature of things that companies - whether large or small - focus on only one of the many alternative innovation options. Since financially strong companies do not want to accept their own failure of certain projects, money is always poured in. Start-ups are much more efficient. If it doesn't work, it slips into blessed bankruptcy before unsuccessful projects are pursued for too long.

Corporations, on the other hand, are not driven by the desire for new things and change, but by the fear of making wrong decisions. A corporation cannot afford failure, while a start-up is not a start-up at all if there is no risk of failure. Even though start-ups have been around for a very long time, the boom is only beginning with digitalisation, because software generates much lower entry costs and hurdles than, for example, the automotive industry. While classic companies are looking for solutions to their customers' problems, startups are solutions in search of problems. It has long been known that inventors cannot even know at the beginning what their invention could be good for.

Many examples show that the market must be mature for certain solutions. But when this level of maturity is reached, comparable solutions spring up like mushrooms. A company boss once found a good metaphor for this: As a large battleship, you are no longer as manoeuvrable, but you can defend yourself against the enemy with many cannons. Start-ups, in comparison, are small, manoeuvrable speedboats with only one cannon. If your own market is attacked by 100 start-ups at the same time, only one of these start-ups needs to hit the big steamship and you have already lost, even if you have beaten many other start-ups beforehand.

This brings out the evolutionary character of the start-up business. Intelligent design, the creation by a hierarchically intelligent god or corporate boss, is contrasted with the experiment of 100 others, none of which the start-ups know whether they are right. But for the economy as a whole, it is enough if one of them gets through. Survival of the fittest beats even the most intelligent corporate strategy if the market is sufficiently encrusted.

The Sicilian Investment Method: I know where the founders live.

I usually invest in start-ups that are in a very early phase. There is only one idea, which of course has to be convincing. But the most important thing is the team. I often invest in start-ups of former employees, for example. The likelihood of being ripped off, because of course you never have complete insight into the companies, is significantly reduced. And if the company should fail, I rely on the fact that the founders did everything possible. You can't expect more than that.

A survey in the UK among business angel investors found that they invest an average of 9% of their assets in start-ups. The most important motive for investment: entertainment. Few things are more fun for a mature entrepreneur than being part of a community driven by the entrepreneurial spirit. For me, knowledge acquisition comes in as an additional motive. In my operational time as an entrepreneur, I was at the top of my market segment. As a speaker, I now need top know-how in the broad field of digitalisation and the future. What allows me better access to this knowledge than being part of the most diverse developments on different continents?

To keep up to date in the startup business in general, I have invested in the Australian company Cake, which brilliantly automates the tedious investment management for startups. This also gives me access to new developments and investment opportunities in Australia and around the world. Because blockchain is likely to remain the most important digital technology of the next few decades, I have invested in several companies here from the UK to Singapore. One of these companies was worth half a billion dollars at one point, almost a unicorn, until the valuation shrank back to almost its original value in the wake of the 2018 Bitcoin crisis and the scandal surrounding Wirecard.

An important criterion for being successful as an individual investor is your own failure. And I did that with flying colours with the company visalyze in Silicon Valley. But that's another story. As an individual investor, you are not primarily buying your share of a possible future profit, but work. It would be a pity if one's own experience from operational entrepreneurial activity were to lie fallow. That's why I invest primarily in companies that need me. After all, I should not get bored.

The commitment can be compared to that of my children's grandparents. They are happy when the grandchildren are with you, but are glad when they can hand them back to their parents. And it's the same with supporting the start-ups in their operational business. It's fun to get involved ankle-deep and then be able to let it go again, and then later brag about these experiences in lectures.

Besides blockchain, I am particularly interested in investments in artificial intelligence or quantum computing. Since there are still very few quantum computer start-ups, my attempts to invest in this area have not yet been crowned with success. Nevertheless, I have succeeded in gaining an understanding and assessing the potential of this important technology. But because I also find new learning tools very exciting, I have made an investment in digital language learning. As an aerospace engineer by training, I am also fascinated by astromining, nuclear waste incinerators and geoengineering. However, this is a focus for the time after the first exits.

I don't want to deprive you of one last advantage of being an individual investor: You are invited to many interesting events to which you would otherwise not have access.