Why active entrepreneurs mostly invest in consumer Internet companies

My good friend Auren Hoffman just wrote an interesting article on why entrepreneurs end up investing mostly in consumer focused companies. As he points out, we have day jobs running our own companies and spend less than 2% of our time as angel investors. As such we don’t have time to do a lot of due diligence and consumer Internet companies are just a lot easier to evaluate.

It costs so little money to build a B2C company (in the early stages at least), that when they approach us, direct to consumer sites already have a product up and running. We meet the team once, play with the product, check a few references, evaluate the deal and that’s it. With one meeting, we can make a call on whether we want to invest or not.

B2B companies are much more capital intensive to build. When they seek angel money, they are looking to build the product. As a result both validating the market need and evaluating their execution potential is much harder and requires much more work.

There are many professional angels and early stage investors whose job is essentially to make investments and who will take the time to do the due diligence, but as a full time entrepreneur and part time angel, I completely agree with Auren. It’s reflected in my most important investments: Lab Pixies, Sonico, 24h00, Phanfare, Allmydata, Bandongo, FamilyBuilder, RateItAll and even Dineromail are all mostly consumer facing.


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  • I am actually going to blog about a change in my investment strategy.

    As for Rateitall, I liked the product, I liked the management team and felt that if the ratings were in valued categories the business model would work well. Whether or not an independent rating site will take off given that some of the larger sites have their own product reviews (e.g.; Amazon), we’ll see!