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Neil Patel here. Today, I want to talk about the biggest mistake you could make as an angel investor.

When I first started out, more than ten years ago, I made a few choices that I wish I could go back and change.

Don’t get me wrong. I was still making good returns on my portfolio.

But I did put my money behind a couple of projects that didn’t quite flourish. Those cut into my bottom line.

I didn’t start making amazing returns until a few years later – once I honed my approach.

Those underwhelming investments taught me a critical lesson.

In fact, it’s the biggest piece of advice I can give you, as a fellow angel investor.

That’s why you’re here, after all – to learn from my experience, mistakes and all, so you don’t have to make them yourself.

Here’s what held some of my earlier investments back: the total addressable market (TAM) was too small, stunting revenue growth and undercutting my ROI.

Let me explain.

The total addressable market is basically the maximum revenue opportunity available to a business.

So, if you’re building a business that delivers ice cream sandwiches by drone in San Francisco, your TAM might be influenced by the following factors:

If you do that math, you end up with a TAM of $31,129,472 annually.

884,360 x 0.80 x 0.50 x $22.00 x 4 = 31,129,472

That’s not bad, but $31 million a year in revenue is small beans when you only own a tiny piece of a company.

Now suppose that the startup has a sound, actionable plan to expand. They intend to deliver to the entire United States.

Your multipliers will change a bit – outside of metropolitan San Francisco, an app like this is sure to do less business. For example:

These are rosy estimates, possibly influenced by my own love of ice cream sandwiches. A business like this, delivering just one product, would be unlikely to succeed in a world where consumers expect products and services to multitask. Not to mention the high cost of drone deliveries in rural America, where property lines can be several miles across.

But for the sake of explanation, let’s go with it. Even with lower margins, expanding nationally bumps our TAM up to $3,973,050,000.

That’s 127x more revenue… and a return on investment you’ll want to write home about.

Today, I only invest in startups with a huge TAM – a billion dollars or more.

Of course, every once in a while, you’ll come across a startup with a pretty small TAM that you’ll want to invest in anyways.

That’s okay too. The beautiful thing about angel investing is that it can be about more than just the money.

There are other types of “returns,” besides cash, that you can reap from this game (more about that here).

In fact, most angels will occasionally fund a “passion project” or two.

But the billion-dollar businesses are the ones that will make you your fortune.

So, when it comes to your core portfolio, always stick to startups that have the potential to grow really, super, insanely huge – startups with a big TAM.

Until next time,

Neil Patel


65 responses to “The Best Lesson I Learned in Angel Investing”

  1. an angel investor can invest with 50S or 100S too? it seems like is impossible please clarify me on it?

    • Hello” regarding the investment “amount” there is information from republic the entity that holds your
      profile information. They [republic] was speaking to what you should invest as a new investor. I thought it was quite informing because I like my fellow community investors are some what like minded. Meaning” how could $50 -$100 make a difference but the topic covered income salaries. Risk, and disclosures and according to those areas your yearly salary will dictate what you can afford to in invest. No matter what the company offers in return on investment. Which clearly made me understand my level of investing.

  2. Hi Kevena! Thanks to the JOBS Act of 2016, every American is now eligible to invest in startups long before they IPO. Every deal is a little bit different, but there are absolutely opportunities to invest with just $50 or $100. This will be a key part of The Angels + Entrepreneurs Summit… Stay tuned for more details!

    Blair S.
    Editor, The Startup Investor with Neil Patel

    • “Thanks to the JOBS Act of 2016, every American is now eligible to invest in startups long before they IPO” > How about a permanent resident like a Green Card holder?

      • Hi there,

        I’d check with each platform you’re planning to invest through, but I’m pretty sure you can. You might need to provide a tax ID.


  3. Great info! TAM. In the cannabis industry, I’ve been using population as an investing evaluation factor.
    When’s this Summit?

  4. Hi,
    I live in South Africa and would want to participate in ventures like this.
    With so many products advertised, when I want to participate or order, I am informed that it is only for USA citizens.
    Who do I go about being an angel investor?


  5. Neil, I love your videos, but am wondering if you can make them variable speed as many videos are today. There is a lot of material to review and time is limited. I would love to listen to them at 1.25 or 1.5 times actual speed. Thanks in advance for thinking about this.

  6. Neil,
    Hi, it’s Kathy and this is my very first post. I have watched all of your video’s and they are very helpful but as a new angel with wings not fully ready for flight I want you to tell me which one of the businesses I’ve seen so far which one you would invest in. Which one is a TAM. Then I can make up my mind to take it or leave it.
    What is your opinion?

    Kathy Miller

  7. Hi Neil,
    I am interested in your response to Kathy Millers question regarding which of your first companies have a TAM that you would consider investing in.
    Thanks for your response.

  8. Hi Neil,
    To piggy back on Michael and Kathy, would it be possible to add your insight pertaining to the TAMability of companies with your feedback on the monthly deals?


  9. I don’t want to give up yet, but I am most discouraged that Neil does not invest in any of the STARTUPS.

    I p[aid $495 for a LIFETIME membership which I do not mind.

    But not knowing which companies he recommends means that I would be going into this STARTUPS BLIND. Since most companies (STARTUPS)
    are quite risky, going it alone, seems very very foolish.

    • Neil explained this somewhere (sorry, there’ve been so many videos and things to read, I’m not sure where I saw/heard it). The gyst is that it’s actually unethical for him to invest in the start ups he presents to us because as we invest in them, it actually drives up/increases the start ups viability/return value making it a better investment/less risk for him. Since he is integral to A & E, he can’t, ethically use our investing to do his own investing. Anyone remember where/when he responded to this question?

      • Actually, he did a video on another level of membership which charges a lot more (almost $2,000.)
        Appears to be the same concept only a bigger ball game.

  10. The program is great and gives step by step instructions on best investments that you can follow up with your own research on each recommendation by Neil and staff to understand the methods and results for yourself. After that you can invest small, medium or large, depending on where you are at personally. I believe that too many people do not listen well or follow thru with learning and study first. Then when it doesn’t work for them, they wonder why. The answers are ALL in the program as far as I can see. But, you must study and learn first, asking specific questions as you proceed with the training.

  11. Neil, when you come out with information on new start up’s, can you also furnish the TAM information for each new start up being offered. This would be huge for some of us that know very little on investing, or don’t have the time to do all of the research on the TAM’s.


  12. Hey Neil, sounds and looks good so far. Please provide additional info on TAM and 2019 summit? Thanks.

  13. Hey Neil, sounds and looks good so far. Please provide additional info on TAM and 2019 summit? Thanks.

    • Neil… I’m new to this investment game but I learn quickly… I know this is the right time to get my feet wet, but don’t have much cash to work with… Do u have any helpful advice to steer me in the right direction with.

  14. Okay. I’ve read a lot of the comments about Neil’s posts and videos. There seems to be this impression out there that Neil is going to specifically tell you what and how to invest your money. It was clear from the very start that he is passing along knowledge that took him years to accumulate. He is not your broker. He cannot legally tell you what to invest in. He has made it clear that all start up investments are at high risk. If you cannot afford to lose the money, then don’t invest it.
    Listen, look at the materials, do your own research. If you don’t understand the company, skip it and move to the next one.
    Making your first risky investment is difficult. You could lose it completely or might turn a very nice profit. You must be patient, do your research, and invest when you feel right about the company/product.
    Neil is opening the door, but you have to walk through the door. I don’t know about you, but I wasn’t aware these opportunities existed until watching his video. I am all in and, so far, have invested $100 each in five companies, one of which I found on my own. I am learning in leaps and bounds, and really enjoying it.

    • Bruce,
      Anyway we can start an investing team? I’m new to this and would feel much better banging heads with someone that knows the ropes.

      Tom Pinney
      Las Vegas, NV.

    • I’m with you!
      These people aren’t reading listening or doing their due diligence.
      Neil gives you a formula, for YOU to go out and apply to all of the startups.
      He wants YOU to do your homework on the companies and see who fits that formula and it starts with who are the founders are they accredited people, do Thames have a successful past and if Everything falls into that formula then you make the call and go for it.
      Neil ALSO gives you his insight to each of the startups he recommends in his “Deal Flow” he gives you the pros and cons and his own thoughts.
      If you can’t swing $50, I don’t think personally that the patience and the time needed for a return is what you are looking for.
      It’s going to take time these are only startups he talks about. They haven’t gone IPO yet.
      The Summit is a meeting of Angels and Entrepeneurs at various warm sunny locations all founders are welcome to join. It’s a mingling party with other influential people.
      All of your questions get answered if you just listen.

    • Bruce,

      I completely agree with you! I recommend people research potential opportunities and start with a small investments!

  15. Are you going, at some point, going to inform us just what is out there to invest in. Simeone said they had already invested in 5 different entities. Where did they get the names of these start=up companies?

    • Hi Elaine,
      All deals are posted on our network website, angelsandentrepreneurs.com.

  16. I only wish Neil could delve into some of the other deals found on Wefunder and Repunlic. I’ve reviewed all that is available on 3 deals on Republic but the Founder interviews and the Take that Neil does is missing. I’m reluctant to make a move without that type of information.

  17. How do we figure out the TAM for each startup? It’s a question on the cheat sheet, but I’m not sure how/where to get this information.

    • Several have asked that the TAM info be included in future Hot Seat videos for the A&E start ups, which I hope does happen, at least as a list of pertinent factors. For ones that we may find on our own, we’ll have to look for the factors (e.g. how many people in SF, how many eat ice cream, etc.) with our own research and apply that info to the TAM formula he gave us above.

    • Hey Katie, I would start with the amount of potential customers or people that this new entity would affect in some way… Is it 100s, 1000s, or 1,000000s of people. Average of how many would be interested in whatever it is.. then average spending per customer and timesthat they would purchased in a year..

  18. I need some “rock solid” investment tips, backed by detailed research.
    I don’t need lectures !
    Please let me know if you’re just giving lessons, or will we see directions from you for actual investments.
    If you can’t deliver, send my initial registration fee back.

  19. It’s like a little bird you have to practice
    your wings read read than make your choice if you are new on this like me
    Read Read like some say it’s your own d’excision to go in not Neil like someone said Neil open the door you have to walk in !!
    Alain D

  20. Great insights and intel, regards TAM, Neil
    As a new member, it’s very empowering
    This is good heightened awareness as I prepare to
    launch into this whole new venture of an angel investor
    Steve Braxton

  21. Neil,
    Thank you for the TAM lesson. It really makes logical sense. I look forward to reading more of your great lessons and tips.

    Thanks again!


  22. I truly appreciate these small insights which provide tremendous bite-size information to add to my investing education. Thanks Neil for bringing this forward.

  23. So far the minimum amount to invest that I’ve seen is $100….Where do I find startups where I can invest $10-50?

  24. Most of the companies I have looked at, have what they estimate the current market value as well as the projected market will be X number of years down the road, somewhere within the available information. I am equating this value to TAM. Is this correct thinking or not. Thanks.

  25. Hi Neil,
    I am not sure where and how can i start my investment, I need more explanation about TAM, i thought you’r going to send a package to our address with some training Manuel and membership card I love this program but I don’t know if is really practical?I am going to invest With $100 if i understand what to do I am lost at this time please teach me how can I start? thank you so much for your guidance. Please do not use orange color for high light is very hard to read
    M Noury

    • Hi Mohammad,

      You can find all your monthly startup recommendations at our sister website, angelsandentrepreneurs.com.

      Hope this helps!

  26. Neil thank you for the TAM lesson.
    I haven’t made any investments so far. I have study the web sites and especially the deal flows. None of those have spoke to me as yet. What I am learning is truly fun and exciting and if none of the deal flow items ever speak to me I will consider it money well spent. It has opened my mind.

    Thank you
    Larry FitzGibbon

    • Larry,

      So glad to hear you’re enjoying the Network! I’d much rather you wait for the deals that speak to you than blindly follow recommendations that aren’t quite the right fit for you. A very smart strategy!


  27. I recently purchased a membership in Neil’s inner circle(top membership) What designation of membership that is designated for inner circle membership when displaying companies that Neil has researched, eg: founder, elite founder, vip etc.These companies would not be opened to all memberships in Angels & Entrepreneurs. Therefore there would be less investors to keep share prices down. I would be interested if my thinking is correct.

  28. Thank you for the good “take rate” or TAM definition Neil. Also big thanks for your book = “HUSTLE.” Great read so far!

  29. I’m nervous and not very knowledgeable about investing but I’m looking forward to learning and understanding how to gain the wealth I need to empower my grandchildren.

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