Editor’s note: Investor and entrepreneur David Gardner is founder of Cofounders Capital in Cary and is a regular contributor to WRAL TechWire.

Over the last few decades, I’ve experienced all sides of early stage investing. As an entrepreneur, I received investments from both angels and venture capitalists. For a few years, I was the most active angel investor in the Triangle and a member of several angel groups and served on the boards of two of these groups. I have been fortunate to make money as an angel investor, but I also learned firsthand that angel investing is difficult.  It is difficult for a number of reasons.

Lower deal flow

Most early stage professional investors will say that you need to review a dozen plans or so per day to see enough deal flow to garner the exceptionally good companies and teams. To get and sustain that level of deal flow it takes a constant effort of attending and speaking at events, writing articles and working with the local accelerators and university entrepreneurship programs. In other words, it is a full-time job. Most angel investors already have a full-time job and may struggle putting in the effort to maintain a healthy flow of new deals to consider.

Smaller investments and capital reserves

Other than super angels and the unusually affluent angel groups, most nonprofessional investors and  investment groups make smaller size investments.  This can leave a startup underfunded and having to raise again in the near future. Successful investing requires protecting your investments all the way through to an exit which can take many years. When companies are struggling and short on cash, they are often forced to do down rounds for which angel investors may not be prepared. New investors often reup the management team with options but once an angel investor’s money is spent they may be viewed as expendable. Without a strong cash reserve angels can find themselves diluted out of any meaningful equity.

Less portfolio diversification

With some noted exceptions, most angel investors maintain a dangerously small portfolio. Early stage investment capital should be diversified across a minimum of twenty or more companies. Statistically less than a third of these will actually make you meaningful money so your net has to be wide enough to catch a few big winners to cover your losses.

Overly broad thesis

Angels and angel groups usually have a rather broad investment thesis. Professional investors tend to have a narrow investment thesis but it is not uncommon for angels to review almost any deal. Any given angel meeting might include pitches from a B2B and B2C software venture, a medical device, a CPG product, a hardware solution, etc.  It is very difficult for any one group to maintain the subject matter expertise and industry connections necessary to properly evaluate all types of deals or to meaningfully assist its portfolio companies across so many industries and markets.

Less consistent diligence process

I have served on diligence teams with other angel investors and felt that we did a reasonable job of comprehensively evaluating an opportunity. Unfortunately, this is not always the case as the quality of angel diligence can vary based on who serves on a particular diligence team, what  process they follow and how much time they have available for the task. In general, I think it is fair to say that angel teams tend to be less consistent in their process and the quality of their diligence.

Why be an angel investor?

After stating these observations you may be surprised to learn that I am a big fan of angel investing. Although professional investors tend to make better returns there are still many good reasons to be an angel investor. Angel groups can give amateur investors a real and exciting insight into venture capital.  Angel investors learn a lot about a lot of things. They tend to enjoy their involvement. They can be impactful and often do make money. Most of all, angel investors enjoy putting investment dollars back into their local community, helping their entrepreneurs and being a part of their founders’ adventure.