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Why entrepreneurs make bad angel investors

May 3, 2011, 12:33 AM UTC

An entrepreneur’s greatest attribute is an angel investor’s greatest liability.

By Marc Randolph, contributor

I came to the sad realization today that I was never going to be a great angel investor. And for a simple reason: I like every idea I hear.

Obviously it’s not that my deal flow is so spectacular – the law of averages suggests that I should be getting an equal mix of hits and misses. In fact, since I’m not particularly well connected in the angel investing world — and am still trying to limit the time I spend doing it to a single day a week — I should be getting a considerably worse share of the best deals.

And no, I’m not incapable of saying “No.” I do that all the time. Ask my kids.

The simple reason I like every idea is that I’m an optimist. Not just a run-of-the-mill optimist who sees the glass as half full; I’m an over-the-top optimist. The guy who insists on ordering a whole case of extra glasses to handle the overflow.

In my past life as an entrepreneur, this optimism was a critical tool. I just always believed we would succeed. Even when everyone else said my ideas were ridiculous. Even when we were almost out of money. Even when the metrics were all upside down. I always have confidence that I’ll figure something out. I just have that confidence that things are going to work out fine.

But that’s the problem. I also see that in every other entrepreneur’s idea. It’s even more pathetic because I have enough experience to clearly see the flaws in their reasoning and the gaps in their execution. But then I have that moment where I lean back on the chair, stair into space for second, and say “wait a minute — you know, there just might be a way here.” And pretty soon I’m up at the whiteboard sketching out a possible path to daylight and I’m just as excited as they are.

So far I’ve been incredibly lucky, and every investment that I’ve made has turned out to actually be pretty solid. No craters yet. And even a couple that look really promising.

Perhaps one could make the case that because of my operating experience I actually have a better idea than most what constitutes a “doable” idea. Or that my experience as an entrepreneur somehow helps me recognize a fellow optimist when I see one.

Either way, I’m not going to stop doing it. Too much fun. And what can I say? I just have that confidence that things are going to work out fine.

Now where did I leave my checkbook?

Marc Randolph is a veteran Silicon Valley entrepreneur, high tech executive and startup consultant. Most recently Marc was co-founder of the online movie and television streaming service Netflix, serving as their first CEO.