In the 1990s, Mark Cuban started one of the first Internet companies, a video streaming service called Broadcast.com, and later sold it to Yahoo for several billion dollars. With some of those proceeds, he bought the Dallas Mavericks NBA franchise and sold that as well, taking home another several billion dollars. And for 16 seasons, Cuban appeared on the reality TV show Shark Tank, in which entrepreneurs present ideas to a panel of prospective investors. Surprisingly, though, in an interview, Cuban acknowledged that the net result of the dozens of investments he’d made on Shark Tank was that he’d lost money. “I’ve gotten beat,” he said.

If investing in startups—often referred to as angel investing—is so challenging, even for someone in Cuban’s position, does it have any merit as an investing strategy? To answer this question, we can first look at the reasons why it’s so challenging, then look at why it might still be worth considering.

Perhaps the most frustrating challenge is that the world of investments isn’t always logical. As an example, Cuban points to Ring, a company that makes doorbell security cameras. In 2013, the company presented on Shark Tank, but Cuban declined to invest, as did all but one of his fellow “sharks.” He thought the valuation was too high, that the company would require too much capital to expand and that competition would make it difficult to succeed. But five years later, Amazon acquired the company for $1 billion.

In Cuban’s view, though, he didn’t make a mistake, arguing that if Amazon hadn’t purchased the company, “they wouldn’t be here.” That’s because, despite its popularity, Ring was losing money. The investment world, in other words, is subject to a lot of randomness. Companies that, on paper, don’t look like they should succeed sometimes do turn into successes. And companies that look like they’re doing everything right can sometimes fail. Timing often has a lot to do with it, and that can make angel investing endlessly frustrating.

Another challenge for angel investors: There’s the notion that the ideal startup founder should look like Bill Gates, Michael Dell or Mark Zuckerberg—20 years old and in a dorm room. For that reason, older founders are sometimes dismissed. The reality, though, is that older founders, on average, tend to be more successful. According to one study, the ideal age for a founder is actually 45. But because they’re so well known, founders like Gates, Dell and Zuckerberg contribute to the myth that entrepreneurs need to be young to be successful. This misconception can lead angel investors astray, making them more inclined to invest in founders who might look the part, but who, according to the data, are not the most likely to succeed.

Angel investing carries other challenges. Unlike more mature companies, startups tend to be focused on a single product, and that makes them inherently more risky. Startups also tend to be cash-constrained because they don’t have access to public markets, and banks will often lend only with personal guarantees.

Investing in startups often also requires a great degree of trust. Mark Cuban describes investing in a company that seemed promising at first, “but I’d look at [the founder’s] Instagram, and he’d be in Bora Bora, and two weeks later, he’d be in Vegas, then Necker Island…Next thing you know, all the money’s gone.” Cuban says he lost $1 million on that investment. While larger, public companies certainly aren’t immune to malfeasance, that risk is amplified with smaller companies, where there’s less oversight.

If angel investing is so difficult even for someone as successful as Cuban, what does that mean for everyday investors? In general, I’m an advocate of simple investments, and angel investments are anything but simple. That said, I do see four reasons why—despite the steep odds—you might not dismiss it out of hand.

1. The first, and perhaps most compelling reason: Even investments with long odds do sometimes succeed. And despite the sobering startup failure rate, there are enough successes to make angel investing attractive.

2. Sometimes an investment makes sense from a relationship perspective. If you know a founder and believe in that person, or simply want to be supportive, sometimes that’s reason enough. In addition, a personal relationship may help mitigate the Bora Bora problem Cuban described.

3. Angel investing can be fun. I remember once, early in my career, making a presentation to a group of prospective investors. They gathered each week at their country club for breakfast and invited a startup company founder to join them. The founder would answer questions while the investors enjoyed their breakfasts. Afterward, the group would spend the morning playing golf together. The reality is that visiting startup companies, hearing their pitches and meeting their founders can be an enjoyable activity. If investment returns are secondary, this may be a valid reason to pursue angel investing.

4. A startup might carry appeal because it’s on a mission to make the world a better place.

If you do choose to make some startup investments, what steps could you take to manage risk? I have these suggestions:

First, diversify. To the extent that diversification is important with standard investments, it’s even more important, in my view, when it comes to private investments. Among professional venture capitalists, there’s a rule of thumb that only one or two out of every ten investments will turn into a home run. And as Mark Cuban’s experience with Ring illustrates, winners aren’t always easy to predict. So if you want to make some angel investments, I suggest building a portfolio. Importantly, the idea isn’t to mitigate losses. Rather, when it comes to angel investing, diversification is important so you cast a net wide enough to capture some winners.

Second, to manage the overall risk of making these kinds of investments, I suggest setting a cap on the total you invest. For example, you might allocate up to 10% of your portfolio to non-public investments.​