I recently invested a five digit sum and it turned out to be one of the worst deals I ever made. I'm not a classical investor or VC and currently I don't have a lot of money to invest, but I really want to learn how investors/VCs think and act. This would help to avoid investing hard-earned money in junk projects and also to learn how great business opportunities can be identified, whether that is in the startup scene or in other avenues. I want to learn the metrics of investing into businesses and how to separate "wheat from chaff". I realize this platform is more for helping entrepreneurs, but apparently there are some people in here who are both, i.e. entrepreneurs and investors. So what is the best way to learn the art of investing in businesses? How do you become an investor? How do investors spot and analyze business opportunities? Any tips? Any books or websites out there?
Your experience of making a bad investment decision isn't tragic in the VC world, it's the everyday reality. In order to generate stellar returns from one investment, VC's invest in several promising companies (proven market fit, good/coachable team, ideally in an industry where they know the space as well or better than the founders and have connections).
VC's also have the dry powder (money in the bank) to either sustain their investment with a bridge loan to another round or to maintain their ownership percentage via pro rata rights.
It sounds like you don't have the amount of money necessary to invest like a VC. Plus, if you're not accredited then you aren't supposed to be investing in that manner anyway. That's not the end of the story though because VC-style investments are only one path.
Other things to consider:
a) adjust what type of companies you're looking at. Home run types of companies that are basically a billion dollar lottery ticket have million-to-one odds. Consider turning singles into doubles by helping a small company that's got revenue and break even cash flow become a profitable company four times larger than it is now. Or consider the often maligned "lifestyle" business which can generate very nice cash flow and an exit (typically at much lower multiples).
b) use what you have that VCs don't - time. VC investors have timeframes to get a return, regular investor updates to make, and limited time to actually get involved in a business. Find a business you are excited about guiding and get hands on in an advisory role. If you can't figure out how your involvement will increase the company's revenues or profits by 20%, question why you're considering that investment.
c) To find good investments and to learn how investors think, get involved in the startup world. Mentor companies, become a judge for startup weekend and pitch competitions, etc. Exposing yourself to companies pitching and people judging (more experienced than you) will help you develop a deeper understanding of what professional investors are spotting so quickly when they reject an opportunity in front of them. It's in the process of mentoring that you develop relationships with founders, get to understand their business, potentially consult with them and then know without a doubt if you want equity in that company or not.
It's less glamorous and more time consuming to take this approach, but it leads to a high success vs. whiff rate.