Angel Investors are individuals who make early investments in new high-growth businesses – popularly called startups. In the U.S., there is the concept of accredited investors. Accredited investors are those that have a net worth of $1M, excluding primary residence. Or, have had an income of at least $200K in the past two years and expectations of the same in the coming year. If combined with a spouse, the income threshold rises to $300K.
Tip 1: Invest alongside other angel investors
It can be a lot more fun investing with other like-minded investors, and there can be a lot of other benefits to building your investment network. David Goodnight suggests joining an angel syndicate or finding angel groups will allow you to co-invest and learn alongside people who are experienced in the field. It’s also beneficial to have a different perspective when evaluating startups. You can use these as an opportunity to help shape or challenge your thinking. Finally, co-investing with other angels allows you to share the financial risk so that you are not on the hook for 100% of the investment. This is especially beneficial if you do not have a lot of capital to invest at the start of your angel investing journey.
Tip 2: Do your diligence. Be rigorous in your evaluation of any business/technology, the founder, and the team. Validate key assumptions and ask experts for their opinion. People love to talk about subjects that they are confident in, there’s endless free advice out there. Ask for live demos, look for customer reviews, speak to customers directly, talk to everyone, the intern may have an opinion that matters. Do whatever you can to get a feel for the real status of the team and the culture of the company. If you are unsure, trust your instincts and walk.
Tip 3: Invest where you can add value
Only Invest What You Can Lose
David Goodnight suggests you must never invest more than you can afford to lose. During any initial investment plan, there is always a risk of making the wrong investments and losing money. The best strategy is to limit the overall investment amount to not more than 5% of your wealth. That way, you may get fewer returns during your early ventures, but you can stay afloat and learn the game gradually. Every investment will be a lesson…if not several. Make your early investments as stress-free as possible and consider these investments your masters in angel investing. The lessons you learn will be far more valuable than the capital risked.