Send tip

Category: Money

Six Important Tips for First-time Angel Investors

Written on May 21, 2011 by Japhet Writ

Comments Off

Want to become an angel investor of a potential startup business? Here's what you have to know.

An typically have more than $1 million of net worth and privately invests money in startup businesses that are looking for capital. Angel has became popular despite anxieties over the bubble bursting. If you want to be one, you need to understand what you are getting yourself into before making that first investment. The general rule is that you shouldn’t invest more than 10% of your net worth, since can be risky. However, the number of needing less capital to launch these days are decreasing.

Aside from the general investor rule, you don’t need to have any additional qualifications to become an angel. Still, you do need to make sure you understand the following concepts.

1. Get Your Check Handy

Make sure that you have access to your money, so that your capital can be ready to invest once you find a great startup. You don’t want to have to wait to liquidate a CD or a stock, or try to get money out of your IRA and watch a great opportunity pass you by, do you? In addition to this, you don’t want to waste the startup’s time if you can’t get access to your capital.

2. Know the Risk

Most of startups fail. But as long as you understand that the investment may be risky, and you might not get your money back, then you are at least being realistic when contemplating about becoming an angel investor.

3. Invest in Multiple Deals

Knowing the high percentage at which startups fail, it’s wise to spread your risk by investing in more than one. The idea is that you invest in a lot of deals early on, and then trim down your focus to those that are more successful and require additional funding.

4. Be Patient

You need to understand that even if your startup is successful, it could take five or more years to get your investment back. The most common way to get your money out of a private company is a liquidity event, like public offering or an acquisition by another company. Those events take even up to ten years sometimes. So be patient.

5. Know the Exit Strategy

Every startup should have a clear exit strategy that they can share with investors. They should have a list of competitors who might be interested in an acquisition, or a plan to go public like what LinkedIn or Facebook did. If a startup is not clear on how to make an exit strategy, or if they can’t provide you a list of potential competitors, then you should think twice about investing.

6. Mentoring and Connections

While you’re assessing a startup for investment, it is probably looking at what you can bring to the table besides the fund. A huge part of angel investing is helping out the companies by either mentoring them or connecting them to other people who can help them succeed. Investing isn’t just about the money, you know.

Aiding an entrepreneur who is trying to build a great company can be extremely rewarding. Moreover, you are surrounded by smart and creative people who come up with really interesting ideas. However, it never gets any easier saying no to someone who is passionate about a project.


Comments (0)

Comments are closed.

If you want to leave a comment you must be logged in or registered.

Related articles


View all