Angel Investing: Where to Start
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Originally Posted On: https://usinvestmentnetwork.com/blog/how-to-start-angel-investing
Angel investing is risky, but potential high returns and the satisfaction of nurturing a startup to success can make the tumultuous journey well worth the trouble. Are you easily captivated by new business ideas? Do you want to help bright young entrepreneurs execute their new ideas? If so, angel investing could be an exciting option for your next phase of life.
What is an Angel Investor?
We all know what an investor is, but what exactly makes an angel investor? Put simply, angel investors are independent investors who personally finance startups. These investors can use their money to help provide early-stage funding to new businesses or to help mid-sized companies break through their plateaus. Like any investor, angel investors want a return on that investment, which usually comes in the form of equity in the company and/or a share of the revenues.
Angel investors have ownership within the business, and this often includes decision rights. Many experienced angel investors have experience building b businesses, so they have some expertise and value to add to the organizations that they support.
How Much Money Do Angel Investors Need To Start?
There really is no definitive answer to this question, but you do need to be able to support the financial needs of a growing startup. As we all know this is not a cheap endeavor to commit to. With that being said, most experts recommend allocating up to 10% of your portfolio to investments. This still doesn’t really answer the question of how much money you need to become an angel investor, though!
The easy answer is that it depends on the type and size of investments you’re looking to make. Most angel investors need to be able to invest upwards of $50k or more in a business in order to both add genuine value and also have the ability to reap the benefits of a successful project. Anything less than this amount makes it difficult to make a decent amount of money in the angel investing sector.
How To Become an Angel Investor
Becoming an angel investor is a simple process – if you have the funds. To start, it is important to develop a strategy for your investments and think about the types of businesses you want to invest in and how much diversification you want. As an independent agent, it is important to develop your own strategy and stick to it.
Apart from that, becoming an accredited investor simply requires accreditation. This requires that you have an annual income of at least $200,000 or a net worth of at least $1 million. The reason this is important is that businesses that get investments from accredited investors aren’t required to file many of the securities filings with the SEC and state regulators. For this reason, most businesses looking for angel investments specifically work with accredited investors.
Where to Start
Starting out as an angel investor can be very intimidating! There is so much competition, money, and uncertainty involved. But fear not, for there is hope in being consistent and dedicated to this field. If done properly, angel investing can be incredibly rewarding and help you make a lasting contribution to the world.
Learn How To Source Deals
Many angel investors have an established network of startup founders and entrepreneurs within their industry of expertise. Since they interact with these connections frequently, they often hear about new startups and have a steady flow of businesses to consider for investment. When a seasoned angel investor decides to fund a venture, they can also put together and lead an angel syndicate, where a group of angel investors collectively fund a particular deal.
If you don’t have access to this type of network, you can reach out to a startup founder directly if you come across a company with an interesting new business concept that you’d like to explore and potentially invest in. Figuring out where the best startups are emerging from is a great strategy to take up early on. This is always changing due to the ever-evolving nature of startups, so keep your ears to the ground and utilize the growing number of investor networks out there to find that diamond in the rough business every angel investor strives to find.
Understand the Risks
The due diligence you perform will be one of the main pieces of work ethic that can help to separate you from the pack. There is inherently just a lot of risk involved in angel investing. After all, you are setting out on your own to help fund risky new business ventures. This makes it extra important to make sure you understand the risks you face. Not only that, but it also makes it very important to ensure that you are putting your own sort of standard procedure in place that will help you minimize risk and be daring, yet calculated.
Develop a Strategy
One of the most crucial steps to take when starting out is to outline the investment strategy that you are trying to capture. For instance, are you trying to fund new and exciting tech companies, or are you looking to support small businesses? There is an infinite number of strategies out there, each with its own set of positives and negatives. Before you start investing, make sure you have an idea of where you would like your angel investing career to go and also the type of portfolio you want to create. There is little point getting involved in a venture if you will never realize your returns down the line. You may also want to consider your exit strategy for cashing out of your investment.
Getting Started is the Hardest Part!
Understanding the fact that the initial stages are actually the hardest part of being an angel investor can help motivate you to push through until you find your own personal groove. Once you understand your own personal mission and strategy, you will be able to take the world by storm and start working towards building socially valuable businesses.