Angel Investing is what you call it when you invest in startups. Perhaps not surprisingly, it’s a high risk, high reward game. Many startups fail entirely, while a few go on to produce big results.
Most people are probably at least somewhat familiar with investments in public markets. Maybe at some point you’ve bought shares in a big company like Apple, Facebook, or Berkshire Hathaway. In most cases, you log on to your brokerage account, type in the stock you want to buy, the number of shares, and click “buy.” And you can sell just as easily.
That’s not usually the case with Angel Investing. For one thing, your investment is pretty illiquid. Any money you put into a company usually cannot be obtained for several years, no matter how badly you need it. On top of that, you need to be able and willing to write some pretty big checks, usually at least $5000-$10,000. So it’s clearly not for everyone. At the same time though, angel investing tends to produce higher returns than you can get by investing in publicly traded markets.
Investing in startups takes a different skillset too. You very much have to think like an entrepreneur, consider all the obstacles they will likely encounter, and size up the founders’ ability to conquer them. Often, the key information you need is scarce and not publicly available via a google search. You need alternative ways of verifying that something is a good idea, whether that means contacting experts in the industry, or checking the enthusiasm of an initial cohort of customers. Assessing founders and teams may mean relying on your intuition rather than on data.
Along those lines, much of what you’ll spend time looking at does not yet exist and has not yet been tested, though that hardly means it will not be successful. It requires a rare combination of faith and skepticism.
Finally, when you invest in a publicly traded stock, your involvement in the company is usually pretty limited. Maybe you’ll vote (along with a few million other shareholders) on who gets to sit on the board, but for the most part you are a passive investor. With Angel Investing, you can be very much in the action. You have every reason to help this company succeed, whether that means helping them connect with potential customers, find talented people to add to the team, or even offer advice and guidance to founders making a difficult decision. Often, a founder will seek investors not just based on the amount of money they will pay, but on all the other intangible things they have to offer. It’s a really interesting area, and I think you’ll enjoy joining me on this foray into Angel Investing.