You’ve reached that point in your career where your organization is ticking along at a good pace, your bank account is flush, and your savings are accruing generous interest. You couldn’t be in a better position to venture down new and exciting paths. What’s more, you could potentially help a spark of an idea become a successful organization. If you are in the enviable position of being able to pursue a passion, give wings to a new idea, and help a fellow entrepreneur get their organization off the ground, then angel investing is something that will interest you.
However, as with anything new and exciting, you should know the ins and outs of the subject and make informed choices before you don that halo.
What is Angel Investing?
Angel investing is not a new concept. Think of entrepreneurs turning first to family members and friends who give startups the initial boost to build an organization. Angel investors are more than just friends and family though. They also include successful businesspeople with the funds and interest to back an innovative idea.
As the term implies, an angel investor is a private investor, or someone known in business circles as an High Net Worth Individuals (HNWI). Such investors either come from wealthy families or are successful founders of well-established organizations (or conglomerates). The term was often used to refer to affluent sponsors of Broadway shows.
Such HNWI investors are on the hunt for promising startups or new/aspiring entrepreneurs doing interesting things. The objective is to find someone with potential who they can invest in—in return for something. Angel investors fund the startup/entrepreneur in exchange for ownership equity. While angel investors use their own money, the entity that provides the funds may be an organization, a trust, or a limited liability company.
These are people who venture into untested waters, investing their money in an organization to get it off the ground, based simply on an idea or a business model and the promise of what it could bring. Typically, such angel investments happen at the nascent stages of the startup funding process. Sometimes, the organization may have already begun operations or gone beyond just having a business plan. Given the high risk associated with funding a new organization, the rate of return is higher than that provided by more traditional investment avenues.
What Does It Take to Begin Angel Investing?
To begin with, you will need a large bank balance and a well-established profitable organization. In terms of the actual logistics, make sure you’ve ticked these boxes before you consider making an investment:
Accredited Investment Standards
According to the U.S. Securities Exchange Commission (SEC), an accredited investor is someone whose net worth or joint net worth with a spouse is more than $1,000,000, or whose individual income exceeds $200,000 consistently for at least two years. This is an important aspect of dotting your i’s and crossing your t’s before signing that check. Startups are risky, and safeguarding your interests should be a priority, so accredited investors are better placed to face any losses if they occur.
Have the Know-How to Source a Deal
You’ve got the money, you’re accredited—now all you need to do is find the source to funnel the funds into. You can do this by yourself. Go down the crowdfunding route or check out sites and social media platforms to find a startup with potential. The alternative is to join an angel investing platform. There are plenty of these platforms to look at, such as MicroVentures and AngelList, the latter being one of the most popular spaces for investors to meet startups.
Know the Risks
There’s no doubt that angel investing offers you a great way to grow your money while also offering an entrepreneur a valuable source of finance. However, before diving into this field, equip yourself with all the information to help you make an informed decision. A good way to do this is by engaging with other angel investors and finding out everything you can about the startup you have your eye on.
Figure Out Your Intentions
It may not seem that important, but you should know why you’re getting into angel investing. Is it because you really believe in an idea? Or, is it altruistic in that you want to give startups a chance to reach their potential? Is it because you want a new avenue to park—and grow—your money? Whatever your reasons, be sure about them. It will help manage your expectations and allow you to begin angel investing with your eyes wide open.
Study the Business Model
Make sure that you familiarize yourself with the business model of the startup you’re looking to finance. It should make sense to you, have a clear objective about its mission, and be something you can get behind.
Is this going to be a one-time thing or a regular endeavor? It’s a good idea to know whether you are getting into angel investing as a well-thought-out business plan or whether it will be a one-off case. It will also help startups if they ever think of approaching you in the future. Be clear about your investment goals before diving in.
What the Future Looks Like
Angel investing increased during the COVID-19 pandemic. In the second quarter of 2021, the funds received through angel investing stood at $6.3 billion. The total angel investments for the year were $29.1 billion, 15.2% more than in 2020. 2022 has seen things slow down compared to 2021, but the role of angel investors and the funds they bring continues to be significant. The crowdfunding market in 2021 was valued at $12.27 billion, and this is expected to double by 2027. These figures certainly attest to the fact that angel investing is an opportunity worth exploring.
Give Wings to Your Angel Investing Dreams
Many startups and unicorns bear out the importance and relevance of angel investors in getting an idea off the ground. There were nearly 900 unicorns in 2022 with a combined value of $3.5 trillion. Here are some statistics that will get you even more interested in this field: 43,394 professionals worldwide have listed ‘angel investing’ as a skill on LinkedIn, with a 16 percent year-on-year growth in this number. Emeritus’s six-week Angel Investing program in association with Columbia Business School can help you add your name to this burgeoning roster, and it is the only program of its kind on angel investing. You can learn from academics and practitioners who will take you through methodologies to identify early-stage investment opportunities, partake in discussions and interviews that offer insights into the angel investing universe, and learn how existing angels apply techniques to become successful.
Angel investing is an important avenue to make your funds grow, finance an interesting idea—possibly champion the next big thing—and help get a startup off the ground. Can’t you just imagine that halo around you glowing brighter when you become an angel?
By Gauri Kelkar
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