Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Startups

With the cost of founding a startup continuing to drop and the number of startups continuing to expand, there are a host of other seed funds that have followed in First Round Capital's footsteps, putting to work small amounts of money at the earliest stages of a company's life—precisely the stage at which angels typically invest. Because these fund

Smart investors look for market segments where people are already spending many hundreds of millions—or, ideally, billions—of dollars, with a growing field of potential customers.

Perhaps the best way to develop your reputation as a value-adding investor for startups is to add value to startups. Brian Cohen is now a well-known angel investor (he was the first angel to discover Pinterest), but his initial steps into the field were as a pro-bono advisor. When he first joined New York Angels, he offered to help any of the group

While the bulk of acquisitions happen in the $30 million to $50 million range after a Series A or Series B round, if the original investments were priced correctly, those exits can often return 10 to 20 times to the company's early investors. And, in the unlikely case of an IPO (which would typically happen only after several later stage investment

I don't know any entrepreneur who works less than 60 hours a week, and many work much longer hours. Entrepreneurship is an all-in sport…which means that real founders are working on—or at least thinking about—their ventures 168 hours a week (yes, that's 24/7). This is not conducive to having the same work/life balance as in a normal job. That's pro

If my convertible note says that it will convert at a 20 percent discount to that $5 million, for example (which, if you do the math, is $4 million), I would seem to have made a very bad deal. Why? Because I end up paying for Company A's stock based on a $4 million valuation, instead of the $1 million it was worth in its early days when I was willi

Most are somewhere in between, focusing primarily on early-stage, high-growth companies with scalable business models. These are typically Internet-enabled, or consumer products or medical devices. Finally,

The first venture capital fund was founded in the United States in 1946, when Georges Doriot, the Dean of Harvard Business School and future founder of INSEAD (the leading international business school) created American Research and Development Corporation with Ralph Flanders and Karl Compton (a former president of MIT), to encourage private sector

As for real angels—the ones investing their own funds—they are probably best described with terms such as active if they make lots of investments, deep-pocketed if they write large checks, well-connected if they can introduce their entrepreneurs to good people, well-known if they have high name recognition, smart-money if they are great strategic a